<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KEYNOTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 94-3226488
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code
Number)
</TABLE>
KEYNOTE SYSTEMS, INC.
2855 CAMPUS DRIVE
SAN MATEO, CA 94403
(650) 522-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
UMANG GUPTA
CHIEF EXECUTIVE OFFICER
KEYNOTE SYSTEMS, INC.
2855 CAMPUS DRIVE
SAN MATEO, CA 94403
(650) 522-1000
(Name and address, including zip code, of agent for service)
--------------------------
COPIES TO:
MATTHEW P. QUILTER, ESQ. CURTIS L. MO, ESQ.
JEFFREY R. VETTER, ESQ. MICHAEL C. DORAN, ESQ.
SCOTT J. LEICHTNER, ESQ. JUDY G. HAMEL, ESQ.
CYNTHIA E. GARABEDIAN, ESQ. BROBECK, PHLEGER & HARRISON LLP
FENWICK & WEST LLP TWO EMBARCADERO PLACE
TWO PALO ALTO SQUARE 2200 GENG ROAD
PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94303
(650) 494-0600 (650) 424-0160
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value.................................. $40,000,000 $11,120
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (1) one
prospectus to be used in connection with an offering in the United States and
Canada and (2) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the first page of the "Underwriting" section. The front cover
page and the first page of the "Underwriting" section of the international
prospectus are included immediately after the back cover of the prospectus.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 13, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[KEYNOTE LOGO]
SHARES
COMMON STOCK
--------------
Keynote is offering shares of its common stock. This is our
initial public offering, and no public market currently exists for our shares.
We have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "KEYN." We anticipate that the initial public
offering price will be between $ and $ per share.
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public Offering Price........................................................... $ $
Underwriting Discounts and Commissions.......................................... $ $
Proceeds to Keynote............................................................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Keynote has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover any over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
-------------------
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
COVER ARTWORK
INSIDE FRONT COVER OF PROSPECTUS:
CAPTION ON LEFT OF PAGE: Keynote Perspective helps e-commerce web sites
answer many crucial questions about their quality of service, such as:
7 BULLET POINTS NEXT TO CAPTION:
- Do our online customers experience consistently good performance? How does
it compare to our competitors and to industry benchmarks?
- Do our customers in certain cities or on particular backbones experience
worse performance than those in other locations?
- What is the effect of heavy traffic on our web-site performance? Will
adding hardware or bandwidth improve performance for our customers?
- How reliable is our web site from the perspective of our customers?
- Do our customers experience performance problems with certain pages on our
website? How can we modify our content to avoid such problems?
- How long does it take customers around the country to execute a
transaction on our website?
- Do our customers experience consistent performance and delivery of
third-party ad banners and new funds?
[A diagram of a stopwatch at the bottom left corner of page]
Gate fold
CAPTION AT TOP OF PAGE: Keynote Global Infrastructure
In the background there is a globe.
Diagram on the globe shows how our computer measurement agents connect with
the data collection center to the customer
CAPTIONS IN DIAGRAM: Performance Measurement, Data Collection, Storage and
Dissemination, Easy-to-Use Reporting & Analysis
The left side of the diagram shows four icons of our computer measurement
agents with www.yoursite.com written under one of the measurement agents. The
caption under the measurement agents is "Keynote's worldwide network of software
agents connected to the Internet from major cities across the globe continuously
measure web-site performance. More than 10 million measurements are taken each
day of thousands of e-commerce web sites."
In the center of the diagram under the Data Collection caption is a diagram
of our Operation Center. The caption under the box is "Complete data about
web-site quality of service, including content download and e-commerce
transaction performance and availability, is collected in real time and analyzed
at our central operations center in San Mateo, California.
The right side of the diagram under the Reporting & Analysis caption has
four diagrams. One is a pager with the caption to the right saying "Pager and
email alerts". One is an envelope with the caption "daily email reports." To the
right is a picture of a chart with the caption reading "web-based analysis." The
last picture is of a folder with the caption "Data feed (API/FTP)".
The caption under the pictures reads "Performance data is delivered
automatically to customers via alarms and daily summary reports. Detailed
graphical analysis and diagnostics available right from their web browser enable
customers to easily pinpoint and solve problems."
INSIDE BACK COVER OF PROSPECTUS:
a list of customers listed diagonally across the page in the background
The Keynote logo on top of the names.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "KEYNOTE,"
"WE," "US" AND "OUR" REFER TO KEYNOTE SYSTEMS, INC.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary.......................................................................................... 4
Risk Factors................................................................................................ 6
Special Note Regarding Forward-Looking Statements........................................................... 18
Use of Proceeds............................................................................................. 19
Dividend Policy............................................................................................. 19
Capitalization.............................................................................................. 20
Dilution.................................................................................................... 21
Selected Financial Data..................................................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 23
Business.................................................................................................... 33
Management.................................................................................................. 48
Certain Transactions........................................................................................ 57
Principal Stockholders...................................................................................... 59
Description of Capital Stock................................................................................ 61
Shares Eligible for Future Sale............................................................................. 65
Underwriting................................................................................................ 67
Legal Matters............................................................................................... 69
Experts..................................................................................................... 69
Where You Can Find Additional Information................................................................... 69
Index to Financial Statements............................................................................... F-1
</TABLE>
------------------------
Keynote-Registered Trademark- is our registered service mark and
Perspective-TM-, Lifeline-TM- and The Internet Performance Authority-TM- are our
trademarks or service marks. This prospectus also contains trademarks of other
companies and organizations.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE ENTIRE PROSPECTUS, INCLUDING
THE MORE DETAILED INFORMATION IN OUR FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS.
KEYNOTE SYSTEMS, INC.
Keynote is the leading provider of Internet performance measurement and
diagnostic services that enable electronic commerce, or e-commerce, companies to
measure, assure and improve the quality of service of their web sites.
E-commerce on the Internet has dramatically changed the way that many
businesses interact with their customers, suppliers and partners. The
competitive e-commerce environment has also created a different set of
challenges than those faced by conventional "bricks and mortar" stores. In this
environment, the key differentiator for many businesses is the quality of
service of their online offerings. To attract and retain customers, e-commerce
web sites must deliver fast page downloads, efficient transactions and high
reliability all the time or customers may "click away" to competitors who offer
comparable products and services. According to a 1999 study by Zona Research,
approximately $4.4 billion per year in e-commerce sales in the United States may
be lost due to unacceptable download speeds and the resulting user abandonment
of their online transactions. Despite substantial investments in e-commerce,
companies face significant challenges in building and maintaining
high-performance e-commerce web sites, and they lack an adequate solution for
measuring, assuring and improving quality of service from their customers'
perspective.
Our Keynote PERSPECTIVE and Keynote LIFELINE services measure web-site
performance and availability from multiple geographic locations around the
world. The foundation of these services is an extensive network of strategically
located computer measurement agents connected to the major Internet backbones in
dozens of metropolitan areas worldwide, plus an operations center for
collecting, analyzing and disseminating Internet performance and availability
data. Because we do not sell web servers, web software, networking equipment or
web-hosting services, we are able to deliver unbiased Internet performance
measurement and diagnostic services to our customers. With only a web browser,
customers can try, purchase and immediately use our services on an outsourced
basis without the need to develop an internal computer infrastructure or install
any software. Our customers can use our services to increase revenues, improve
customer satisfaction and retention, reduce support costs and gain a competitive
advantage.
Our objective is to expand our leadership in providing Internet performance
measurement and diagnostic services to e-commerce web sites. Key elements of our
strategy include:
- Extend our market penetration across a broad cross-section of e-commerce
web sites;
- Increase customer reliance on and purchases of our services;
- Expand our brand awareness as THE INTERNET PERFORMANCE AUTHORITY;
- Establish relationships with complementary vendors to co-market our
services and expand our customer base;
- Increase our international presence in Europe, Asia and Australia; and
- Expand our service offerings into all aspects of e-commerce quality of
service.
We market and sell our services primarily through a direct telesales force
in the United States. We also market our services through other companies,
including VeriSign and Network Solutions, that provide services complementary to
ours. Our customers include over 400 leading e-commerce companies, including:
AdForce, Amazon.com, Cisco, Citysearch.com, C--NET, Dell, DoubleClick, eBay,
eToys, FedEx, Flycast, General Motors, Geocities, Microsoft, VeriSign and
Yahoo!.
Keynote Systems, Inc. was incorporated in California in June 1995 and will
reincorporate in Delaware immediately prior to the completion of this offering.
Our principal offices are located at 2855 Campus Drive, San Mateo, California
94403. Our telephone number at this location is (650) 522-1000. The information
on our web site does not constitute a part of this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Keynote.............. shares
Common stock to be outstanding after the shares
offering...................................
Use of proceeds.............................. For general corporate purposes, capital
expenditures and working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... KEYN
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding as of June 30, 1999.
This number does not include 3,555,191 shares of our common stock subject to
options and warrants outstanding as of June 30, 1999. The number of shares to be
outstanding includes all of our outstanding shares of preferred stock that will
be converted into an aggregate of 25,177,796 shares of common stock upon the
completion of this offering.
SUMMARY FINANCIAL DATA
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................................... $ 30 $ 81 $ 1,539 $ 545 $ 2,190
Loss from operations.............................................. (628) (2,018) (2,957) (1,135) (1,714)
Net loss.......................................................... (622) (2,049) (2,918) (1,143) (1,863)
NET LOSS PER SHARE:
Basic and diluted................................................. $ (0.11) $ (0.42) $ (0.58) $ (0.21) $ (0.26)
Weighted average shares--basic and diluted........................ 5,465 4,868 5,071 5,481 7,179
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 3,546 $ 3,546 $
Working capital................................................................ 2,948 2,948
Total assets................................................................... 6,058 6,058
Notes payable, less current portion............................................ 3,012 3,012
Redeemable convertible preferred stock......................................... 8,581 --
Total stockholders' equity (deficit)........................................... (7,139) 1,442
</TABLE>
See note 2 of notes to our financial statements for a description of the
method that we used to compute our basic and diluted net loss per share.
The pro forma data give effect to the conversion of all of our outstanding
shares of preferred stock into common stock upon the closing of this offering.
The as adjusted data give effect to the sale of the shares of common
stock that we are offering under this prospectus at an assumed initial public
offering price of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses. See "Capitalization."
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES:
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
- THE CONVERSION OF EACH OUTSTANDING SHARE OF SERIES A PREFERRED STOCK,
SERIES B PREFERRED STOCK AND SERIES D PREFERRED STOCK INTO 1 SHARE OF
COMMON STOCK AND OF EACH SHARE OF SERIES C PREFERRED STOCK INTO 1.06
SHARES OF COMMON STOCK; AND
- NO EXERCISE OF WARRANTS TO PURCHASE 1,286,957 SHARES OF OUR COMMON STOCK
PRIOR TO THE CLOSING OF THIS OFFERING.
This prospectus includes statistical data regarding the Internet industry.
These data are taken or derived from information published by sources including
Zona Research and International Data Corporation. Although we believe that these
data are generally indicative of the matters reflected in those reports, these
data are inherently imprecise, and we caution you not to place undue reliance on
these data.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING SHARES
IN THIS OFFERING. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
RISKS WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION COULD BE SERIOUSLY HARMED, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY STAGE COMPANY WHICH MAKES IT DIFFICULT TO EVALUATE OUR CURRENT
BUSINESS.
We began offering our Internet performance measurement services in May 1997.
Therefore, we have only a limited operating history upon which to base an
evaluation of our current business and prospects. Before investing, you should
evaluate the risks, expenses and problems frequently encountered by companies
such as ours that are in the early stages of development and that are entering
new and rapidly changing markets like the Internet. These risks are described in
this "Risk Factors" section. We may not successfully address any of these risks.
WE DEPEND ON CUSTOMERS TO RENEW THEIR SUBSCRIPTIONS FOR OUR SERVICES AND TO
PURCHASE ADDITIONAL SERVICES.
Our customers typically purchase our services for an initial term of three
months, and may choose to renew their subscription on a month-to-month basis. As
a result, we depend on achieving high customer renewal rates for our revenues.
Our customers have no obligation to renew our services and therefore, they could
cease using our services at any time. We cannot assure you that we will continue
to experience high renewal rates. Our customer renewal rates may decline as a
result of a number of factors, including consolidations in the Internet industry
or if a significant number of our customers cease operations. Further, because
of the relatively small size of initial orders, we depend on sales to new
customers and sales of additional services to our existing customers. In
addition, initial sales of our services and subsequent customer follow-up are
conducted almost exclusively by telephone. Dissatisfaction by a customer with
the nature or quality of our services could lead that customer to elect not to
renew its subscription to our services. If our renewal rate percentage declines,
our revenues could decline unless we are able to obtain additional customers or
sources of revenues. This could seriously harm our business.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND IF
OUR FUTURE RESULTS ARE BELOW THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND
INVESTORS, THE PRICE OF OUR COMMON STOCK MAY DECLINE.
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sales and marketing expenses to promote our brand
and our services as well as additional expenses to expand our presence world
wide. Therefore, our quarterly operating results are likely to be particularly
affected by the number of customers subscribing to our services during any
quarter as well as sales and marketing and research and development expenses for
a particular period. If revenues fall below our expectations, we will not be
able to reduce our spending rapidly in response to the shortfall.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- our ability to retain our current customers;
- our ability to sell additional services to current customers;
- our ability to attract new customers;
6
<PAGE>
- our ability to maintain customer satisfaction;
- the announcement or introduction of new services by us or our competitors;
- technical difficulties or service interruptions of our computer network
systems or the Internet generally;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business, including our planned international
expansion;
- our ability to expand our operations;
- the seasonality of our customers' businesses; and
- our ability to upgrade and develop our systems and infrastructure to
accommodate our growth.
Due to these and other factors, we believe that period-to-period comparisons
of our results of operations are not meaningful and should not be relied upon as
indicators of our future performance. It is possible that in some future
periods, our results of operations may be below the expectations of public
market analysts and investors. If this occurs, the price of our common stock may
decline.
WE HAVE INCURRED LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES.
Our failure to significantly increase our revenues would seriously harm our
business and operating results. We have experienced operating losses in each
quarterly and annual period since inception and we expect to incur significant
losses in the future. We incurred net losses of $622,000 for the fiscal year
ended September 30, 1996, $2.0 million for the fiscal year ended September 30,
1997, $2.9 million for the fiscal year ended September 30, 1998 and $1.9 million
for the six months ended March 31, 1999. As of March 31, 1999, we had an
accumulated deficit of $7.4 million. We expect to significantly increase our
research and development, sales and marketing and general and administrative
expenses. As a result, we will need to significantly increase our revenues to
achieve and maintain profitability. We may not be able to sustain our recent
revenue growth rates. In fact, we may not have any revenue growth, and our
revenues could decline. For a more detailed description of our operating
results, please see "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE ADOPTION OF THE INTERNET FOR
E-COMMERCE AND COMMUNICATIONS.
Because our business is based on providing performance measurement and
diagnostic services for web sites, the Internet must be widely adopted, in a
timely manner, as a means of electronic commerce, or e-commerce, and
communications. Because e-commerce and communications over the Internet are new
and evolving, it is difficult to predict the size of this market and its
sustainable growth rate. To date, many businesses and consumers have been
deterred from utilizing the Internet for a number of reasons, including, but not
limited to:
- potentially inadequate development of network infrastructure;
- security concerns including the potential for fraud or theft of stored
data and information communicated over the Internet;
- inconsistent quality of service, including well-publicized outages of
popular web sites;
- lack of availability of cost-effective, high-speed service;
- limited numbers of local access points for corporate users;
- delay in the development of enabling technologies or adoption of new
standards;
- inability to integrate business applications with the Internet;
7
<PAGE>
- the need to operate with multiple and frequently incompatible products;
and
- a lack of tools to simplify access to and use of the Internet.
OUR SUCCESS DEPENDS ON SALES OF OUR INTERNET PERFORMANCE MEASUREMENT SERVICES.
We currently, and for the immediate future will continue to, substantially
depend on the sale of our Internet performance measurement services. Throughout
our operating history, initial sales and renewals of our performance measurement
services accounted for substantially all of our revenues. A decline in the price
of our services, or our inability to maintain or increase sales, would seriously
harm our business and revenues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE INTERNET PERFORMANCE MEASUREMENT INDUSTRY IS NEW AND RAPIDLY EVOLVING AND
OUR SERVICES MAY NOT BE ADOPTED AS THE INDUSTRY STANDARD.
To date, no Internet performance measurement service or standard has been
adopted as an accepted industry standard. Therefore, our existing and potential
customers may not accept our performance measurement data. As a result, another
Internet performance measurement service may be adopted as the industry
standard, and our potential customers may turn to alternative services provided
by current or potential competitors.
IT WOULD BE MORE DIFFICULT FOR US TO DELIVER OUR SERVICES AND THEREFORE EARN
REVENUES IF WE CANNOT EXPAND AND MANAGE OUR COMPUTER INFRASTRUCTURE
SUCCESSFULLY.
We will need to deploy a large number of additional computer agents if we
experience an increase in our customer base or if we expand our operations and
measurement capabilities on a worldwide basis. These computer agents are
responsible for measuring the performance of web sites and collecting
performance data and it is critical to our ability to deliver our services that
they operate effectively. With more agents deployed, we will need to monitor and
maintain a larger and more geographically-dispersed computer network, which
would require us to devote significant additional resources for these tasks. If
our computer infrastructure is not functioning properly or experiences delays,
we may not be able to deliver our services in a timely or accurate manner. This
could adversely affect our ability to attract or retain customers. In addition,
if we experience increases in the number of our customers prior to deploying
additional agents, our existing infrastructure may not have the capacity to
accommodate the additional customers. This could impair our ability to deliver
our services.
WE MAY FACE LIABILITY FOR SUPPLYING INACCURATE INFORMATION TO OUR CUSTOMERS OR
FROM OUR CUSTOMERS' USE OF THE DATA WHICH WE PROVIDE.
We may face liability if the information that we supply to our customers is
inaccurate. The data that we collect and store in our measurement database may
contain inaccuracies that our customers might not accept. Any dissatisfaction by
our customers with our measurement data would impair our credibility in the
marketplace and significantly harm our ability to attract new customers and
retain existing customers. In addition, if we were to supply customers with
inaccurate information, these customers might initiate litigation against us.
Our customers are responsible for the manner in which they use the data
which we provide to them, and our customer contracts provide that each customer
must indemnify us for any damages arising from their use of the data, reports or
analyses. However, we cannot be certain that these contract provisions provide
us with sufficient legal protection. A third party might initiate litigation
against one of our customers relating to the customer's use of the information
that we provided to them, even if the information that we provided was accurate,
and we could be named as a defendant in any resulting litigation. Any litigation
could be expensive and could divert management's attention from operating our
company.
8
<PAGE>
WE MAY FACE LIABILITY FOR PUBLISHING INDICES THAT EVALUATE AND RANK THE RELATIVE
INTERNET PERFORMANCE OF WEB SITES.
Some companies whose web sites have performed poorly in our published
web-site performance indices have asserted that our indices are not indicative
of the overall consumer experience because the indices do not measure
qualitative factors such as web site content, navigability and appearance.
Companies could potentially bring a claim against us if they believe that their
business has been harmed by their low ranking in one of our indices. In
addition, if the information published in one of our performance indices is
inaccurate, we could lose credibility in the marketplace. This could harm our
ability to attract new customers and retain existing customers, and could result
in potentially expensive litigation being initiated against us.
DEFECTS IN OUR SERVICES COULD RESULT IN LOSS OF OR DELAY IN REVENUES, INJURY TO
OUR REPUTATION OR OTHER HARM TO OUR BUSINESS.
Services as complex as those we offer or develop frequently contain
undetected defects or errors. Despite our testing, defects or errors may occur
in our existing or future services, including year 2000 errors, which could
result in loss of or delay in revenues, loss of market share, failure to achieve
market acceptance, diversion of development resources, injury to our reputation,
increased insurance costs or increased service and warranty costs, any of which
could significantly harm our business.
Defects or errors could also result in tort or warranty claims. Although we
attempt to reduce the risk of losses resulting from any claims through warranty
disclaimers and liability-limitation clauses in our customer agreements, these
contractual provisions may not be enforceable in every instance. Furthermore,
although we maintain errors and omissions insurance, this insurance coverage may
not adequately cover us for claims. If a court refused to enforce the
liability-limiting provisions of our contracts for any reason, or if liabilities
arose that were not contractually limited or adequately covered by insurance,
our business could be harmed.
WE ARE NOT CERTAIN THAT OUR COMPUTER NETWORK DATA CENTER CAN ACCOMMODATE LARGE
INCREASES IN CUSTOMERS OR COMPUTER MEASUREMENT AGENTS.
Our computer network data center must collect measurement data from our
computer agents and store and analyze it for our customers. Our system has not
been tested at volumes that could arise if the market accepts our services.
Therefore, it is possible that if we experience a substantial increase in users
or deploy more computer agents, our operations center may experience outages,
interruptions or slower response times. Customers may not accept or renew our
services if we experience outages, interruptions or slow response times.
IF WE DO NOT CONTINUALLY IMPROVE OUR SERVICES IN RESPONSE TO TECHNOLOGICAL
CHANGES, INCLUDING CHANGES TO THE INTERNET, OUR BUSINESS COULD BE SERIOUSLY
HARMED.
The emerging nature of the Internet market and its rapid evolution requires
us to continually improve the functionality, features and reliability of our
Internet performance measurement and diagnostic services, particularly in
response to competitive offerings. We must also introduce any new Internet
services as quickly as possible. The success of new services depends on several
factors, including properly defining the scope of the new services and timely
completion, introduction and market acceptance of our new services. We may not
succeed in developing and marketing new services that respond to competitive and
technological developments and changing customer needs. This could seriously
harm our business.
If new Internet, networking or telecommunication technologies or standards
are widely adopted or if other technological changes occur, we may need to
expend significant resources to adapt our services.
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OUR SERVICES AND BRAND NAME MIGHT NOT ATTAIN THE BRAND AWARENESS NECESSARY FOR
OUR BUSINESS TO SUCCEED.
We believe that maintaining and strengthening the Keynote brand is an
important aspect of our business and an important element in attracting new
customers. In an effort to obtain additional customers, we intend to continue to
pursue an aggressive brand-building strategy. These efforts will involve
significant expense. To promote our brand, we may increase our marketing budget
or increase our financial commitment to building our brand. If our brand
building strategy is unsuccessful, we may fail to attract enough new customers
or retain our existing customers to the extent necessary to realize a sufficient
return on our brand-building efforts.
IF WE ARE NOT SUCCESSFUL IN SELLING OUR KEYNOTE LIFELINE SERVICE, OUR BUSINESS
COULD BE HARMED.
We have only recently introduced and begun to market our Keynote LIFELINE
service, and we cannot be certain that there will be customer demand for these
services or that we will be successful in penetrating this market. In addition,
because our Keynote LIFELINE service is sold at a lower price than our Keynote
PERSPECTIVE service, we will need to sell our Keynote LIFELINE service to a
large volume of customers in order to realize a sufficient return on our
investment. We may not succeed in introducing, marketing and selling our Keynote
LIFELINE services.
OUR PROFESSIONAL SERVICES MAY NOT BE ACCEPTED BY THE MARKET AND WE MAY NOT
SUCCESSFULLY EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION.
We have little experience in delivering consulting services and therefore we
may not successfully introduce additional consulting services. We will also need
to successfully market these services to potential customers and we may not
succeed in doing so. We plan to increase the number of our professional services
personnel. If we hire additional services personnel prior to securing a large
customer base our operating results would be adversely affected as we would
incur expenses for these personnel without commensurate revenue increases. This
was the reason that our cost of consulting services revenues exceeded our
consulting services revenues in the quarter ended March 31, 1999. Competition
for highly qualified professional services personnel with knowledge of our
industry is intense. We cannot be certain that we can attract or retain a
sufficient number of professional services personnel that our business requires.
In addition, new employees will require training and education, and
consequently, they will take time to reach full productivity.
WE FACE GROWING COMPETITION WHICH COULD MAKE IT DIFFICULT FOR US TO ACQUIRE AND
RETAIN CUSTOMERS.
The market for Internet performance measurement and diagnostic services is
new and rapidly evolving. We expect competition in this market to intensify in
the future. Our competitors vary in size and in the scope and breadth of the
products and services that they offer. Our principal competitors today include
Service Metrics, Freshwater Software, Internet Resources Group and Inverse
Network Technology. We also indirectly compete with WebCriteria, MIDS Matrix IQ
Service, and INS INSoft Division, and free services such as the WebSite Garage
unit of Netscape, NetMechanic and Internet Weather Report.
We expect that if we are successful in our strategy to expand the scope of
our products and services, we may encounter many additional, market-specific
competitors. These potential competitors include companies that sell network
management software such as CompuWare and IBM's Tivoli Unit, and companies that
sell load-testing software such as Mercury Interactive, each of which has
announced products that could potentially compete with us in the future. Some of
our competitors have, and our future competitors may have:
- longer operating histories;
- larger customer bases;
- greater brand recognition in similar businesses; and
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- significantly greater financial, marketing, technical and other resources.
In addition, some of our competitors may be able to:
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing policies; and
- devote substantially more resources to technology and systems development.
Increased competition may result in price reductions, increased costs of
providing our services and loss of market shares, any of which could seriously
harm our business. We may not be able to compete successfully against our
current and future competitors.
A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES,
AND THE LOSS OF A MAJOR CUSTOMER COULD HARM OUR OPERATING RESULTS.
For the six months ended March 31, 1999, 10 customers accounted for
approximately 33% of our total revenues, with two of those customers accounting
for 17% of our total revenues, and this trend may continue in the future. As a
result, if we lose a major customer, our revenues could decline. We cannot be
certain that customers that have accounted for significant revenues in past
periods, individually or as a group, will renew our services and continue to
generate revenue in any future period. In addition, our customer agreements can
generally be terminated at any time with little or no penalty. For more detailed
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
IN ORDER TO GROW OUR BUSINESS, WE NEED TO ESTABLISH AND MAINTAIN RELATIONSHIPS
WITH OTHER COMPANIES TO HELP MARKET OUR INTERNET PERFORMANCE MEASUREMENT AND
DIAGNOSTIC SERVICES.
Our strategy is to increase sales of our Internet performance measurement
and diagnostic services worldwide. To do this, we must complement our direct
sales force with marketing and distribution relationships to provide us with
customer leads or referrals. For example, we entered into a relationship with
VeriSign in February 1999. If we are unable to maintain our existing
relationships, or fail to enter into additional relationships, we will have to
devote substantially more resources to the direct sale and marketing of our
services. We would also lose anticipated customer introductions and co-marketing
benefits. Our success depends in part on the ultimate success of these
relationships and the ability of these parties to market our services. Our
existing relationships do not, and any future relationships may not, afford us
any exclusive marketing or distribution rights. In addition, the other parties
may not view their relationships with us as significant for their own
businesses. Therefore, they could reduce their commitment to us at any time in
the future. Many of these parties have multiple relationships and they may not
regard us as significant for their business. In addition, these parties may
terminate their relationships with us, pursue other relationships with our
competitors or develop or acquire products or services that compete with our
services. Even if we succeed in entering into these relationships, they may not
result in additional customers or revenues.
In addition, growth in the sales of our services depends on our ability to
enter into relationships with domestic and international resellers, distributors
and integrators. In the future, we intend to increase our indirect distribution
channels through distribution arrangements. We may not be successful in
establishing relationships with these parties, and any of these relationships,
if established, may not increase our revenue.
IN ORDER TO GROW OUR BUSINESS, WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL
WHILE COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE.
We may be unable to retain our key employees or to attract, assimilate or
retain other highly qualified employees. We have from time to time in the past
experienced, and we expect in the future to continue to experience, difficulty
in hiring and retaining highly skilled employees with appropriate qualifications
as a result of our rapid growth and expansion. Attracting and retaining
qualified personnel with experience in the Internet industry, a complex industry
that requires a unique knowledge base, is an additional challenge for us.
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In addition, there is significant competition for qualified employees in the
Internet industry. If we do not succeed in attracting new personnel or retaining
and motivating our current personnel, our business will be harmed. In addition,
because we sell our Internet performance measurement and diagnostic services
primarily through our telesales force, we believe that we will need to attract
additional sales personnel to grow our revenues. Therefore, we will depend on
our ability to recruit, train, motivate and retain top quality sales people. Our
ability to deliver our services also depend on our ability to attract and retain
operations personnel. There is a shortage of qualified sales and operations
personnel and competition for personnel in our industry is intense. If we are
unable to hire, train, motivate or retain qualified sales and operations
personnel, our business could be harmed.
THE GROWTH OF OUR BUSINESS DEPENDS ON THE CONTINUED PERFORMANCE OF AND FUTURE
IMPROVEMENTS TO THE INTERNET.
The growth in Internet traffic has caused frequent periods of decreased
performance, requiring Internet service providers and users of the Internet to
upgrade their infrastructures. Our ability to increase the speed with which we
provide services to consumers and to increase the scope of these services is
limited by and depends upon the speed and reliability of the Internet.
Consequently, the emergence and growth of the market for our services and,
consequently our revenues, depends on the performance of and future improvements
to the Internet.
BECAUSE WE HAVE EXPANDED OUR OPERATIONS, OUR SUCCESS WILL DEPEND ON OUR ABILITY
TO MANAGE OUR GROWTH, IMPROVE OUR EXISTING SYSTEMS AND IMPLEMENT NEW SYSTEMS,
PROCEDURES AND CONTROLS.
We have rapidly and significantly expanded our operations and expect to
continue to expand our operations. This growth has placed, and is expected to
continue to place, a significant strain on our managerial, operational,
financial and other resources. For example, we have grown to 76 employees on
June 30, 1999 from 17 employees on September 30, 1997. Our ability to compete
effectively and to manage any future expansion of our operations will require us
to continue to improve our financial and management controls, reporting systems
and procedures on a timely basis. We expect to hire additional new employees to
support our business and to implement and integrate new accounting and control
systems which are critical to our ability to manage our growth effectively.
OUR NETWORK INFRASTRUCTURE COULD BE DISRUPTED BY A NUMBER OF DIFFERENT
OCCURRENCES.
All data collected from our computer agents are stored in and distributed
from our operations center. Therefore, our operations depend upon our ability to
maintain and protect our computer systems, most of which are located at our
corporate headquarters in San Mateo, California which is an area susceptible to
earthquakes. If we experience outages at our operations center, we would not be
able to receive data from our computer agents and we would not be able to
deliver our services to our customers. We currently do not have a redundant
system for computer network and other services at an alternate site. Therefore,
our systems are vulnerable to damage from break-ins, computer viruses,
unauthorized access, vandalism, fire, floods, earthquakes, power loss,
telecommunications failures and similar events. Although we maintain insurance
against fires, floods, earthquakes and general business interruptions, the
amount of coverage may not be adequate in any particular case.
Hackers, or individuals who attempt to penetrate our network security,
could, if successful, misappropriate proprietary information or cause
interruptions in our services. We might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
hackers. We may not have a timely remedy against a hacker who is able to
penetrate our network security. In addition to purposeful security breaches, the
inadvertent transmission of computer viruses could expose us to litigation or to
a material risk of loss.
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OUR COMPUTER MEASUREMENT AGENTS ARE LOCATED AT SITES WHICH WE DO NOT OWN OR
OPERATE AND IT COULD BE DIFFICULT FOR US TO MAINTAIN OR REPAIR THEM IF THEY DO
NOT FUNCTION PROPERLY.
Our computer measurement agents are not located at facilities owned by us or
our customers. Instead, these agents are installed at locations near various
Internet access points worldwide. These locations are owned or operated by other
companies. Therefore, we have little control over how these computer agents are
maintained on a day-to-day basis. In addition, if our agents were not
functioning properly, we may not be immediately aware of these difficulties or
we may not be able to repair or service these computers on a timely basis as we
may not have immediate access to our agents. Our ability to collect data in a
timely manner could be impaired if we are unable to maintain and repair our
agents should performance problems arise.
IMPROVEMENTS TO THE INFRASTRUCTURE OF THE INTERNET COULD REDUCE OR ELIMINATE
DEMAND FOR OUR INTERNET PERFORMANCE MEASUREMENT SERVICES.
The Internet is a complex, heterogeneous network of communications networks
with multiple operators and vendors supplying and managing the underlying
infrastructure as well as connections to this infrastructure. Because the
inherent complexity of the Internet currently causes significant e-commerce
quality of service problems for companies, the vendors and operators that supply
and manage the underlying infrastructure are continuously seeking to improve the
speed, availability, reliability and consistency of the Internet. These vendors
and operators may succeed in significantly improving the performance of the
Internet, which would result in corresponding improvements in the performance of
companies' web sites. The demand for our Internet performance measurement
services could be reduced or eliminated if future improvements to the
infrastructure of the Internet lead companies to conclude that measuring and
evaluating the performance of their web sites is no longer important to their
business.
WE MIGHT NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We regard substantial elements of our Internet performance and diagnostic
services as proprietary and attempt to protect them by relying on patent,
trademark, service mark, trade dress, copyright and trade secret laws and
restrictions, as well as confidentiality procedures and contractual provisions.
Any steps we take to protect our intellectual property may be inadequate, time
consuming and expensive. Furthermore, despite our efforts, we may be unable to
prevent third parties from infringing upon or misappropriating our intellectual
property, which could harm our business.
It is possible that no patents will issue from our currently pending patent
applications. Moreover, new patent applications may not result in issued patents
and may not provide us with any competitive advantages over, or may be
challenged by, third parties. Legal standards relating to the validity,
enforceability and scope of protection of intellectual property rights in
Internet-related industries are uncertain and still evolving, and the future
viability or value of any of our intellectual property rights is uncertain.
Effective trademark, copyright and trade secret protection may not be available
in every country in which our products are distributed or made available.
Furthermore, our competitors may independently develop similar technology that
substantially limits the value of our intellectual property or design around
patents issued to us.
Most of our customers' use of our services is governed by web-based license
agreements, rather than by means of a formal, written contract. Each time
customers use our services, they "click" on a web page to agree to terms and
conditions that are posted on our web site, and our relationship with these
customers is then governed by these terms and conditions. There is a possibility
that a court, arbiter or regulatory body could deem this type of agreement to be
invalid or determine that the terms and conditions governing the agreement do
not fully protect our intellectual property rights. If that were to occur, our
business could be harmed. See "Business--Intellectual Property."
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OTHERS MIGHT BRING INFRINGEMENT CLAIMS AGAINST US OR OUR SUPPLIERS THAT COULD
HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We expect that we
could become subject to intellectual property infringement claims as the number
of our competitors grows and our products overlap with competitive offerings.
These claims, even if not meritorious, could be expensive and divert
management's attention from operating our company. If we become liable to others
for infringing their intellectual property rights, we would be required to pay a
substantial damage award and to develop noninfringing technology, obtain a
license or cease selling the products that contain the infringing intellectual
property. We may be unable to develop noninfringing technology or obtain a
license on commercially reasonable terms, if at all.
WE DEPEND ON TECHNOLOGIES LICENSED FROM OTHER COMPANIES FOR PORTIONS OF OUR
SERVICES.
We license statistical, graphical, database and other technologies to
operate our services from third parties. We cannot assure you that these
third-party technology licenses will not infringe the proprietary rights of
others or will continue to be available to us on commercially reasonable terms,
if at all. The loss of this technology could require us to obtain or develop
substitute technology of lower quality or performance standards or at greater
cost. If we do not obtain or develop substitute technology, we could be unable
to offer all of the features or functionality that we desire to include in our
services. See "Business--Intellectual Property."
IF WE EXPAND OUR INTERNATIONAL ACTIVITIES, OUR BUSINESS WILL BE SUSCEPTIBLE TO
ADDITIONAL RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
We believe we must expand the sales of our services outside the United
States and hire additional international personnel. Therefore, we expect to
commit significant resources to expand our international sales and marketing
activities. In addition, we intend to deploy additional computer measurement
agents worldwide. We may not be successful in marketing our services to
customers in markets outside the United States, where adoption of the Internet
and e-commerce may evolve slowly or may not evolve at all. If we are successful,
we will be subject to a number of risks associated with international business
activities, including:
- currency exchange rate fluctuations;
- seasonal fluctuations in purchasing patterns;
- unexpected changes in regulatory requirements;
- tariffs, export controls and other trade barriers;
- maintaining and servicing computer hardware in distant locations;
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- difficulties in managing and staffing international operations;
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- the burdens of complying with a wide variety of foreign laws;
- reduced protection for intellectual property rights in some countries;
- the risks related to the recent global economic turbulence and adverse
economic circumstances in Asia; and
- political instability.
We may not be able to adequately address these risks.
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OUR BUSINESS MIGHT BE HARMED IF THE SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT
OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING PATTERNS AS A
RESULT OF THE YEAR 2000 PROBLEM.
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. Consequently,
on January 1, 2000, many of these systems and software products could fail or
malfunction because they are not able to distinguish 21st century dates from
20th century dates.
Our information technology systems could be impaired or cease to operate due
to the year 2000 problem. Additionally, we rely on technology supplied by other
companies. These companies may experience year 2000 related problems. Any year
2000 problems experienced by us or any of these companies could harm our
business. Additionally, the Internet could face serious disruption arising from
the year 2000 problem.
Customers', or potential customers', purchasing plans could be affected by
year 2000 issues if they need to expend significant resources to correct their
existing systems. This situation could result in reduced funds available for
these customers to purchase our services. As a result, some customers may defer
the purchase of our services until after the year 2000. A decrease in the demand
for our services due to customers' year 2000 issues could harm our business.
A previous version of our Keynote PERSPECTIVE service which we no longer
sell was not year 2000 compliant. Despite our testing and remediating, our
services may contain errors or faults with respect to the year 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Year 2000 Compliance."
FUTURE ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS.
As part of our business strategy, we may seek to acquire or invest in
businesses, products or technologies that we feel could complement or expand our
business, augment our market coverage, enhance our technical capabilities or
that may otherwise offer growth opportunities. Acquisitions could create risks
for us, including:
- difficulties in assimilation of acquired personnel, operations,
technologies or products;
- unanticipated costs associated with the acquisition;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers; and
- use of substantial portions of our available cash, including the proceeds
of this offering, to consummate the acquisition.
RISK RELATED TO THIS OFFERING
OUR OFFICERS, DIRECTORS AND OTHER EXISTING STOCKHOLDERS WILL OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK AND WILL BE ABLE TO CONTROL US.
After this offering and assuming no additional issuances of common stock,
our officers, directors and 5% or greater stockholders will beneficially own or
control, directly or indirectly, shares of our common stock, which in
the aggregate will represent approximately % of the outstanding shares of
our common stock. As a result, if these persons act together, they will have the
ability to influence all matters submitted to our stockholders for approval,
including (1) the election and removal of directors and (2) any merger,
consolidation or sale of all or substantially all of our assets. This ability to
exercise influence over all matters requiring stockholder approval could prevent
or significantly delay another company or person from acquiring or merging with
us. See "Principal Stockholders" and "Description of Capital Stock."
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PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DELAY OR PREVENT A TAKEOVER OF US.
Provisions of Delaware law, our certificate of incorporation and bylaws
could have the effect of delaying or preventing someone from acquiring us, even
if a change in control would be beneficial to our stockholders. For example, our
stockholders are unable to take action by written consent, and they may not call
special meetings of stockholders for any purpose. Our board of directors may
issue preferred stock with voting or other rights without stockholder action. In
addition, we have adopted a classified board of directors. These provisions and
other provisions of Delaware law could make it more difficult for someone to
acquire us, even if doing so would benefit our stockholders. For a further
discussion of these provisions, please see "Description of Capital
Stock--Anti-takeover provisions."
THE LIQUIDITY OF OUR STOCK IS UNCERTAIN AND INVESTORS MUST BE ABLE TO WITHSTAND
A POSSIBLE LOSS OF THEIR INVESTMENT.
A public market for the trading of our common stock has not existed prior to
this offering. Although this offering will result in a trading market for our
common stock, we do not know how liquid that market might be. The initial public
offering price for our common stock will be determined through negotiations
between the underwriters and us. If you purchase shares of our common stock, you
may not be able to resell those shares at or above the initial public offering
price. See "Underwriting."
THE MARKET PRICE FOR OUR COMMON STOCK, LIKE OTHER TECHNOLOGY STOCKS, MIGHT BE
VOLATILE AND COULD RESULT IN CLASS-ACTION SECURITIES LITIGATION AGAINST US.
The market prices of the securities of Internet-related companies have been
especially volatile. The value of your investment in our common stock could
decline due to the impact of any of the following factors upon the market price
of our common stock:
- actual or anticipated variations in our quarterly operating results;
- announcements of new product or service offerings by us or our
competitors;
- announcements of technological innovations;
- competitive developments;
- changes in financial estimates by securities analysts;
- failure in one or more future quarters of our operating results to meet
the expectations of securities analysts or investors;
- changes in market valuations of Internet-related companies;
- additions or departures of key personnel;
- conditions and trends in the Internet and e-commerce industries; and
- general economic conditions.
Further, the stock markets, particularly the Nasdaq National Market on which
we have applied to have our common stock listed, have experienced substantial
price and volume fluctuations. These fluctuations have particularly affected the
market prices of equity securities of many technology and Internet-related
companies and have often been unrelated or disproportionate to the operating
performance of those companies. The trading prices of many technology companies'
stocks are at or near historical highs. These high trading prices may not be
sustained. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against that company. Litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources.
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FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
Sales of a large number of shares of our common stock in the market after
this offering, or the belief that these sales could occur, could cause a drop in
the market price of our common stock. Upon completion of our initial public
offering, we will have outstanding shares of common stock. All the
shares sold in our initial public offering will be freely tradable without
restriction or further registration under the Securities Act, unless the shares
are purchased by our "affiliates." The remaining 37,332,417 shares of common
stock outstanding upon completion of this offering will be "restricted
securities," as that term is defined under Rule 144 of the Securities Act. Our
directors, executive officers and other stockholders have executed lock-up
agreements that limit their ability to sell common stock. These stockholders
have agreed not to sell or otherwise dispose of any shares of our common stock
for a period of at least 180 days after the date of this prospectus without the
prior written approval of BancBoston Robertson Stephens Inc. When the lock-up
agreements expire, these shares and shares underlying outstanding stock options
and warrants will become eligible for sale, in some cases only subject to the
volume, manner of sale and notice requirements of Rule 144. There are currently
outstanding options and warrants to purchase 3,555,191 shares of our common
stock. See "Shares Eligible For Future Sale."
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS.
We expect the net proceeds from this offering will be sufficient to meet our
working capital and capital expenditure needs for at least the next twelve
months. After that, we may need to raise additional funds in order to fund more
rapid expansion, to expand our marketing activities, to develop new or enhance
existing services or products, to respond to competitive pressures or to acquire
complementary services, businesses or technologies. We may also need to raise
funds in the future to meet our working capital needs. Additional financing may
not be available on terms favorable to us, or at all.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION FROM THIS
OFFERING.
We expect that the initial public offering price of our common stock will be
substantially higher that the book value per share of the outstanding common
stock. As a result, investors purchasing stock in this offering will experience
an immediate dilution in the net tangible book value of the common stock of
$ per share, based on the number of outstanding shares as of June 30, 1999
and an assumed initial public offering price of $ per share. In the past, we
issued options to acquire our common stock at prices significantly below the
initial offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering. See
"Dilution."
MANAGEMENT MIGHT APPLY THE NET PROCEEDS FROM THIS OFFERING TO USES THAT DO NOT
IMPROVE OUR OPERATING RESULTS OR MARKET VALUE.
The net proceeds from the sale of our common stock in this offering will be
added to our general working capital. We have not reserved or allocated the net
proceeds for any specific purpose, and we cannot specify with certainty how we
will use these proceeds. Consequently, our management will have broad discretion
with respect to the application of proceeds from this offering, and you will not
have the opportunity, as part of your investment in our common stock, to assess
whether the proceeds are being used appropriately. The net proceeds may be used
for corporate purposes that do not improve our operating results or market
value. Pending application of the proceeds, they might be placed in investments
that do not produce income or that lose value. See "Use of Proceeds."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expect," "plan," "intend,"
"forecast," "anticipate," "believe," "estimate," "predict," "potential,"
"continue" or the negative of these terms or other comparable terminology. The
forward-looking statements contained in this prospectus involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include,
among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock that we are offering will be approximately $ million, at an
assumed initial public offering price of $ per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $ million.
The principal purposes of this offering are to obtain additional capital, to
create a public market for our common stock, to enhance our ability to acquire
other businesses, products or technologies, and to facilitate future access to
public equity markets. We intend to use the remainder of the proceeds for
working capital, capital expenditures and other general corporate purposes. We
may also use a portion of the net proceeds from this offering to acquire or
invest in businesses, technologies or products that are complementary to our
business. We currently have no commitments or agreements with respect to any
acquisitions. Pending our use of the net proceeds, we intend to invest them in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. In
addition, the terms of our loan agreement prevent us from paying cash dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects the conversion of all outstanding shares of
preferred stock into shares of common stock upon the closing of this offering.
The pro forma as adjusted information reflects the sale of the shares of
common stock that we are offering at an assumed initial public offering price of
$ per share after deducting estimated underwriting discounts and commissions
and our estimated offering expenses and the application of the net proceeds we
receive from this offering.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------
PRO
ACTUAL FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Notes payable, less current portion............................................ $ 3,012 $ 3,012 $ 3,012
--------- --------- -----------
Redeemable convertible preferred stock, $0.001 par value; 39,781,478 shares
authorized, 18,443,251 shares issued and outstanding, actual; 39,781,478
shares authorized, no shares issued and outstanding, pro forma and as
adjusted..................................................................... 8,581 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares authorized, issued or
outstanding, actual and pro forma; 5,000,000 shares authorized, no shares
issued and outstanding, as adjusted......................................... -- -- --
Common stock, $0.001 par value; 40,000,000 shares authorized, 11,087,458
shares issued and outstanding, actual; 40,000,000 shares authorized,
29,094,981 shares issued and outstanding, pro forma; 50,000,000 shares
authorized, shares issued and outstanding, as adjusted.............. 11 29
Additional paid-in capital................................................... 1,637 10,200
Deferred stock-based compensation............................................ (941) (941) (941)
Notes receivable from stockholders........................................... (405) (405) (405)
Accumulated deficit.......................................................... (7,441) (7,441) (7,441)
--------- --------- -----------
Total stockholders' equity (deficit)....................................... (7,139) 1,442
--------- --------- -----------
Total capitalization..................................................... $ 4,454 $ 4,454 $
--------- --------- -----------
--------- --------- -----------
</TABLE>
The share numbers above exclude:
- 1,452,201 shares issuable upon the exercise of outstanding stock options
as of March 31, 1999, at a weighted average exercise price of $0.42 per
share;
- 1,133,918 shares available as of March 31, 1999, for future grant under
our current stock plans described in this prospectus; and
- 1,286,957 shares issuable upon the exercise of warrants outstanding as of
March 31, 1999, at a weighted average exercise price of $0.59 per share.
- 6,734,545 shares of Series D preferred stock and 876,961 shares of common
stock sold by us to private investors in April and May 1999.
You should read this table together with "Management--Director
Compensation," "Management-- Employee Benefit Plans," "Description of Capital
Stock" and notes 5, 6, 7 and 8 of the notes to our financial statements.
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $1.4 million
or $0.05 per share, assuming the conversion of all outstanding shares of
preferred stock into shares of common stock. Pro forma net tangible book value
per share is determined by dividing the pro forma number of outstanding shares
of common stock into our net tangible book value, which is our total tangible
assets less total liabilities. After giving effect to the receipt of the
estimated net proceeds from this offering, based upon an assumed initial public
offering price of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses, our pro forma net
tangible book value as of March 31, 1999 would have been approximately $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares at the
assumed initial public offering price. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of March 31,
1999............................................................. $ 0.05
Increase per share attributable to new investors..................
---------
Pro forma net tangible book value per share after offering..........
---------
Dilution per share to new investors................................. $
---------
---------
</TABLE>
The following table summarizes as of March 31, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. 37,332,417 % $ 10,229,000 % $ 0.27
New investors.........................................
------------ ----- ------------- -----
Total................................................. 100% $ 100%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
As of March 31, 1999, there were options and warrants outstanding to
purchase a total of 2,739,158 shares of common stock. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
public investors. See "Capitalization," "Management--Employee Benefit Plans,"
"Description of Capital Stock" and notes 5, 6 and 8 of the notes to our
financial statements.
21
<PAGE>
SELECTED FINANCIAL DATA
The tables that follow present portions of our financial statements and are
not complete. You should read the following selected financial data together
with our financial statements and related notes to our financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected statement of operations data for the years ended
September 30, 1996, 1997 and 1998 and the balance sheet data as of September 30,
1997 and 1998 are derived from our financial statements that have been audited
by KPMG LLP, independent certified public accountants, included elsewhere in
this prospectus. The statement of operations data for the period from June 15,
1995 (inception) to September 30, 1995 and the balance sheet data as of
September 30, 1995 and 1996 are derived from audited financial statements that
are not included in this prospectus. The statement of operations data for the
six months ended March 31, 1998 and 1999 are derived from our unaudited
financial statements included elsewhere in this prospectus and include, in the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for the fair presentation of our
financial position and results of operations for those periods. The historical
results presented below are not necessarily indicative of the results to be
expected for any future fiscal period. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 15, 1995 SIX MONTHS ENDED
(INCEPTION) TO YEARS ENDED SEPTEMBER 30, MARCH 31,
SEPTEMBER 30, ------------------------------- --------------------
1995 1996 1997 1998 1998 1999
--------------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscription services.......................... $ -- $ -- $ 81 $ 1,539 $ 545 $ 2,164
Consulting services............................ 28 30 -- -- -- 26
----- --------- --------- --------- --------- ---------
Total revenues............................... 28 30 81 1,539 545 2,190
----- --------- --------- --------- --------- ---------
Expenses:
Cost of subscription services.................. -- -- 209 580 175 453
Cost of consulting services.................... -- -- -- -- -- 87
Research and development....................... -- 392 732 1,226 499 663
Sales and marketing............................ -- 186 817 1,529 577 1,563
Operations..................................... -- -- 63 514 121 549
General and administrative..................... 16 80 278 647 308 589
----- --------- --------- --------- --------- ---------
Total expenses............................... 16 658 2,099 4,496 1,680 3,904
----- --------- --------- --------- --------- ---------
Income (loss) from operations................ 12 (628) (2,018) (2,957) (1,135) (1,714)
Interest income (expense), net................... (1) 6 (31) 39 (8) (149)
----- --------- --------- --------- --------- ---------
Net income (loss)............................ $ 11 $ (622) $ (2,049) $ (2,918) $ (1,143) $ (1,863)
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
Net income (loss) per share:
Basic and diluted.............................. $ 0.02 $ (0.11) $ (0.42) $ (0.58) $ (0.21) $ (0.26)
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
Weighted average shares........................ 643 5,465 4,868 5,071 5,481 7,179
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------------ AS OF MARCH
1995 1996 1997 1998 31, 1999
--------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 10 $ 545 $ 1,150 $ 2,293 $ 3,546
Working capital.................................................. 22 551 1,007 2,164 2,948
Total assets..................................................... 39 711 1,670 3,918 6,058
Notes payable, less current portion.............................. -- -- 199 303 3,012
Redeemable convertible preferred stock........................... -- 1,262 3,828 8,529 8,581
Total stockholders' equity (deficit)............................. 35 (567) (2,588) (5,552) (7,139)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS TOGETHER WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Keynote was founded in June 1995 to measure Internet performance and to
market and sell this data. In April 1997, we began to sell Keynote PERSPECTIVE,
a service which measures the performance and availability of web file downloads.
In September 1997, we released a new version of Keynote PERSPECTIVE, which
allowed our customers to view the performance data online without installing any
software. Our next release of Keynote PERSPECTIVE, in July 1998, allowed our
customers to download and analyze entire web pages, including text and graphics.
Our most recent release of Keynote PERSPECTIVE, in April 1999, included our
TRANSACTION service, which measures the time it takes to execute an interactive
transaction that involves the display of multiple web pages, such as placing an
online stock trade order. This year, we began offering consulting services,
which are designed to assist our customers to evaluate, interpret and respond to
their performance measurement and diagnostic results.
We sell our services primarily through our telesales organization located in
San Mateo, California. We also market our services through our web site. We
derive revenues from direct sales to customers as well as from web hosting and
Internet service providers, who sell or bundle our services to part of their
customer base as a value-added service to these customers and as a management
tool for themselves. We have begun to market our products through other
companies that provide services complementary to ours, including VeriSign and
Network Solutions.
We derive and expect to continue to derive substantially all of our revenues
from the sale of Keynote PERSPECTIVE and related services. Keynote PERSPECTIVE
is a subscription-based service which our customers purchase for an initial
three-month term and then may renew their subscription on a month-to-month
basis. Fees vary based on the number of web site addresses measured, the number
of measurement locations, the frequency of the measurements, the additional
features ordered and the amount of consulting services. Although consulting
revenues have not been significant to date, we believe that consulting revenues
may become more important in the future as we pursue additional consulting
opportunities. Our international revenues to date have not been significant.
We recognize revenues ratably as services are performed. We typically
invoice our customers monthly in advance for our services. Any unrecognized
revenue is recorded as deferred revenue on our balance sheet. As of March 31,
1999, we had recorded $522,000 of deferred revenue. Revenues from our consulting
services are recognized as the services are performed; a typical project lasts
one month. For longer consulting projects, we anticipate recognizing revenue on
a percentage-of-completion basis.
Our business has grown since inception, with total revenues of $30,000 for
the fiscal year ended September 30, 1996, $81,000 for the fiscal year ended
September 30, 1997, $1.5 million for the fiscal year ended September 30, 1998
and $2.2 million for the six months ended March 31, 1999. We incurred net losses
of $622,000 for the fiscal year ended September 30, 1996, $2.0 million for the
fiscal year ended September 30, 1997, $2.9 million for the fiscal year ended
September 30, 1998 and $1.9 million for the six months ended March 31, 1999. We
expect to incur significant losses in the future.
23
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES
Our revenues were $545,000 for the six months ended March 31, 1998 and $2.2
million for the six months ended March 31, 1999, representing an increase of
$1.6 million, or 302%. Subscription services represented 100% of total revenues
for the six months ended March 31, 1998 and 99% of total revenues for the six
months ended March 31, 1999. The increase in total revenues was attributable to
the increase in both the number of customers and the revenue per customer. For
the six months ended March 31, 1998, one customer, Digex, accounted for
approximately 20% of total revenues. For the six months ended March 31, 1999, no
single customer accounted for more than 10% of total revenues.
EXPENSES
COST OF SUBSCRIPTION SERVICES. Cost of subscription services consists of
co-location fees to Internet service providers for deployment of our computer
measurement agents around the world and depreciation, maintenance and other
equipment charges for our measurement infrastructure. Our cost of subscription
services was $175,000 for the six months ended March 31, 1998 and $453,000 for
the six months ended March 31, 1999, representing an increase of $278,000, or
159%. This increase was primarily due to the increase in the number of
measurement agents deployed as well as increased infrastructure costs. Cost of
subscription services was 32% of subscription services for the six months ended
March 31, 1998 and 21% of subscription services for the six months ended March
31, 1999.
COST OF CONSULTING SERVICES. Cost of consulting services consists of
compensation for consulting personnel and related costs. Our cost of consulting
services was $0 for the six months ended March 31, 1998 and $87,000 for the six
months ended March 31, 1999. Cost of consulting services exceeded consulting
services revenue for the six months ended March 31, 1999 because our consulting
division was formed in January 1999. We expect that the cost of consulting
services as a percentage of consulting services revenue will be greater than the
cost of subscription services as a percentage of subscription services.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related costs for research and development
personnel and outside contractors. Our research and development expenses were
$499,000 for the six months ended March 31, 1998 and $663,000 for the six months
ended March 31, 1999, representing an increase of $164,000, or 33%. This
increase was primarily related to the increase in programmers, project
management and quality assurance personnel and outside consultants. To date, all
research and development expenses have been expensed as incurred. We believe
that a significant increase in our research and development investment is
essential for us to maintain our market position and to continue to enhance and
expand our services. Accordingly, we anticipate that we will continue to invest
significantly in research and development in the foreseeable future, and
research and development expenses are likely to increase in future periods.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
lead-referral fees, marketing programs and travel expenses. Our sales and
marketing expenses were $577,000 for the six months ended March 31, 1998 and
$1.6 million for the six months ended March 31, 1999, representing an increase
of $986,000 or 171%. This increase reflects our investment in our sales and
marketing infrastructure and marketing programs. It also includes salaries and
referral fees to recruit and hire sales management, sales representatives and
sales engineers. We believe that a significant increase in our sales and
marketing efforts is essential for us to maintain our market position and to
further increase acceptance of our services. Accordingly, we anticipate we will
continue to invest significantly in sales and marketing for the foreseeable
future, and sales and marketing expenses will increase in future periods.
24
<PAGE>
OPERATIONS. Operations expenses consist primarily of compensation and
related costs for management personnel, technical support employees and
consultants who manage and maintain our measurement and headquarters
infrastructure and support our customers. Our operations personnel also work
closely with other departments to assure the reliability of our services and to
support our sales and marketing activities. Operations expenses were $121,000
for the six months ended March 31, 1998 and $549,000 for the six months ended
March 31, 1999, representing an increase of $428,000, or 354%. This increase was
primarily related to the hiring of personnel to manage and support our growing
customer base. We believe that continued investment is necessary to support our
ability to successfully develop, deploy and operate our growing Internet
measurement infrastructure, as well as to successfully support our customer
base.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related expenses, accounting, legal and administrative
expenses, professional service fees and other general corporate expenses. Our
general and administrative expenses were $308,000 for the six months ended March
31, 1998 and $589,000 for the six months ended March 31, 1999, representing an
increase of $281,000, or 91%. This increase was primarily related to hiring
additional employees to support the growth of our business and to an increase in
outside contractors expense.
Some options granted during the fiscal year ending September 30, 1999 have
been considered to be compensatory, as the estimated fair value for accounting
purposes was greater than the stock price as determined by the board of
directors on the date of grant. As a result, we have recorded expenses of
$87,000 for the six months ended March 31, 1999 relating to the amortization of
deferred compensation and had an aggregate of $941,000 of deferred compensation
remaining to be amortized as of that date. Deferred compensation is amortized on
a straight-line basis over the vesting period of the stock option. We expect
amortization of approximately $129,000 in the six months ended September 30,
1999, and $257,000 in fiscal 2000, $257,000 in fiscal 2001, $257,000 in fiscal
2002 and $41,000 in fiscal 2003.
We believe that our general and administrative expenses will continue to
increase in absolute dollars as a result of the continued expansion of our
administrative staff and expenses associated with being a public company,
including annual and other public reporting costs, directors' and officers'
liability insurance and investor relations programs.
INTEREST EXPENSE, NET
Net interest expense was $8,000 for the six months ended March 31, 1998 and
$149,000 for the six months ended March 31, 1999, representing an increase of
$141,000. This increase was related to higher interest expense related to
obligations under equipment loans and notes payable, partially offset by higher
interest income from cash and cash equivalents.
PROVISION FOR INCOME TAXES
No provision for federal and state income taxes has been recorded because we
have experienced net losses since inception which has resulted in deferred tax
assets. In light of our recent history of operating losses, we have provided a
valuation allowance for all of our deferred tax assets as we are presently
unable to conclude that it is more likely than not that the deferred tax asset
will be realized.
FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
REVENUES
Revenues were $30,000 in fiscal 1996, $81,000 in fiscal 1997 and $1.5
million in fiscal 1998, representing increases of $51,000, or 170%, from fiscal
1996 to fiscal 1997 and $1.5 million from fiscal 1997 to fiscal 1998. One
customer, MCI, accounted for 11% of total revenues for fiscal 1997, and one
customer, Digex, accounted for 15% of total revenues for fiscal 1998. For fiscal
1996, no single customer accounted for more than 10% of total revenues.
25
<PAGE>
Revenues for fiscal 1996 consisted of consulting revenue from a consulting
project. Commercial release of our measurement services commenced in May 1997.
The increase in revenues from fiscal 1997 to fiscal 1998 primarily reflects our
increased customer base and the commercial acceptance of our Internet
measurement services.
EXPENSES
COST OF SUBSCRIPTION SERVICES. Cost of subscription services was $0 in
fiscal 1996, $209,000 in fiscal 1997 and $580,000 in fiscal 1998, representing
increases of $209,000, from fiscal 1996 to fiscal 1997 and $371,000, or 178%,
from fiscal 1997 to fiscal 1998. The increases from fiscal 1996 to fiscal 1998
resulted from the payment of co-location fees to Internet service providers for
our computer measurement agents around the world and depreciation, maintenance
and other equipment charges for our measurement infrastructure. As a percentage
of subscription services revenues, cost of subscription services was 258% in
fiscal 1997 and 38% in fiscal 1998.
COST OF CONSULTING SERVICES. Cost of consulting services was $0 in fiscal
1996, 1997 and 1998. Our consulting division was formed in January 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses were $392,000
in fiscal 1996, $732,000 in fiscal 1997 and $1.2 million in fiscal 1998,
representing increases of $340,000, or 87%, from fiscal 1996 to fiscal 1997 and
$494,000, or 67% from fiscal 1997 to fiscal 1998. The increases from fiscal 1996
through fiscal 1998 were primarily related to the increase in the number of
programmers, project management and quality assurance personnel and outside
contractors to support our development and testing activities.
SALES AND MARKETING. Sales and marketing expenses were $186,000 in fiscal
1996, $817,000 in fiscal 1997 and $1.5 million in fiscal 1998, representing
increases of $631,000 or 339%, from fiscal 1996 to fiscal 1997 and $712,000, or
87%, from fiscal 1997 to fiscal 1998. The increases from fiscal 1996 through
fiscal 1998 reflected the addition of personnel in our sales and marketing
organizations, as well as costs associated with increased selling efforts to
develop market awareness of our services.
OPERATIONS. Operations expenses were $0 in fiscal 1996, $63,000 in fiscal
1997 and $514,000 in fiscal 1998, representing increases of $451,000 or 716%
from fiscal 1997 to fiscal 1998. The increases from fiscal 1996 through fiscal
1998 were primarily related to the increase in the number of personnel to manage
and support our growing customer base.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$80,000 in fiscal 1996, $278,000 in fiscal 1997 and $647,000 in fiscal 1998,
representing increases of $198,000, or 248%, from fiscal 1996 to fiscal 1997 and
$369,000, or 133%, from fiscal 1997 to fiscal 1998. The increases from fiscal
1996 through fiscal 1998 were primarily the result of additional finance and
administrative personnel to support the growth of our business during these
periods. The increase in general and administrative expenses from fiscal 1997 to
fiscal 1998 primarily reflects increased compensation and related employee
expenses.
INTEREST INCOME (EXPENSE), NET
Net interest income (expense) was $6,000 in fiscal 1996, ($31,000) in fiscal
1997 and $39,000 in fiscal 1998, reflecting interest earned on cash in
interest-bearing accounts during the respective periods in fiscal 1996 and 1998.
The interest expense in fiscal 1997 was related to obligations under equipment
loans and notes payable.
26
<PAGE>
PROVISION FOR INCOME TAXES
No provision for federal and state income taxes has been recorded because we
have experienced net losses since inception which has resulted in deferred tax
assets. In light of our recent history of operating losses, we have provided a
valuation allowance for all of our deferred tax assets as we are presently
unable to conclude that it is more likely than not that the deferred tax asset
will be realized.
As of September 30, 1998 we had net operating loss carryforwards for federal
income tax reporting purposes of approximately $4,822,000 available to reduce
future income subject to income taxes. As of September 30, 1998, we had net
operating loss carryforwards for state income tax purposes of approximately
$3,308,000 available to reduce future income subject to income taxes. The
federal net operating loss carryforwards expire in various periods through 2018.
State net loss carryforwards expire in various periods through 2003. In
addition, as of September 30, 1998, we had federal and state research and
development tax credit carryforwards of approximately $97,000. The federal
credit carryforwards expire in various periods through 2018. As of September 30,
1998, we had California research and development tax credit carryforwards of
approximately $66,000. The California credit may be carried over indefinitely.
The U.S. Tax Reform Act of 1986 contains provisions that limit the net operating
loss carryforwards and research and development credits available to be used in
any given year upon the occurrence of certain events, including a significant
change to ownership.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited statement of operations data for
the seven quarters ended March 31, 1999. This data has been derived from
unaudited condensed financial statements not included in this prospectus that
have been prepared on the same basis as the audited financial statements and, in
the opinion of our management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the information when
read in conjunction with the audited financial statements and related notes.
These operating results are not necessarily indicative of results of any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1998 1998 1998 1998 1999
----------- ----------- ----------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscription services............... $ 65 $ 208 $ 337 $ 403 $ 591 $ 889 $ 1,275
Consulting services................. -- -- -- -- -- -- 26
----- ----- ----- --------- --------- --------- -----------
Total revenues.................... 65 208 337 403 591 889 1,301
----- ----- ----- --------- --------- --------- -----------
Expenses:
Cost of subscription services....... 72 86 89 155 250 168 285
Cost of consulting services......... -- -- -- -- -- -- 87
Research and development............ 189 262 237 339 388 325 338
Sales and marketing................. 226 292 285 354 598 627 936
Operations.......................... 38 41 80 171 222 229 320
General and administrative.......... 100 154 154 151 188 277 312
----- ----- ----- --------- --------- --------- -----------
Total expenses.................... 625 835 845 1,170 1,646 1,626 2,278
----- ----- ----- --------- --------- --------- -----------
Loss from operations.............. (560) (627) (508) (767) (1,055) (737) (977)
Interest income (expense), net........ (8) (7) (1) 32 15 (61) (88)
----- ----- ----- --------- --------- --------- -----------
Net loss.......................... $ (568) $ (634) $ (509) $ (735) $ (1,040) $ (798) $ (1,065)
----- ----- ----- --------- --------- --------- -----------
----- ----- ----- --------- --------- --------- -----------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Subscription services............... 100% 100% 100% 100% 100% 100% 98%
Consulting services................. -- -- -- -- -- -- 2
----- ----- ----- --------- --------- --------- -----------
Total revenues.................... 100 100 100 100 100 100 100
----- ----- ----- --------- --------- --------- -----------
Expenses:
Cost of subscription services....... 111 41 26 38 42 19 22
Cost of consulting services......... -- -- -- -- -- -- 7
Research and development............ 291 126 70 84 66 37 26
Sales and marketing................. 348 140 85 88 101 70 72
Operations.......................... 58 20 24 42 38 26 25
General and administrative.......... 154 74 46 38 32 31 24
----- ----- ----- --------- --------- --------- -----------
Total expenses.................... 962 401 251 290 279 183 176
----- ----- ----- --------- --------- --------- -----------
Loss from operations.............. (862) (301) (151) (190) (179) (83) (75)
Interest income (expense), net........ (12) (3) (0) 8 3 (7) (7)
----- ----- ----- --------- --------- --------- -----------
Net loss.......................... (874)% (305)% (151)% (182)% (176)% (90)% (82)%
----- ----- ----- --------- --------- --------- -----------
----- ----- ----- --------- --------- --------- -----------
</TABLE>
28
<PAGE>
During the seven quarters ended March 31, 1999, our subscription revenues
consistently grew as a result of increased demand for Internet performance
measurement and evaluation services. In addition, beginning in the second
quarter of fiscal 1999, we created a new consulting services organization to
support customers in maximizing their web-site performance improvements.
Cost of subscription and consulting services increased from $168,000 in the
quarter ended December 31, 1998 to $373,000 in the quarter ended March 31, 1999.
Cost of subscription and consulting services as a percentage of related revenues
increased from 19% for the quarter ended December 31, 1998 to 29% for the
quarter ended March 31, 1999, as personnel were added in anticipation of
increased demand for consulting services.
The trends discussed in the annual comparisons of operating results from
fiscal 1996 to fiscal 1998 apply generally to the comparison of results of
operations for the seven quarters ended March 31, 1999. In general, expenses
increased significantly as a result of:
- increased personnel;
- increased depreciation and other equipment costs for our expanding
computer measurement agent infrastructure;
- increased spending for marketing and promotional activities;
- higher recruiting and related hiring expenses for additional senior
management and other personnel;
- increased hosting fees for our computer measurement agents; and
- increased use of independent contractors and other outside services for
continued research and development activities.
Research and development expenses increased during the quarter ended
September 30, 1998 and sales and marketing expenses increased as a percentage of
our total revenues due to the increased use of consultants during these periods.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through private
placements of our common stock and convertible redeemable preferred stock with
strategic investors, venture capital firms and private investors. We have raised
approximately $25.4 million, net of offering costs, from the sale of common
stock and preferred stock. We had raised $8.6 million prior to March 31, 1999.
In addition, we financed our operations through subordinated and other debt,
equipment loans and a capital lease. The principal balance outstanding at March
31, 1999 for these loans was approximately $3.8 million. At March 31, 1999, we
had approximately $3.5 million in cash and cash equivalents.
Net cash used in operating activities was $591,000 in fiscal 1996, $1.8
million in fiscal 1997 and $2.7 million in fiscal 1998, and $1.1 million in the
six months ended March 31, 1998 and $1.7 million in the six months ended March
31, 1999. During the years ended September 30, 1996 and 1997 and the six months
ended March 31, 1998, net cash used by operating activities was primarily a
result of funding ongoing operations. Net cash used in operating activities
during fiscal 1998 and the six months ended March 31, 1999 consisted mostly of
net operating losses and changes in accounts receivable and prepaid expenses,
partially offset by changes in deferred revenues and depreciation of property
and equipment.
Since inception, our investing activities have been purchases of property
and equipment. Capital expenditures totaled $157,000 in fiscal 1996, $423,000 in
fiscal 1997 and $1.0 million in fiscal 1998, and $228,000 for the six months
ended March 31, 1998 and $519,000 for the six months ended March 31, 1999.
Our financing activities provided $1.3 million in fiscal 1996, $2.9 million
in fiscal 1997 and $4.9 million in fiscal 1998, and $4.7 million in the six
months ended March 31, 1998 and $3.5 million in the
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six months ended March 31, 1999. In fiscal 1996, the $1.3 million consisted of
the net proceeds received in connection with the private placement of our Series
A redeemable convertible preferred stock. In fiscal 1997, we sold $2.6 million
of our Series B redeemable convertible preferred stock, which amount included
$900,000 in principal amount of bridge loans from earlier that year. In
addition, we received approximately $300,000 from our equipment loans. In fiscal
1998 and the six months ended March 31, 1998, we received $4.7 million in net
proceeds in connection with the sale of our Series C redeemable convertible
preferred stock. During the six months ended March 31, 1999, we received $3.4
million in proceeds from our equipment and other loans.
As of March 31, 1999, our principal commitments consisted of $3.8 million in
loans. We have granted a security interest in substantially all of our assets to
secure these loans. As of March 31, 1999, we also had commitments of $1.3
million in future lease payments for our headquarters facility. Other than the
expenditure of approximately $361,000 for computer equipment, we had no material
commitments for capital expenditures as of March 31, 1999. Because we expect to
increase the number of our computer measurement agents over the remainder of
fiscal 1999, we expect that we will make additional capital expenditures to
purchase this equipment. We anticipate that we will also experience an increase
in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel.
We believe the net proceeds of this offering, together with our existing
cash and cash equivalents, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 12 months. If
cash generated from operations is insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity or debt securities or to
obtain a credit facility. If additional funds are raised through the issuance of
debt securities, these securities could have rights, preferences and privileges
senior to holders of common stock, and the term of this debt could impose
restrictions on our operations. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders, and we
may not be able to obtain additional financing on acceptable terms, if at all.
If we are unable to obtain this additional financing, our business may be
harmed.
YEAR 2000 COMPLIANCE
BACKGROUND OF YEAR 2000 ISSUES
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because these systems were developed using two digits rather than four to
determine the applicable year. For example, computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with these year
2000 requirements.
STATE OF READINESS
Our business depends on the operation of numerous systems that could
potentially be affected by year 2000-related problems. Those systems include,
among others:
- hardware and software systems used by us to deliver services to customers,
including our proprietary software systems as well as software supplied by
other companies;
- communications networks such as the Internet and private Intranets;
- the internal systems of our customers and suppliers;
- the hardware and software systems used internally by us in the management
of our business; and
- non-information technology systems and services, such as power, telephone
systems and building systems.
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Representatives of the research and development, operations and
administrative departments have been charged with the responsibility of
formulating and implementing our year 2000 readiness and are applying a phased
approach to analyzing our operations and relationships as they relate to the
year 2000 problem. The phases of our year 2000 program are as follows:
- assignment of responsibility for external issues, such as products
licensed by us from third parties, internal issues, such as systems,
facilities, equipment and software;
- inventory of our operations and relationships subject to the year 2000
problem;
- comprehensive analysis, including impact analysis and cost analysis, of
our year 2000 readiness; and
- remediation and testing.
We have completed phase 1 of the program.
Our services rely on a combination of our proprietary software and software
distributed by vendors such as Microsoft, Oracle and Sun Microsystems. We tested
major components of our service infrastructure in September 1998 and found them
to be compliant. The infrastructure consists of software needed to provide
services, measure performance, store measurement data and report results. With
respect to the other components, we plan to complete our testing by September
1999. The remaining components consist of a services administration tool, a
storage system and email reporting system. We do not expect to find any material
year 2000-related problems in these remaining components based on the design of
these applications. All the dates and the date datatype used in these systems
are year 2000 compliant.
Since our customers do not download any of our software on their computer
systems, we believe that our services should not create additional year 2000
problems for our customers' computer systems.
We have also reviewed our important internal management information,
software and other systems in order to identify any products, services or
systems that are not year 2000 compliant, in order to take corrective action. We
have made inquiries of all of these vendors and have received representations
that their systems are compliant. To date, we have not encountered any material
year 2000 problems with our computer systems or any other equipment that might
be subject to these problems. We have also not incurred material costs in
connection with our year 2000 efforts and do not expect to do so in the future,
other than diversion of employee time from other projects. We have not yet
conducted any investigation with respect to our non-information systems, such as
elevators, telephone, power and water.
We could also experience serious harm to our business if we fail to identify
all year 2000 dependencies in our systems and in the systems of our suppliers,
customers and financial institutions. We cannot assure you that the total cost
of year 2000 compliance will not be material to our business. We may not
identify and remediate all significant year 2000 problems on a timely basis,
remediation efforts may involve significant time and expense, and unremediated
problems may seriously harm our business.
RISKS
Extended power outages or widespread failures across the Internet would
create disruptions that would take time to repair. The amount of time required
for repairs would depend on the severity of the power outages or widespread
failures.
Users of our services are generally reliant on sophisticated hardware and
complex software products used by our customers which may not be year 2000
compliant. Success of our year 2000 compliance efforts may depend on the success
of our customers in dealing with their year 2000 issues. We sell our services to
companies in a variety of industries, each of which may be experiencing
different year 2000 compliance issues. Customer difficulties with year 2000
issues might require us to devote additional resources to resolve underlying
problems.
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Although we have not been a party to any litigation or arbitration
proceeding to date involving our services and related to year 2000 compliance
issues, we cannot assure you that we will not in the future be required to
defend our services in these proceedings, or to negotiate resolutions of claims
based on year 2000 issues. The costs of defending and resolving year
2000-related disputes, regardless of the merits of these disputes, and any
liability for year 2000-related damages, including consequential damages, would
seriously harm our business, results of operations and financial condition. In
addition, we believe that purchasing patterns of customers and potential
customers may be affected by year 2000 issues as companies expend significant
resources to correct or upgrade their current software systems for year 2000
compliance or defer additional software purchases until after 2000. As a result,
some customers and potential customers may have more limited budgets available
to purchase services such as those offered by us, and others may choose to
refrain from changes in their information technology environment until after
2000. To the extent year 2000 issues cause significant delay in, or cancellation
of, decisions to purchase our services, our business would be seriously harmed.
If we experience year 2000 issues with our services or network
infrastructure, we could be unable to perform measurements or analyze and
deliver data to our customers. This could result in loss of customers and
revenues as well as the potential for litigation. This could also require us to
devote significant resources to remediating our services or network
infrastructure, which would divert our personnel from other important business
activities. If we experience year 2000 issues with respect to our other systems,
we could be unable to process orders or bill our customers. It could also
require us to devote significant resources to correct problems with these
systems.
CONTINGENCY PLAN
We have acquired connections with additional Internet service providers in
the event that our primary Internet services provider fails. We are in the
process of developing a formal year 2000 contingency plan for the remainder of
our business, which we expect to complete by September 1999.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE SENSITIVITY. Our interest income and expense could be
sensitive to changes in the general level of U.S. interest rates, particularly
because most of our cash equivalents are invested in short-term debt
instruments. If market interest rates were to change immediately and uniformly
by ten percent from levels at March 31, 1999, the fair value of our cash
equivalents and the interest earned on those cash equivalents would change by an
insignificant amount.
FOREIGN CURRENCY FLUCTUATIONS. We have not had any significant transactions
in foreign currencies, nor do we have any significant balances that are due or
payable in foreign currencies at March 31, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SFAS No. 133 in fiscal 2001.
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BUSINESS
OVERVIEW
Keynote is the leading provider of Internet performance measurement and
diagnostic services to companies that operate e-commerce web sites. We market
Keynote PERSPECTIVE and Keynote LIFELINE, global services that measure and
assure the quality of service of e-commerce web sites around the world. The
foundation of these services is an extensive network of strategically located
computer measurement agents connected to the major Internet backbones in dozens
of metropolitan areas worldwide, plus a sophisticated operations center for
collecting, analyzing and disseminating Internet performance and availability
data. We believe that companies who use our services can increase revenues,
improve customer satisfaction and retention, reduce support costs and gain a
competitive advantage. We have designed our services to be easy for customers to
try, purchase and use on an outsourced subscription basis. Our customers include
over 400 leading e-commerce companies--including AdForce, Amazon.com, Cisco,
Citysearch.com, C--NET, Dell, DoubleClick, eBay, eToys, FedEx, Flycast, General
Motors, Geocities, Microsoft, VeriSign and Yahoo!.
INDUSTRY BACKGROUND
The Internet has emerged as a global medium for communication, content
delivery and electronic commerce, or e-commerce, and Internet use continues to
increase rapidly. E-commerce is evolving into a mission-critical component of
many companies' operations, and is dramatically changing how businesses interact
with their customers, suppliers and partners. Many large companies such as
FedEx, General Motors, Merrill Lynch and Pfizer now use their web sites as a
fundamental, cost-effective way of communicating product and shipment
information and conducting business transactions. At the same time, the Internet
has spawned new businesses such as Amazon.com and Yahoo!, whose success is tied
exclusively to their online offerings. International Data Corporation forecasts
that the number of Internet users will grow from approximately 142 million in
1998 to 502 million by 2003, with commensurate growth in e-commerce from $50
billion to $1.3 trillion over the same period.
The competitive e-commerce environment has created a different set of
challenges than those faced by conventional "bricks and mortar" stores. These
challenges include price standardization, product commoditization, constant
change in the competitive landscape, decreased customer loyalty and low
switching costs, plus the need for consistent high quality of service and
end-user satisfaction with the online experience. As a result, the key
differentiator for many businesses with online offerings is their quality of
service. In e-commerce, quality of service encompasses all aspects of a
customer's interactions with a web site that affect the customer's satisfaction
with the experience and the desire to repeat it. Quality of service can
generally be measured, analyzed and improved along the dimensions of speed,
availability and consistency across time and geography. To attract and retain
customers, e-commerce web sites must offer fast page downloads, efficient
transactions and high reliability all the time or customers may "click away" to
a competitor who offers comparable products and services. According to a 1999
study by Zona Research, approximately $4.4 billion per year in e-commerce sales
in the United States may be lost due to unacceptable download speeds and the
resulting abandonment of online transactions by users.
Despite substantial investments in e-commerce, building and maintaining a
high performance e-commerce site remains a significant challenge. The Internet
is a complex, heterogeneous network of communications networks with multiple
operators and vendors supplying and managing the underlying infrastructure. To
reach customers through the Internet, a company must transmit information from
its web site through an Internet service provider, which then passes the data to
an Internet backbone provider. Web pages are transmitted along a dynamically
determined, and often indirect, route to the customer across multiple Internet
backbones and service providers. There are over 40 major backbone providers in
the United States, such as Sprint and UUNET, and thousands of different Internet
access providers, such as America Online and EarthLink. In addition to the
inherent complexity of the Internet, many internal and external factors
contribute to the e-commerce quality of service problem. These factors include
inadequate networking
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hardware, servers and server software, poorly constructed applications,
inadequate communications bandwidth, content-caching problems and poor peering
arrangements. Compounding the quality of service problem, e-commerce companies
are inherently global in nature with a geographically dispersed customer base
and around-the-clock operations.
To date, companies have lacked an adequate solution for addressing the
challenges of measuring, assuring and improving e-commerce quality of service
from the perspective of their customers. Despite improvements in many underlying
Internet technologies, the quality of service problem is increasing. Due to the
heterogeneous nature of the Internet, no single vendor of these Internet
technologies has the perspective or the incentive to help companies identify and
remedy the cause of the problem. As a result, companies have been forced to rely
upon anecdotal customer complaints and limited amounts of data to respond to
problems after they have already occurred and customers and revenues have
already been lost. The challenge of assuring performance for e-commerce sites is
only increasing as their offerings expand into additional web-site addresses,
also known as uniform resource locators, or URLs, and as they become
increasingly feature-rich and complex. International Data Corporation forecasts
that the number of URLs on the Internet will grow from approximately 925 million
in 1998 to 13.1 billion in 2003.
Given the global, around-the-clock nature of e-commerce, there is a demand
today for an independent Internet performance solution that provides objective
information from around the world all the time to enable e-commerce sites to
measure, assure and improve e-commerce quality of service.
THE KEYNOTE SOLUTION
We are the leading provider of Internet performance measurement and
diagnostic services that enable e-commerce companies to measure, assure and
improve quality of service of their web sites. We have made it easy for
customers to try, purchase and use our services with minimal effort. Companies
that use our services can increase revenues, improve customer satisfaction and
retention, reduce support costs and gain a competitive advantage. Key features
of our solution include:
INDEPENDENT TRUSTED THIRD PARTY. Because we do not sell web servers, web
software, networking equipment or web hosting services, we are able to deliver
unbiased Internet performance measurement and diagnostic services to our
customers. Our Internet performance indices of business and consumer web sites
are published in leading publications such as BUSINESS WEEK, COMPUTERWORLD,
SMART MONEY, THE INDUSTRY STANDARD and USA TODAY.
COMPREHENSIVE GLOBAL MEASUREMENT INFRASTRUCTURE. Because performance
problems can occur at many different locations throughout the Internet, we have
deployed an extensive network of automated computer measurement agents and an
operations center for collecting and disseminating performance data. Our agents
are deployed in 60 U.S. and 24 international locations and currently execute
over 10 million performance measurements per day. This extensive infrastructure
enables us to provide our customers with comprehensive, up-to-the-minute
performance data that can be used to assure and improve their quality of
service.
OUTSOURCED SUBSCRIPTION SERVICE. With only a web browser, customers can
try, purchase and immediately use our services on an outsourced basis without
the need to develop an internal computer infrastructure or install any software.
In addition, as changes occur in the Internet or our services, our customers do
not need to update their systems or change the way they receive information from
us. Our customers purchase our Internet performance measurement and diagnostic
services on a subscription basis with an initial three month term.
EASY-TO-USE VIEWING AND ANALYSIS. Our automated service continually
collects and delivers quality-of-service data around the clock to our customers
and enables them to conveniently view, analyze and act on the performance
measurements. Our proprietary statistical algorithms filter, sort, summarize and
present the large
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volume of complex performance measurement data in easy-to-understand charts,
graphs and tables. Customers can view performance and diagnostic reports through
any web browser, and can be notified by email or pager when performance
thresholds are reached.
COMPREHENSIVE RANGE OF SERVICE OFFERINGS. In order to extend the reach of
our services to a broad cross-section of e-commerce web sites, we offer our
entry-level Keynote LIFELINE service which measures a web site from one or two
geographic locations. LIFELINE customers can later upgrade to our Keynote
PERSPECTIVE service, which is a comprehensive offering that features
measurements of benchmark pages, full pages, secure pages and multi-page
transactions from multiple locations and Internet backbones.
FOCUSED CONSULTING SERVICES. Consulting enhances our subscription services
by helping our customers to evaluate and respond to their
performance-measurement and diagnostic results. We provide our customers with
performance audits which leverage our measurement infrastructure to produce a
detailed report on their web performance. Our customers often use these audits
as formal, disinterested performance reports to their own management and
customers. To help our customers and their web designers to architect new web
solutions, we also plan to provide in-depth performance consulting along with
live testing of prototype designs, based on our experiences with major
e-commerce sites.
STRATEGY
Our objective is to maintain and expand our leadership in providing Internet
performance measurement and diagnostic services to e-commerce web sites. Key
elements of our strategy are:
EXTEND MARKET PENETRATION. We plan to continue to build our internal sales
and marketing capabilities by increasing the size of our direct sales force and
the number of our telesales call centers. We plan to promote our entry-level
service, LIFELINE, as an easy-to-try, easy-to-buy Internet performance solution,
and to develop relationships with LIFELINE customers that will provide
opportunities to sell additional services to them such as our flagship Keynote
PERSPECTIVE service. We also plan to leverage our published Internet performance
indices to develop targeted marketing programs for major e-commerce industry
sectors. In addition, we will continue to actively develop co-marketing
relationships with Internet service providers and other suppliers of
complementary products and services to our target customers.
INCREASE CUSTOMER RELIANCE ON OUR SERVICES. We believe we have the
opportunity to develop long-lasting relationships with customers as their
preferred provider of outsourced Internet performance services. As e-commerce
grows, we believe companies will increase their focus on the quality of service
of their web sites as they expand to include additional functionality. We intend
to continue to solidify relationships with customers to increase the number of
URLs we measure for them and to market additional services to them. We plan to
continue to actively monitor customer use of our services in order to identify
areas on their web sites where performance measurements are mission-critical.
EXPAND OUR BRAND AWARENESS AS THE INTERNET PERFORMANCE AUTHORITY. We intend
to expand our traditional and online marketing strategies to increase customer
awareness and brand recognition, including advertisements in the trade and
business press, direct email and other targeted marketing campaigns. For
example, we are planning to host an annual Internet performance conference to
serve as an important branding and customer-recruitment event. In addition, we
intend to expand our roster of published web performance indices to include
major e-commerce segments such as banking, shopping and portals, and we intend
to publish these indices in relevant industry publications.
ESTABLISH RELATIONSHIPS WITH COMPLEMENTARY VENDORS. We believe that a
significant market opportunity exists to sell our services to companies with
high-volume or mission-critical web sites. Therefore, we believe that we can
benefit from co-marketing relationships with other companies that sell
complementary products and services to our target customers. We have important
contractual relationships with VeriSign and Network Solutions to co-market our
services to their own customers on a co-branded basis bundled with their own
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services, and we will seek to increase the number of these relationships. In
addition, we intend to pursue relationships with major consulting firms in order
to encourage them to recommend and specify our services to their Fortune 500
customers.
INCREASE OUR INTERNATIONAL PRESENCE. We believe that the international
expansion of e-commerce provides us with significant opportunities to offer our
services globally. We plan to increase both the number of international
locations where we provide services and the number of computer measurement
agents deployed internationally. We currently sell our services directly to
international customers, including BBC, Dell (Japan), ANZ Bank and TNT Express,
and we intend to build call centers in Europe and Australia in order to increase
our international presence. We also intend to pursue relationships with
providers of complementary products and services in Europe, Asia and Australia.
EXPAND OUR SERVICE OFFERINGS INTO ALL ASPECTS OF QUALITY OF SERVICE FOR
E-COMMERCE. We intend to broaden our measurement services to include a variety
of Internet access methods, such as dial-up modem, digital subscriber lines,
cable modem and other broadband access technologies, from either stationary or
mobile computing devices. We believe quality of service encompasses all aspects
of an online customer's interactions with an e-commerce web site from the point
of view of the customer. We intend to expand our service offerings by measuring
the efficiency and success rates of consumers in initiating and completing
multi-page electronic transactions and the ease and speed with which a website
can be navigated and desired content located. Finally, we intend to measure the
impact of new Internet technologies, such as streaming audio and video,
multi-casting and Internet telephony.
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KEYNOTE SERVICES
Our services enable customers to measure, assure and improve their
e-commerce quality of service from multiple vantage points around the world.
These services are summarized in the following table:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
SERVICE OFFERINGS FEATURES PRICES
Keynote PERSPECTIVE. - measures performance and From $295 per month per URL
Targets e-commerce web availability of web page measured, with higher prices
sites with a national or downloads depending on frequency and
worldwide customer base as - measures transaction geographic coverage of
well as heavy traffic execution time measurements
levels. - measurements taken from
multiple locations around
the world
- measurements taken around
the clock at each location at
customer-specified
intervals of 3 minutes to 4
hours
- can measure and compare
performance and
availability of any
publicly accessible web
pages on the Internet
Keynote LIFELINE. Targets - measures performance and $695 per year per URL
regionally oriented web availability of web page measured
sites and web sites with downloads
lower traffic levels. - measurements taken from one
or two locations in the
United States
- measurements taken around
the clock at intervals of 10
minutes or 1 hour
Professional Services - COMPETITIVE AUDIT to From $5,000 per engagement,
compare web-site performance depending on size and
and availability against complexity
multiple competitive web
sites
- ADVANCED DIAGNOSTIC AUDIT
to make specific
recommendations to improve
quality of service
- custom consulting
engagements
</TABLE>
KEYNOTE PERSPECTIVE AND KEYNOTE LIFELINE
Our Keynote PERSPECTIVE and Keynote LIFELINE services measure web-site
performance and availability from multiple geographic locations around the
world. The foundation of these services is a worldwide network of automated
computer measurement agents that run our proprietary measurement and
data-collection software, plus an operations center for storing and
disseminating performance data. At regular intervals, and as frequently as every
three minutes, our measurement agents measure and analyze performance data
around the clock from an end-user perspective, from Internet connection points
in over 35 large metropolitan areas on a variety of Internet backbones. Keynote
PERSPECTIVE and Keynote LIFELINE require no installation, configuration or
update maintenance by customers because all software runs on our computers and
produces results that can be accessed over the Internet through any web browser.
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Our services measure the most common forms of end-user interaction with a
web site--downloading simple, complex or secure web pages and completing
multi-page transactions over the Internet.
BENCHMARK PAGE. This portion of Keynote PERSPECTIVE and Keynote LIFELINE
measures and compares the download time of a single web object such as a text
file or graphic element. With this data, web-site managers can measure and
manage the effect of user geography and Internet backbones on the end user's
perceived performance of their web site.
FULL PAGE COMPONENTS. This portion of Keynote PERSPECTIVE and Keynote
LIFELINE measures the time it takes to access and download all of the elements
of a web page, including the text file and any graphic images and complex page
structures. FULL PAGE COMPONENTS is targeted at fast-changing web sites,
enabling them to measure the effects of web-page design on end users' experience
with the web site over time and geography.
SECURE PAGE. This portion of Keynote PERSPECTIVE measures the time it takes
to access a secure, encrypted page or execute a single-page transaction through
a secure page. This enables web sites to manage the effect of content and
security applications on end users' experience with web pages containing
sensitive information such as account balances or credit-card numbers.
TRANSACTION. This portion of Keynote PERSPECTIVE measures the time it takes
to execute an interactive transaction that involves the display of multiple web
pages. This enables web sites to optimize the performance of e-commerce
transactions by tracking the effects of web-page content and back-end processing
on end users' experience. A brokerage transaction, for example, might include a
series of interactions with a login page, a balance-inquiry page, a stock-quote
page, a buy-order page, a confirm-order page and a logout page.
Key features of our Keynote PERSPECTIVE and Keynote LIFELINE services
include:
STANDARD AND CUSTOM REPORTING. Measurements are delivered to our customers
through threshold-based alarms by email or pagers as well as online through a
web-browser-based interface. Summary reports that are delivered to customers by
email on a daily basis provide quick access to hourly, daily and weekly
performance data. Our customers can configure performance alarms based on
thresholds such as time-interval and city parameters to automatically notify
them when performance problems occur.
COMPREHENSIVE DIAGNOSTICS. A "drill down" feature allows our customers to
specify a time period and metropolitan area and then to search specific data to
localize, analyze and diagnose problems. We also maintain automated diagnostic
centers at all measurement locations which allow our customers to investigate
performance bottlenecks and delays by tracing a URL request from that location,
performing error analysis and pinpointing which Internet service provider,
backbone provider or other source is responsible for the performance delay.
Our customers can also analyze full-page measurement data to pinpoint and
address the cause of a performance delay. A full-page download consists of a
hypertext markup language page along with all associated images and complex page
structures. The full-page download time can be further dissected into as many as
six constituent elements, such as domain name service lookup time or redirect
time. This level of detail allows network engineers and web-site managers to
precisely pinpoint the cause of any performance delay and quickly resolve it. As
changes are made to web-site content, connectivity or architecture, the
resulting effect on performance can also be precisely measured and compared.
COMPARATIVE ANALYSIS. In addition to delivering consistent performance,
e-commerce sites must ensure that they can perform more quickly and reliably
than competing web sites. Our customers can compare their performance against
selected competing sites and also against our performance indices--the KEYNOTE
BUSINESS 40 INDEX and the KEYNOTE WEB BROKER TRADING INDEX.
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MULTIPLE VIEWS OF WEB SITE PERFORMANCE. From any web browser, our customers
can easily access historical web-site performance data over any time range
within the previous six weeks. This data can be displayed in summary form as
well as in customizable graphs that depict performance and types of error over
time, metropolitan area, Internet service provider or backbone provider. This
data can also be easily downloaded, archived and used in our customers' other
applications.
CUSTOM AGENTS. For companies that implement extranets or other private
computer networks, we can deploy custom automated computer agents to measure the
performance of these networks from specified locations and at specified times.
These measurement agents can be deployed near the company's own web site, at key
Internet access points used by the company, or at the other business offices of
the company or its suppliers and customers. Measurements are delivered to our
operations center where they are integrated with and compared to other public
web-site measurement data.
PROFESSIONAL SERVICES
In order to help our customers maximize the benefits of our services, we
offer two audits: the COMPETITIVE AUDIT and the DIAGNOSTIC AUDIT.
COMPETITIVE AUDIT. Our COMPETITIVE AUDIT is designed to provide an
unbiased, comprehensive report on a customer's web-site performance and
availability as compared to their competitors and industry benchmarks. The
COMPETITIVE AUDIT typically requires four weeks to complete and comprises the
following phases:
- MEASUREMENT. We measure the quality of service that a customer's web site
provides to its users over differing geographies and times;
- EVALUATION. We analyze these measurements to evaluate the performance and
reliability of a customer's web site compared to both the customer's
competitors and to industry benchmarks;
- DIAGNOSIS. We identify bottlenecks and stress points in a customer's web
site and in the web site's connection to the Internet. We do this by
looking at download and transaction times, and by examining the types of
errors encountered and their patterns over geography and time; and
- IMPROVEMENT. We recommend practical changes the customer can implement to
improve quality of service.
DIAGNOSTIC AUDIT. Our DIAGNOSTIC AUDIT is a follow-on service that
complements our COMPETITIVE AUDIT to more closely analyze the e-commerce quality
of service problems that were highlighted by the COMPETITIVE AUDIT. These
consulting engagements can be individually structured and may vary both in the
length of the audit and in the nature of the services we provide. For example,
we can work with the customer's staff to provide recommendations in the areas of
Internet connectivity, multiple hosting sites and the impact of caching and
other content-distribution strategies.
TECHNOLOGY AND ARCHITECTURE
We designed our Internet performance measurement infrastructure to allow us
to implement a flexible, scalable, cost-effective solution to e-commerce quality
of service problems. Our scalable architecture consists of three key components:
automated computer measurement agents, our operations center and reporting and
analysis tools.
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KEYNOTE GLOBAL INFRASTRUCTURE GRAPHIC
[The captions in the diagram are "Performance Measurement," "Data
Collection, Storage and Dissemination" and "Easy-to-Use Reporting and Analysis."
The left side of the diagram under the Performance Measurement caption has
the caption "Automated Computer Measurement Agents." Beneath this caption are
two icons with the caption "Customer Web Sites." From these icons are four
two-way arrows pointing at four icons representing our automated computer
measurement agents.
In the center of the diagram under the Data Collection, Storage and
Dissemination caption is the caption "Scalable Operations Center." Below the
caption is an icon representing our operations center. The caption under the
icon reads "Multiple database and applications servers.
In the right side of the diagram under the Easy-to-use Reporting and
Analysis" caption are four icons. One is a pager with a caption beneath it which
reads "Pager and email alerts." Below that is a computer with a caption which
reads "Daily email reports." Below that is a computer with a caption below it
which reads "Web-based analysis." The last picture is a computer with a caption
below it which reads "Data Feed (API/ FTP)."]
AUTOMATED COMPUTER MEASUREMENT AGENTS. Our measurement agents are
Windows-based computers that run our proprietary software to replicate the
experience of a user accessing the Internet through a standard web browser. We
designed our measurement-agent software to perform thousands of download
measurements concurrently without distorting or affecting the integrity of any
single measurement. The measurement agents are located at Internet service
providers that are selected to be statistically representative of Internet users
in that geographic location. At some locations, we employ multiple Internet
connections and install equipment racks that can accommodate multiple agents,
allowing for large-scale, rapid deployment of additional measurement agents.
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These agents access a web site to download web pages and execute multi-page
transactions, just like end users, while taking measurements of every component
in the process. The agents take measurements continually throughout the day, at
intervals as short as three minutes, depending on the customer's requirements
and subscription service level.
As of June 30, 1999, we had deployed more than 200 measurement agents in 60
domestic and 24 international locations, with some locations having multiple
measurement agents in order to provide different types of measurements or to
compensate for higher measurement volume. Our measurement agents currently
execute more than 10 million performance measurements each day. We intend to
continue to expand the number of measurement agent locations.
SCALABLE OPERATIONS CENTER. The automated computer measurement agents
receive instructions and return collected data to our operations center. The
data are stored in a large database under a proprietary transaction-processing
system that we designed to be scalable and efficient in storing and delivering
measurement data with sub-second response times. We also employ many
proprietary, high-performance application servers that manage the collection of
measurement data, the insertion of the data into our database and the
dissemination of this data to our customers in a variety of forms and delivery
methods. We have automated this process with proprietary system-administration
tools that link our sales order-entry and billing systems.
EASY-TO-USE REPORTING AND ANALYSIS TOOLS.
- PAGER AND EMAIL ALERTS. Our customers are notified by email or pager when
download times exceed a particular value in specific cities or error
counts indicate that a server is unresponsive.
- DAILY EMAIL REPORTS. Our customers can receive a daily or weekly email
that summarizes the performance and availability of measured web sites and
compares them to industry averages for the same time period.
- WEB-BASED ANALYSIS. Through their web browsers, our customers can login
with a user name and password to retrieve, view and analyze measurement
data in multiple formats.
- DATA FEED. Our customers may also retrieve measurement data through an
application program interface, or API, or through bulk file transfers
using an industry-standard file-transfer protocol called FTP. This allows
our customers to embed the measurement data in their own software to
create custom data-analysis applications.
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CUSTOMERS
We sell our PERSPECTIVE and LIFELINE services to our customers on a
subscription basis. As of June 30, 1999, we were providing our services to over
400 companies. The following is a representative list of our customers:
ADVERTISING SERVICES
AdForce
Adknowledge
Avenue A Media
Bell South Intelliventures
Cobalt Group
DoubleClick
Flycast
Netgravity
COMPUTER PRODUCTS
Comet Systems
Dell Computer
EMC
Intraware
Navisite
Newbridge Networks
Silicon Graphics
Storage Tek
Sybase
TechData
CONTENT SITES
Adam.com
All Apartments
Anyday.com
Autoweb.com
Babycenter.com
Bamboo.com
Big Yellow
Cendant Corp.
Citysearch.com
C--NET
Dr. Koop
Garden Escapes
Homestore.com
Looksmart
Microsoft
One & Only Network
PC World
Sabre Inc./Travelocity
Sportsline
WebGenesis
FINANCIAL SERVICES
Charles Schwab
Disclosure
Dun & Bradstreet
Intuit
JP Morgan
Nasdaq
News Alert
VISA International
Wells Fargo
FORTUNE 500
Eastman Kodak
FedEx
General Motors
Pfizer
INTERNET INFRASTRUCTURE
Akamai
Cisco
Concentric
Data Return
Digital Island
Digex
Exodus
Interliant
InterNAP
Nextel
Sandpiper
Sprint Consumer Division
US West
USA.Net
US Internetworking
UUNET
Verio
VeriSign
MEDIA AND INFORMATION
British Broadcasting Corporation
Big Star Entertainment
EBSCO
Encyclopedia Britannica
Forrester Research
Harris-Black
Time Inc. New Media
Tribune Media Services
USA Today
Ziff-Davis
ONLINE RETAILERS
Amazon.com
Artist Direct
Barnes & Noble
Columbia House
eToys
Micro Warehouse
N2K
Office Depot
Onsale
Value America
Virtual Vineyards
PORTALS
About.com
eBay
Geocities
Infoseek
Netscape
Remarq
Snap
Talk City
Yahoo!
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Our customers typically enter into an initial three month subscription
agreement to purchase our services and then may choose to renew these services
on a monthly basis after the initial term.
The following are examples of how some of our customers use our services.
AKAMAI TECHNOLOGIES. Akamai operates a global network for Internet content
delivery that is designed to accelerate web-site performance for e-commerce
companies and content providers. Promising 100% Internet content delivery,
Akamai is keenly focused on providing a superior level of performance that is
better than any of their competitors'. Akamai uses Keynote PERSPECTIVE to take
before and after measurements that demonstrate and quantify the performance
improvement delivered by their fault-tolerant content distribution network.
Using Keynote, Akamai can provide an objective and real-world comparison of
end-user performance from multiple user locations across the world.
CISCO SYSTEMS, INC. With 1998 revenues of $8.5 billion, Cisco is a worldwide
leader in networking hardware and software solutions for the Internet. Cisco's
web site is one of the largest e-commerce site in the world, and Cisco reports
that 85% of their software is currently being delivered and 75% of their
technical support is currently occurring over the web. Cisco has a
corporate-wide commitment to customer satisfaction, and maintaining high web
site performance is a critical component of their customer satisfaction
strategy. Keynote plays a key role in Cisco's performance enhancement strategy,
helping them continually measure and assure the performance and availability of
their geographically-distributed corporate web servers.
FLYCAST COMMUNICATIONS CORPORATION. Flycast is a leading provider of
response-oriented online advertising solutions. In order to provide high value
to its customers Flycast needs to deliver banner ads quickly and efficiently
from its ad servers. Flycast uses Keynote PERSPECTIVE to measure and help assure
the availability and performance of its web servers for receipt, request and
delivery of ads. Flycast also continually measures the performance of key
competitors' web sites, and top management and board members regularly review
Keynote data to ensure that Flycast achieves its goal of being the performance
leader in its industry.
MICROSOFT CORPORATION.-REGISTERED TRADEMARK- MSN-TM- is the network of
Internet services from Microsoft that helps people better organize the web
around what's important to them. MSN properties include CarPoint, Expedia,
MoneyCentral and Sidewalk. MSN uses Keynote PERSPECTIVE to continually measure
the performance and availability of the MSN network from over 90 global user
locations in order to optimize consumers' experience and level of satisfaction
worldwide. Keynote PERSPECTIVE helps Microsoft establish internal benchmarks for
web-site performance and availability, determine the effects of these elements
on consumer satisfaction and enhance performance to continually meet consumers'
expectations.
WELLS FARGO BANK. San Francisco-based Wells Fargo is the 7th largest bank
holding company in the U.S. and one of the world's largest Internet banking
providers. With 900,000 customers nationwide doing their banking over the
Internet, the Wells Fargo web site must be available and deliver acceptable
access times to customers 24-hours a day, 7-days a week. Wells Fargo uses data
from Keynote's comprehensive network of software measurement agents to provide
statistically valid and customer-relevant information on how customers are
actually experiencing performance on its web site. Wells Fargo uses Keynote
PERSPECTIVE to analyze performance on multiple distributed web-page servers and
several competitors' sites. By enabling the bank to regularly measure
competitive performance levels, Keynote enables Wells Fargo to ensure that they
deliver an online banking service with performance equal or superior to the
competition.
SALES, MARKETING AND CUSTOMER SUPPORT
We sell our services primarily through our direct sales organization in San
Mateo, California. Our direct sales organization also provides telephone and
email sales support, telemarketing services and pre-sales technical support. We
believe our direct sales approach enables us to focus our resources on
ascertaining the
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needs of our customers, to devote significant attention to customer satisfaction
and to quickly offer new services to our existing customer base. We also market
our services through our web site where customers can sign up to try, purchase
and use our services.
We also distribute our services through web-hosting and Internet service
providers, such as Digex and Sandpiper, who manage e-commerce web sites on an
outsourced basis. These companies sell or bundle our services to part of their
customer base as a value-added service to these customers and as a management
tool for themselves. We also market our services through other companies,
including VeriSign and Network Solutions, that sell services complementary to
ours.
We maintain an active marketing program designed to create brand awareness
through industry-standard benchmark indices that evaluate and rank the relative
performance of various web sites. Keynote indices include:
- KEYNOTE BUSINESS 40 INDEX of 40 selected business web sites, published
regularly in leading newspapers and trade publications;
- KEYNOTE/INTERNET WORLD WEB PERFORMANCE INDEX of 20 leading consumer web
sites, published in each edition of INTERNET WORLD magazine;
- BOARDWATCH/KEYNOTE BACKBONE WEB HOSTING INDEX of major U.S. Internet
backbone providers, published regularly in BOARDWATCH magazine; and
- KEYNOTE WEB BROKER TRADING INDEX of leading online stock brokers, based on
performance and success rate of actual stock buy-order transactions
submitted on their web sites, published weekly by us and available on the
web site of SMART MONEY.
Our "Site of the Week" highlights the performance and availability results
of a different e-commerce web site each week. We also publish a free weekly
electronic newsletter on Internet performance that is transmitted to thousands
of subscribers. Our key personnel have been featured in leading financial
programs on both television and radio and have been quoted extensively in
leading trade publications and newspapers.
In all of our advertising and promotional materials, we offer e-commerce web
sites the opportunity to try our PERSPECTIVE service on a trial basis at no
charge. This "Free Performance Appraisal" exposes potential customers to all
aspects of our service with real performance data collected for a URL of the
customer's choice and typically a competitor's URL.
We believe that a high level of customer support is integral to our success
in creating solutions that our customers will view as indispensable to their
ability to provide quality of service in all aspects of their e-commerce
business. Therefore, we provide customer support around the clock by email and
telephone. We have developed and expanded our customer support services based on
feedback received from our existing customers. This feedback is supplemented by
formal customer satisfaction surveys conducted by an independent third party. In
addition, a strategic accounts team manages our relationships with our largest
customers.
RESEARCH AND DEVELOPMENT
We believe that our future success will depend in large part on our ability
to maintain and enhance our current services and to develop new services that
achieve market acceptance. For example, we have developed and are deploying
automated measurement computers around the world to measure quality of service
over dial-up connections to Internet service providers in these locations.
Our research and development expenses for the six months ended March 31,
1999 were $663,000, for fiscal 1998 were $1.2 million, for fiscal 1997 were
$732,000 and for fiscal 1996 were $392,000.
The Internet is characterized by rapid technological developments, frequent
new application introductions and evolving industry standards. The emerging
nature of this market and its rapid evolution will require that
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we continually improve our services, particularly in response to competing
offerings, and that we introduce new services or enhancements as quickly as
possible. The success of a service introduction depends on several factors,
including proper definition of new services, timely completion and introduction
of new services, differentiation of new services from those of our competitors
and market acceptance. We may not be successful in developing and marketing new
services that respond to competitive and technological developments and changing
customer needs. Our failure to develop and introduce new services successfully
on a timely basis and to achieve market acceptance for these services could
seriously harm our business. Other technological changes could render services
obsolete or require substantial expenditures to adapt our services.
COMPETITION
The market for Internet performance measurement and diagnostic services is
new and rapidly evolving. We expect competition in this market to intensify in
the future. Our current competitors vary in size and in the scope and breadth of
the products and services that they offer. In the future, new competitors could
enter our market. These competitors could include large companies with longer
operating histories as well as new companies. Our principal competitors today
include Freshwater Software, Inverse Network Technology and Service Metrics. We
also indirectly compete with WebCriteria, Internet Resources Group, MIDS Matrix
IQ Service, and INS INSoft Division, and free services such as the WebSite
Garage unit of Netscape, NetMechanic and Internet Weather Report.
We expect that if we are successful in our strategy to expand the scope of
our services, we may encounter many additional, market-specific competitors.
These potential competitors include companies that sell network management
software such as CompuWare and IBM's Tivoli Unit, and companies that sell load-
testing software such as Mercury Interactive, each of which has announced
products that could potentially compete with us in the future.
We believe that the principal competitive factors affecting our market are:
- product features;
- product performance, including scalability, flexibility, availability and
cost-effectiveness;
- quality of support and service; and
- company reputation.
Although we believe that our services currently compete favorably with
respect to these factors, our market is relatively new and is rapidly evolving.
We may not be able to maintain our competitive position against current and
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other resources.
Some of our competitors have, and our future competitors may have:
- longer operating histories;
- larger customer bases;
- greater brand recognition in similar businesses; and
- significantly greater financial, marketing, technical and other resources.
In addition, some of our competitors may be able to:
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing policies; and
- devote substantially more resources to technology and systems development.
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We may not be able to compete successfully against our current and future
competitors. See "Risk Factors--We face growing competition which could make it
difficult for us to acquire and retain customers."
INTELLECTUAL PROPERTY
We are a technology company whose success depends upon developing and
protecting our intellectual property assets. To protect our proprietary
technology, we rely primarily on patent, trademark, service mark, trade dress,
copyright and trade secret laws and restrictions, as well as confidentiality
procedures and contractual provisions.
Most of our customers' use of our services is governed by web-based license
agreements, rather than by means of a formal, written contract. Each time
customers use our service, they "click" on a web page to agree to certain terms
and conditions that are posted on our web site, which terms and conditions
impose restrictions on the customer's use of our services. In addition, we seek
to avoid disclosure of our trade secrets by requiring each of our employees and
others with access to our proprietary information to execute confidentiality
agreements with us. We protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection.
We currently have no issued U.S. or foreign patents, we have applied for two
U.S. patents and we have no pending foreign patent applications. It is possible
that no patents will be issued from our currently pending patent applications
and that our potential future patents may be found invalid or unenforceable, or
otherwise be successfully challenged. It is also possible that any patent issued
to us may not provide us with any competitive advantages, that we may not
develop future proprietary products or technologies that are patentable, and
that the patents of others may seriously limit our ability to do business. In
this regard, we have not performed any comprehensive analysis of patents of
others that may limit our ability to do business.
Despite our efforts to protect our proprietary rights, we may be unable to
prevent others from infringing upon or misappropriating our intellectual
property. Any steps we take to protect our intellectual property may be
inadequate, time consuming and expensive. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States. A discussion of risks associated with the protection
of our intellectual property rights and the intellectual property rights of
others is presented in "Risk Factors--We might not be able to protect and
enforce our intellectual property rights" and "--Others might bring infringement
claims against us or our suppliers that could harm our business."
To date, we have not been notified that our technologies infringe the
proprietary rights of anyone. We cannot assure you that others will not claim
that we have infringed proprietary rights with respect to past, current or
future technologies. We expect that we could become subject to intellectual
property infringement claims as the number of our competitors grows and our
services overlap with competitive offerings. These claims, even if without
merit, could be expensive and divert management's attention from operating our
company. If we become liable for infringing intellectual property rights, we
would be required to pay a substantial damage award and to develop
non-infringing technology, obtain a license or cease selling the products that
contain the infringing intellectual property. We may be unable to develop
non-infringing technology or obtain a license on commercially reasonable terms,
if at all.
We license certain statistical, graphical and database technologies from
others. We cannot assure you that these technology licenses will not infringe
the proprietary rights of others or will continue to be available to us on
commercially reasonable terms, if at all. The loss of this technology could
require us to obtain substitute technology of lower quality or performance
standards or at greater cost. Please see "Risk Factors-- We depend on
technologies licensed from other companies for portions of our services."
EMPLOYEES
As of June 30, 1999, we had a total of 76 employees, including 31 in sales
and marketing, 21 in operations, 12 in engineering, 9 in administration and 3 in
consulting. None of our employees is subject to a
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collective bargaining agreement, and we believe that our relations with our
employees are good. Our future success depends on our ability to attract,
motivate and retain our key personnel. Competition for employees in our industry
is intense. Please see "Risk Factors--In order to grow our business, we must
attract and retain personnel while competition in our industry is intense."
FACILITIES
Our principal offices are located in San Mateo, California, where we occupy
approximately 25,000 square feet under a sublease that expires in June, 2000. We
believe that our existing facilities are adequate for our current needs and that
suitable additional or alternative space will be available in the future on
commercially reasonable terms. Our operations center is located at our facility
in San Mateo, California and we do not have a redundant center as backup. Our
business could be adversely affected if we experience any outages or system
disruptions at this location. Please see "Risk Factors--Our network
infrastructure could be disrupted by a number of different occurrences."
LEGAL PROCEEDINGS
From time to time, we could become involved in litigation relating to claims
arising out of our ordinary course of business. We are not presently involved in
any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information regarding our executive officers
and directors as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
Umang Gupta.................... 49 Chairman of the Board and Chief Executive Officer
Eugene Shklar.................. 49 Vice President of Marketing, Co-Chief Financial Officer, Director
Roger Higgins.................. 56 Vice President of Worldwide Sales
Donald Aoki.................... 42 Vice President of Engineering
Lloyd Taylor................... 41 Vice President of Operations
John Flavio.................... 51 Vice President of Finance and Chief Financial Officer
David Cowan.................... 33 Director
Mark Leslie.................... 53 Director
Stratton Sclavos............... 37 Director
</TABLE>
UMANG GUPTA has served as a director since September 1997 and as our chief
executive officer and chairman of the board of directors since December 1997.
From January 1996 to December 1997, he was a private investor and an advisor to
high-technology companies. From October 1984 to January 1996, he was the founder
and chairman of the board and chief executive officer of Centura Software
Corporation, formerly known as Gupta Corporation, a client/server tools and
database company. Prior to founding Gupta Corporation, from 1981 to 1984, he was
with Oracle Corporation, a database company, where his last position held was
vice president and general manager of its Microcomputer Products Division. From
1973 to 1981, he held various sales and marketing positions at IBM. He is also a
director of Mosaix Corporation, which recently agreed to merge with Lucent
Technologies. 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.
EUGENE SHKLAR has served as our vice president of marketing since August
1996 and as one of our directors since September 1997. From May 1994 to July
1996, he was a private investor and self-employed consultant to several
high-technology start-up companies in Silicon Valley. From July 1993 to April
1994, he was a founding employee and served as executive director of product
marketing of Siebel Systems, Inc., a supplier of web-based front-office software
systems. From April 1992 to April 1993, Mr. Shklar was vice president of
marketing of Gupta Corporation. Before that, he served for five years at Oracle
Corporation as director of marketing for both the PC Products Division and the
Networked Products Division, for two years at 3Com Corporation, a networking
company, as director of product marketing, and for seven years as vice president
of marketing and sales of Software House, Inc., a supplier of relational
database software. Mr. Shklar studied applied mathematics and computer science
at Harvard University.
ROGER HIGGINS has served as our vice president of worldwide sales since
February 1997. From March 1996 to December 1996, he served as vice president of
sales, marketing and services with Decisive Technology, an Internet survey
software company. From September 1992 to December 1995, he held several offices
at Make Systems, a network management and simulation software company, including
vice president of field operations from January 1995 to December 1995, as vice
president of marketing from September 1993 to December 1994 and as vice
president of strategic accounts and international from September 1992 to August
1993. Before this, Mr. Higgins was a vice president at Clarity Software, a Unix
software company, and Agilis Corporation, a manufacturer of hand-held computers,
and was a director with Russell Reynolds Associates, an executive recruitment
company. Mr. Higgins was the founding international vice president for 3Com
Corporation, a networking company, between 1985 and 1988 and for GriD Systems, a
portable computer company, between 1983 and 1985. Before this, Mr. Higgins spent
10 years with Xerox in international sales and marketing roles, after an initial
career with IBM UK. He holds a B.Sc. degree from London University.
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DONALD AOKI has served as our vice president of engineering since May 1997.
From December 1994 to May 1997, he served as a business unit general manager and
from March 1994 to December 1994 as a director of software development at Aspect
Telecommunications, a supplier of customer relationship management solutions.
From 1992 to 1994, Mr. Aoki served as director of development of TIBCO, a
financial information systems company, and from 1985 to 1992 as senior director
of development for Oracle Corporation. Mr. Aoki holds a B.S. degree in computer
science from the University of Southern California and a S.M. degree in
electrical engineering and computer science from the Massachusetts Institute of
Technology.
LLOYD TAYLOR has served as our vice president of operations since January
1999. From January 1997 to December 1998, he served as vice president of
technical operations of the Web Site Management Group of Digex, Inc., a web-site
management services company. From May 1981 to January 1997, he served in various
positions at the Applied Physics Laboratory at Johns Hopkins University, most
recently as corporate telecommunications manager, where he designed and
implemented computer systems for several NASA space shuttle missions and highly
secure encryption systems for military applications. Mr. Taylor holds an
M.S.E.E. degree in electrical engineering from Johns Hopkins University and a
B.S.E.E. degree in electrical engineering and a B.S.C.S. degree in computer
science from Washington University.
JOHN FLAVIO has agreed to become our vice president of finance and chief
financial officer in July 1999. From July 1993 to July 1999, he served as chief
financial officer, senior vice president, administration and finance, secretary
and treasurer of Mosaix Inc., a provider of call management systems and customer
relationship management applications, which recently agreed to merge with Lucent
Technologies. Prior to joining Mosaix, Mr. Flavio worked for a number of
high-technology companies serving as chief financial officer for Lumisys Inc., a
manufacturer of digital cameras used for medical x-ray scanning, and Ministor
Peripherals, a manufacturer of sub-miniature disk drives used in portable
computers. Mr. Flavio holds a B.S. degree in finance from Santa Clara University
and is a certified public accountant.
DAVID COWAN has been one of our directors since March 1998. Since August
1996, Mr. Cowan has been a general partner of Bessemer Venture Partners, a
venture capital investment firm, where he now serves as the managing general
partner. Mr. Cowan was an associate at Bessemer Venture Partners from July 1992
to July 1996. From August 1996 to April 1997, he served as chief executive
officer of Visto Corporation, an Internet services company. From January to June
1995, he served as chief financial officer, and from January 1995 to June 1996
as chairman of the board, of VeriSign, Inc., an Internet services company. Mr.
Cowan also serves as a director on the boards of VeriSign, Worldtalk
Communications Corporation and Flycast Communications Corporation as well as the
boards of several private companies. Mr. Cowan holds an A.B. degree in
mathematics and computer science and an M.B.A. degree from Harvard University.
MARK LESLIE has been one of our directors since June 1999. He has served as
chairman and chief executive officer of VERITAS Software Corporation, a storage
management software company, since 1990, and as a director since 1988. He also
serves on the boards of Brocade Communications Systems, Inc. and Versant Object
Technology Corporation. Mr. Leslie holds a B.A. degree in physics and math from
New York University, and he completed Harvard Business School's program for
management development.
STRATTON SCLAVOS has been one of our directors since April 1999. Since July
1995, Mr. Sclavos has been the president, chief executive officer and a director
of VeriSign, Inc., a provider of digital certificates and related Internet trust
services. From October 1993 to June 1995, he served as vice president of
worldwide marketing and sales of Taligent, Inc., a business development software
company that was a joint venture between Apple Computer, IBM and
Hewlett-Packard. Mr. Sclavos is also a director of Network Solutions, Inc.,
Visto Corporation and Marimba, Inc. Mr. Sclavos holds a B.S. degree in
electrical and computer engineering from the University of California, Davis.
BOARD COMPOSITION
We currently have five directors. Our certificate of incorporation, which
will become effective upon the closing of this offering, states that our board
of directors will be divided into three classes: Class I, whose
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term will expire at the annual meeting of stockholders to be held in 2000, Class
II, whose term will expire at the annual meeting of stockholders to be held in
2001, and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. At each annual meeting of stockholders after
the initial classification, the successors to directors whose terms have expired
will be elected to serve from the time of election and qualification until the
third annual meeting following election.
In addition, our bylaws, which will be adopted upon the closing of this
offering, provide that the authorized number of directors may be changed only by
resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors.
This classification of the board of directors may have the effect of
delaying or preventing changes in our control or management. See "Description of
Capital Stock." There are no family relationships among any of our directors,
officers or key employees.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
COMPENSATION COMMITTEE. The current members of our compensation committee
are Messrs. Cowan and Leslie. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation for
our officers and employees. The compensation committee also administers our 1999
Equity Incentive Plan and 1999 Employee Stock Purchase Plan.
AUDIT COMMITTEE. The current members of our audit committee are Messrs.
Sclavos and Leslie. Our audit committee reviews and monitors our financial
statements and accounting practices, makes recommendations to our board
regarding the selection of independent auditors and reviews the results and
scope of audits and other services provided by our independent auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been one of our officers or employees. None of our executive officers
currently serves or in the past has served as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on our board or compensation committee. Prior to the creation of our
compensation committee, all compensation decisions were made by our full board.
Neither Mr. Gupta nor Mr. Shklar participated in discussions by our board with
respect to each of his own compensation.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors, but are reimbursed for their reasonable expenses in attending board
and board committee meetings.
Each eligible director who is not our employee and who is or becomes a
member of our board on or after the effective date of the registration
statement, of which this prospectus forms a part, will be granted an option to
purchase 33,000 shares under our 1999 Equity Incentive Plan, unless that
director has previously received an option grant before the effective date.
Immediately following each annual meeting of our stockholders, each eligible
director will automatically be granted an additional option to purchase 33,000
shares under the plan if the director has served continuously as a member of the
board for at least one year. The options will have 10-year terms and will
terminate three months following the date the director ceases to be one of our
directors or consultants or 12 months if the termination is due to death or
disability. All options granted under the plan will be fully vested and
immediately exercisable as of the date of grant.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table presents compensation information for fiscal 1998 paid
or accrued by our chief executive officer, each of our three other most highly
compensated executive officers whose salary and bonus for fiscal 1998 was more
than $100,000 and one other executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
---------------------- UNDERLYING
NAME SALARY BONUS OPTIONS
- ------------------------------------------------------ ---------- ---------- -------------
<S> <C> <C> <C>
Umang Gupta........................................... $ 119,704 -- 3,500,000
Roger Higgins......................................... 181,466 $ 61,034 --
Donald Aoki........................................... 144,748 -- --
Douglas Finlay........................................ 110,640 -- --
Eugene Shklar......................................... 58,184 -- --
</TABLE>
Mr. Gupta, our chief executive officer, joined us in December 1997 and is
currently compensated at an annual salary of $200,000. Mr. Shklar, our vice
president of marketing and co-chief financial officer, is currently compensated
at an annual salary of $125,000. Mr. Finlay was serving as our Chief Financial
Officer as of September 30, 1998. It is anticipated that Mr. Flavio will be
compensated at an annual salary of $170,000 as our vice president of finance and
chief financial officer.
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<PAGE>
OPTION GRANTS IN FISCAL 1998
The following table presents the grants of stock options under our 1996
Stock Option Plan during fiscal 1998 to our chief executive officer, each of our
three other most highly compensated executive officers and one other executive
officer.
All options granted under the 1996 plan are immediately exercisable and are
either incentive stock options or nonqualified stock options. We have a right to
repurchase these shares upon termination of the optionee's employment with us.
This right generally lapses as to 25% of the shares subject to the option one
year from the date of grant and as to 2.083% of the shares each succeeding
month. Options expire 10 years from the date of grant. Options were granted at
an exercise price equal to the fair market value of our common stock, as
determined by our board on the date of grant. In fiscal 1998, we granted to our
employees options to purchase a total of 4,692,800 shares of our common stock.
Potential realizable values are computed by
- multiplying the number of shares of common stock subject to a given option
by the exercise price per share,
- assuming that the aggregate option exercise price derived from that
calculation compounds at the annual 5% or 10% rates shown in the table for
the entire 10 year term of the option, and
- subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are required
by the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM
OPTIONS EMPLOYEES PER SHARE EXPIRATION ----------------------
NAME GRANTED (#) IN FISCAL 1998 ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------------- ----------- --------------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Umang Gupta.................... 3,500,000 74.6% $ 0.10 12/9/2007 $ 220,113 $ 557,810
Roger Higgins.................. -- -- -- -- -- --
Donald Aoki.................... -- -- -- -- -- --
Douglas Finlay................. -- -- -- -- -- --
Eugene Shklar.................. -- -- -- -- -- --
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND OPTION VALUES AT SEPTEMBER 30,
1998
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during fiscal 1998 and the number of
shares of common stock subject to "vested" and "unvested" stock options held as
of September 30, 1998 by our chief executive officer, each of our three other
most highly compensated executive officers and one other executive officer. Also
presented are values of "in-the-money" options, which represent the positive
difference between the exercise price of each outstanding stock option and an
assumed initial public offering price of $ per share.
Each of the options granted to the optionees listed in the table below was
immediately exercisable upon grant, subject to our right to repurchase the
option shares upon termination of the optionee's employment. Our right to
repurchase the shares lapses as to 25% of the shares subject to the option one
year from the date of grant and as to 2.083% of the shares each succeeding
month. Mr. Gupta's shares are no longer subject to
52
<PAGE>
our right of repurchase. In the table below, the heading "vested" refers to
shares as to which our right of repurchase has lapsed. The heading "unvested"
refers to shares that we have the right to repurchase upon termination of the
optionee's employment.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED
IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT AT
SHARES SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
ACQUIRED ON VALUE ---------------------- ----------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- ------------------------------------------------ ----------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Umang Gupta..................................... 3,595,978 $ 71,920 -- -- $ $
Roger Higgins................................... -- -- -- --
Donald Aoki..................................... -- -- 10,000 30,000
Douglas Finlay.................................. -- -- 20,000 20,000
Eugene Shklar................................... -- -- 50,000 40,000
</TABLE>
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN. As of June 30, 1999, options to purchase 107,745
shares of common stock were outstanding under the 1996 Stock Option Plan and
66,425 shares of common stock remained available for issuance upon the exercise
of options that may be granted in the future. The 1996 plan will terminate upon
the completion of this offering and no options will be granted under the plan
after this offering. However, termination will not affect any outstanding
options, all of which will remain outstanding until exercised or until they
terminate or expire by their terms. Options granted under the plan are subject
to terms substantially similar to those described below with respect to options
granted under the 1999 Equity Incentive Plan.
1999 STOCK OPTION PLAN. As of June 30, 1999, options to purchase 2,160,489
shares of common stock were outstanding under the 1999 Stock Option Plan and
802,377 shares of common stock remained available for issuance upon the exercise
of options that may be granted in the future. The plan will terminate upon the
completion of this offering, at which time our 1999 Equity Incentive Plan will
become effective. As a result, no options will be granted under the plan after
this offering. However, termination will not affect any outstanding options, all
of which will remain outstanding until exercised or until they terminate or
expire by their terms. Options granted under the plan are subject to terms
substantially similar to those described below with respect to options granted
under the 1999 Equity Incentive Plan.
1999 EQUITY INCENTIVE PLAN. The board intends to adopt the 1999 Equity
Incentive Plan prior to the completion of this offering. The number of shares of
common stock to be reserved for issuance under this plan will be determined by
the board, subject to stockholder approval, prior to this offering. In addition
to the shares reserved by the board, shares under the 1996 Stock Option Plan and
the 1999 Stock Option Plan not issued or subject to outstanding grants on the
date of this prospectus and any shares issued under these plans that are
forfeited or repurchased by us or that are issuable upon exercise of options
that expire or become unexercisable for any reason without having been exercised
in full will be available for grant and issuance under the equity incentive
plan. Shares will again be available for grant and issuance under the plan that:
- are subject to issuance upon exercise of an option granted under the plan
that cease to be subject to the option for any reason other than exercise
of the option;
- have been issued upon the exercise of an option granted under the plan
that are subsequently forfeited or repurchased by us at the original
purchase price; or
- are subject to an award granted pursuant to a restricted stock purchase
agreement under the plan that are subsequently forfeited or repurchased by
us at the original issue price.
53
<PAGE>
In addition, on December 31, 1999 and on December 31 of each following year, the
total number of shares reserved for issuance under the plan will increase
automatically by a number of shares equal to 5% of our outstanding shares on
December 31 of the preceding year.
The plan will become effective immediately prior to the date of this
prospectus.
The plan will terminate after 10 years, unless it is terminated earlier by
our board. The plan will authorize the award of options, restricted stock awards
and stock bonuses.
The plan will be administered by our compensation committee, all of the
members of which are "non-employee directors" under applicable federal
securities laws and "outside directors" as defined under applicable federal tax
laws. The compensation committee will have the authority to construe and
interpret the plan, grant awards and make all other determinations necessary or
advisable for the administration of the plan.
The plan will provide for the grant of both incentive stock options that
qualify under Section 422 of the Internal Revenue Code and nonqualified stock
options. Incentive stock options may be granted only to our employees or
employees of a parent or subsidiary of us. All other awards, other than
incentive stock options, may be granted to our employees, officers, directors,
consultants, independent contractors and advisors or those of any parent or
subsidiary of us, provided the consultants, independent contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. The exercise price of incentive
stock options must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive stock options
granted to 10% stockholders must be at least equal to 110% of the fair market
value of our common stock on the date of grant. The exercise price of
non-qualified stock options must be at least equal to 85% of the fair market
value of our common stock on the date of grant.
Options granted under the plan will either be exercisable as they vest or
will be immediately exercisable subject to our right of repurchase that lapses
as the shares vest. In general, options will vest over a four-year period.
The maximum term of options granted under the plan is 10 years.
Awards granted under the plan may not be transferred in any manner other
than by will or by the laws of descent and distribution. They may be exercised
during the lifetime of the optionee only by the optionee. The compensation
committee could provide for differing provisions in individual award agreements,
but only with respect to awards that are not incentive stock options. Options
granted under the plan generally may be exercised for a period of time after the
termination of the optionee's service to us or a parent or subsidiary of us.
Options will generally terminate immediately upon termination of employment for
cause.
The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may be
awarded upon the completion of certain services or performance goals.
If we are dissolved or liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee, the vesting of these
awards may accelerate upon one of these transactions.
1999 EMPLOYEE STOCK PURCHASE PLAN. The board intends to adopt the 1999
Employee Stock Purchase Plan prior to the completion of this offering. The
number of shares of common stock to be reserved will be determined by the board,
subject to stockholder approval, prior to this offering. On each January 1, the
aggregate number of shares reserved for issuance under this plan will increase
automatically by a number of shares equal to 1% of our outstanding shares on
December 31 of the preceding year. The aggregate number of shares reserved for
issuance under the plan may not exceed a specified number of shares, which the
board will determine when adopting this plan. The plan will be administered by
our compensation committee. Our
54
<PAGE>
compensation committee will have the authority to construe and interpret the
plan, and its decision will be final and binding. The plan will become effective
on the first business day on which price quotations for the common stock are
available on the Nasdaq National Market.
Employees generally will be eligible to participate in the plan if they are
customarily employed by us, or our parent or any subsidiaries that we designate,
for more than 20 hours per week and more than five months in a calendar year and
are not, and would not become as a result of being granted an option under the
plan, 5% stockholders of us or our designated parent or subsidiaries.
Under the plan, eligible employees will be permitted to acquire shares of
our common stock through payroll deductions. Eligible employees may select a
rate of payroll deduction between 2% and 10% of their compensation and are
subject to maximum purchase limitations. Participation in the plan will end
automatically upon termination of employment for any reason.
Each offering period under the plan will be for two years and consist of
four six-month purchase periods. The first offering period is expected to begin
on the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. Offering periods and purchase periods
will begin on February 1 and August 1 of each year. However, because the first
day on which price quotations for our common stock will be available on the
Nasdaq National Market may not be February 1 or August 1, the length of the
first offering period may be more or less than two years, and the length of the
first purchase period may be more or less than six months.
The plan will provide that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period, provided
that the compensation committee may fix a different date for termination of the
plan. The purchase price for our common stock purchased under the plan is 85% of
the lesser of the fair market value of our common stock on the first or last day
of the applicable offering period. A participant may not purchase more than
1,000 shares in any purchase period. The compensation committee will have the
power to change the duration of offering periods without stockholder approval,
if the change is announced at least 15 days prior to the beginning of the
affected offering period.
The plan will be intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code. Rights granted under the plan
will not be transferable by a participant other than by will or the laws of
descent and distribution.
The plan will terminate 10 years from its inception, unless it is terminated
earlier under the terms of the plan. The board will have the authority to amend,
terminate or extend the term of the plan, except that no action may adversely
affect any outstanding options previously granted under the plan. Except for the
automatic annual increase of shares described above, stockholder approval is
required to increase the number of shares that may be issued or to change the
terms of eligibility under the plan. The board may make amendments to the plan
as it determines to be advisable if the financial accounting treatment for the
plan is different from the financial accounting treatment in effect on the date
the plan was adopted by the board.
401(k) PLAN. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees who
are at least 21 years old and who have been employed with us for at least 90
days are generally eligible to participate and may enter the plan as of the
first day of any calendar quarter. Participants may make pre-tax contributions
to the plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. We may make matching contributions on
a discretionary basis to the plan, but we have not previously done so.
Contributions by the participants or us to the plan, and the income earned on
these contributions, are generally not taxable to the participants until
withdrawn. Contributions by us, if any, are generally deductible by us when
made. Participant and company contributions are held in trust as required by
law. Individual participants may direct the trustee to invest their accounts in
authorized investment alternatives.
55
<PAGE>
EMPLOYMENT CONTRACT AND TERMINATION OF EMPLOYMENT ARRANGEMENT
In December 1997, we entered into an employment agreement with Umang Gupta,
our chief executive officer. This agreement establishes Mr. Gupta's annual base
salary and eligibility for benefits and bonuses.
OPTION. Under this agreement, Mr. Gupta was granted an option to purchase
3,500,000 shares of common stock at an exercise price of $0.10 per share. This
option was immediately exercisable, subject to our right to repurchase the
shares of common stock upon termination of his employment. Mr. Gupta exercised
this option in April 1998. Our right of repurchase has now lapsed as to all of
these shares.
WARRANT. Under this agreement, Mr. Gupta was granted a warrant to purchase
530,000 shares of common stock at a purchase price of $0.65 per share. This
warrant will expire December 31, 2001.
TERMINATION. This agreement continues until it is terminated upon written
notice by Mr. Gupta or us. If his employment is terminated by us for cause or if
he voluntarily elects to terminate his employment, we must pay his salary and
other benefits through the date of his termination. If his employment is
terminated by us without cause or if he terminates his employment due to a
material reduction in his salary or benefits, a material change in his
responsibilities or a sale of us, we must pay his salary and benefits through
the date of his termination and his salary for six additional months after this
date.
In connection with a loan agreement, dated as of May 1999, Mr. Gupta agreed
that, except in the case of a sale of us, he will not voluntarily elect to
terminate his employment before the later of December 31, 2000 or the date on
which a successor chief executive officer commences employment with us.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages resulting from a breach
of their fiduciary duty as one of our directors, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that we:
- must indemnify our directors and executive officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- may indemnify our other employees and agents to the same extent that we
indemnified our directors and executive officers, unless otherwise
required by law, our certificate of incorporation, bylaws or agreements;
and
- must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections in the event of litigation.
Presently, there is no pending litigation or proceeding involving any of our
directors, executive officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We intend to obtain liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.
56
<PAGE>
CERTAIN TRANSACTIONS
Other than Mr. Gupta's employment agreement, described in "Management" and
the transactions described below, since we were formed 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 exceed or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
PREFERRED STOCK FINANCINGS
In May and June 1996, we sold a total of 6,078,444 shares of Series A
preferred stock at a purchase price of $0.21 per share. In January 1998, Eugene
Shklar purchased 149,875 shares of Series A preferred stock from a purchaser of
the Series A preferred stock at a purchase price of $0.25 per share. In July
1997, we sold a total of 4,666,841 shares of Series B preferred stock at a
purchase price of $0.55 per share. In March 1998, we sold a total of 7,697,966
shares of Series C preferred stock at a purchase price of $0.65 per share. In
April and May 1999, we sold a total of 6,734,545 shares of Series D preferred
stock at a purchase price of $2.21 per share and a total of 876,961 shares of
common stock at a purchase price of $2.21 per share.
Purchasers of our preferred and common stock include, among others, the
following of our executive officers, directors and holders of more than 5% of
our outstanding stock:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
PREFERRED PREFERRED PREFERRED PREFERRED COMMON
STOCKHOLDER STOCK STOCK STOCK STOCK STOCK
- --------------------------------------------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
VeriSign, Inc...................................... -- -- -- 2,526,400 876,961
GE Capital Equity Investments, Inc................. -- -- -- 3,167,421 --
Entities associated with Bessemer Venture Partners,
L.P.............................................. -- -- 4,892,306 452,489 --
Entities and individuals associated with Applewood
Associates, L.P.................................. 1,190,476 1,431,065 815,384 -- --
Umang Gupta........................................ -- 181,819 -- -- --
Eugene Shklar...................................... 149,875 1,131,547 1,223,076 226,244 --
</TABLE>
All of the share numbers described above reflect the conversion of each
outstanding share of Series A preferred stock, Series B preferred stock and
Series D preferred stock into one share of common stock and the conversion of
each outstanding share of Series C preferred stock into 1.06 shares of common
stock.
WARRANTS
In January 1997, in connection with a bridge loan financing, we issued
warrants to purchase a total of 162,184 shares of common stock at a purchase
price of $0.025 per share to Applewood Associates, L.P., a holder of more than
5% of our outstanding common stock, and entities associated with Applewood
Associates, including warrants to purchase 25,632 shares of common stock issued
to each of Woodland Partners, L.P. and Irwin Lieber. These warrants expire on
January 2002. We also issued a warrant to purchase a total of 140,000 shares of
common stock at a purchase price of $0.025 per share to Eugene Shklar. In July
1997, Mr. Shklar exercised this warrant.
In connection with the employment agreement we entered into in December 1997
with Umang Gupta, we issued Mr. Gupta a warrant to purchase a total of 530,000
shares of common stock at a purchase price of $0.65 per share. This warrant will
expire December 31, 2001.
57
<PAGE>
LOANS TO EXECUTIVE OFFICERS
UMANG GUPTA. In April 1998, we loaned $280,000 to Umang Gupta, secured by a
loan and pledge agreement, in connection with his exercise of options to
purchase shares of our common stock. In May 1999, we loaned $300,000 to Mr.
Gupta, evidenced by a full recourse promissory note and secured by a stock
pledge agreement, in connection with the acceleration of the lapse of our
repurchase right with respect to the shares of our common stock owned by him. In
June 1999, these loans were consolidated into a single loan. This loan accrues
interest at a rate of 6% per year and is due and payable on or before December
31, 2001.
LLOYD TAYLOR. In January 1999, we loaned $150,000 to Lloyd Taylor, our vice
president of operations, secured by a loan and security agreement, in connection
with his relocation to California. The loan accrues interest at a rate of 9% and
is due and payable on or before January 2002.
In January 1999, we loaned an additional $75,000 to Mr. Taylor, secured by a
loan and pledge agreement, in connection with his exercise of his option to
purchase 300,000 shares of our common stock. The loan accrues interest at a rate
of 7% and is payable on or before January 2004.
OPTION GRANTS TO EXECUTIVE OFFICERS
UMANG GUPTA. In September and December 1997, we granted to Umang Gupta
options to purchase a total of 3,595,978 shares of common stock at an exercise
price of $0.10 per share. Mr. Gupta exercised these options in April 1998.
ROGER HIGGINS. In February and June 1997, we granted to Roger Higgins
options to purchase a total of 415,719 shares of common stock at an exercise
price of $0.025 per share. Mr. Higgins exercised these options in February and
June 1997.
DONALD AOKI. In May and June 1997, we granted to Donald Aoki options to
purchase a total of 387,027 shares of common stock at an exercise price of
$0.025 per share. Mr. Aoki exercised these options in June 1997 and December
1998.
EUGENE SHKLAR. In August 1996 and June 1997, we granted to Eugene Shklar
options to purchase a total of 862,201 shares of common stock at an exercise
price of $0.025 per share. In July 1997, 50,000 of these 862,201 shares were
canceled. In July 1997, we granted Mr. Shklar an option to purchase a total of
90,000 shares of common stock at an exercise price of $0.10 per share. In
February 1999, a total of 5,000 of these 90,000 shares were canceled. Mr. Shklar
exercised his options as to the remaining 897,201 shares in September 1996, June
1997 and January 1999.
LLOYD TAYLOR. In January 1999, we granted to Lloyd Taylor an option to
purchase 300,000 shares of common stock at an exercise price of $0.25 per share.
Mr. Taylor immediately exercised this option.
MEMORANDUM OF UNDERSTANDING WITH VERISIGN, INC.
In February 1997, we entered into a memorandum of understanding with
VeriSign, Inc. Under this agreement, VeriSign sells our Keynote PERSPECTIVE and
Keynote LIFELINE services on a co-branded basis to its customers. The initial
term of this memorandum is two years, and it will continue for additional
one-year periods. The memorandum will terminate if we enter into a new agreement
with VeriSign or if we or VeriSign provide written notice that the memorandum
will not be extended. Stratton Sclavos, one of our directors, is chief executive
officer of VeriSign.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of
our common stock as of June 30, 1999 and as adjusted to reflect the sale of the
common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5% of
our common stock;
- each of our directors;
- each executive officer listed in the summary compensation table above; and
- all directors and executive officers as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of June 30, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person. Unless indicated below, the address for each listed 5%
stockholder is c/o Keynote Systems Incorporated, 2855 Campus Drive, San Mateo,
California 94403.
The percentage of common stock outstanding as of June 30, 1999 is based on
37,332,417 shares of common stock outstanding on that date, assuming that all
outstanding preferred stock has been converted into common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES BENEFICIALLY
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Entities and individuals associated
with Applewood Associates, L.P. (1)
68 Wheatley Road
Brookville, New York 11545.................................. 5,642,762 15.1% %
Entities associated with Bessemer
Venture Partners, L.P. (2)
535 Middlefield Road
Menlo Park, California 94025................................ 5,344,795 14.3
VeriSign, Inc.
1390 Shorebird Way
Mountain View, California 94043............................. 3,403,361 9.1
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927................................. 3,167,421 8.5
Umang Gupta (3)............................................... 5,334,463 14.1
Eugene Shklar (4)............................................. 4,046,278 10.8
Douglas Finlay (5)............................................ 686,363 1.8
Roger Higgins (6)............................................. 665,719 1.8
Donald Aoki (7)............................................... 637,027 1.7
David Cowan (8)............................................... 5,344,795 14.3
Mark Leslie (9)............................................... 100,000 0.3
Stratton Sclavos (10)......................................... 3,403,361 9.1
All 9 directors and executive officers as a group (11)........ 20,518,006 54.0
</TABLE>
- ------------------------
(1) Includes 300,000 shares held by Brookwood Partners, L.P., 699,202 shares
held by Woodland Partners, L.P., 999,202 shares held by Irwin Lieber and
45,249 shares held by Barry Fingerhut. Includes 162,184 shares issuable upon
exercise of warrants held by some of the entities and individuals
exercisable within 60 days of June 30, 1999.
59
<PAGE>
(2) Includes 1,990,097 shares held by Bessec Ventures IV L.P. and 489,230 shares
held by Bessemer Venture Investors IV L.P.
(3) Includes 160,000 shares held by the Gupta Family 1999 Irrevocable Trust. Mr.
Gupta disclaims beneficial ownership of the shares held by this entity
except to the extent of his pecuniary interest in it. Includes 530,000
shares issuable upon exercise of a warrant exercisable within 60 days of
June 30, 1999.
(4) Of the shares held by Mr. Shklar, 287,783 remained subject to our right of
repurchase as of June 30, 1999.
(5) Of the shares held by Mr. Finlay, 164,513 remained subject to our right of
repurchase as of June 30, 1999.
(6) Includes 250,000 shares held by the Roger W. Higgins and Priscilla Higgins
Revocable Trust. Mr. Higgins disclaims beneficial ownership of the shares
held by this entity except to the extent of his pecuniary interest in it. Of
the shares held by Mr. Higgins, 165,642 remained subject to our right of
repurchase as of June 30, 1999.
(7) Of the shares held by Mr. Aoki, 181,058 remained subject to our right of
repurchase as of June 30, 1999.
(8) Represents 1,990,097 shares held by Bessec Ventures IV L.P., 489,230 shares
held by Bessemer Venture Investors IV L.P. and 2,865,468 shares held by
Bessemer Venture Partners, L.P. Mr. Cowan, one of our directors, is a
general partner of the general partner of these entities. Mr. Cowan
disclaims beneficial ownership of shares held by these entities except to
the extent of his pecuniary interest in them.
(9) Includes 40,000 shares issuable upon exercise of an immediately exercisable
option, none of which are subject to our right of repurchase.
(10) Represents 3,403,361 shares held by VeriSign, Inc. Mr. Sclavos, one of our
directors, is president and chief executive officer of VeriSign. Mr. Sclavos
disclaims beneficial ownership of shares held by VeriSign except to the
extent of his pecuniary interest in it.
(11) Includes 300,000 shares held by an executive officer, all of which are
subject to our right of repurchase; 530,000 shares issuable upon exercise of
a warrant exercisable within sixty days of June 30, 1999; and 40,000 shares
issuable upon exercise of an immediately exercisable option, none of which
are subject to our right of repurchase.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 50,000,000 shares of common stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share. As
of June 30, 1999, and assuming the conversion of all outstanding preferred stock
into common stock upon the closing of this offering, there were outstanding
37,332,417 shares of common stock held of record by approximately 108
stockholders, options to purchase 2,268,234 shares of common stock and warrants
to purchase 1,286,957 shares of common stock.
Immediately before the closing of this offering, we plan to reincorporate in
the state of Delaware. Following the closing of this offering, we intend to
amend and restate our certificate of incorporation. Our certificate of
incorporation, bylaws and third amended and restated investors' rights
agreement, described below, are included as exhibits to the registration
statement of which this prospectus forms a part.
COMMON STOCK
DIVIDEND RIGHTS. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board may from time to time determine.
VOTING RIGHTS. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
NO PREEMPTIVE OR SIMILAR RIGHTS. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
RIGHT TO RECEIVE LIQUIDATION DISTRIBUTIONS. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to our
stockholders are distributable ratably among the holders of our common stock and
any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of Series A
preferred stock, Series B preferred stock and Series D preferred stock will be
converted into one share of common stock and each outstanding share of Series C
preferred stock will be converted into 1.06 shares of common stock. See notes 7
and 12 of notes to our financial statements for a description of this preferred
stock.
Following the offering, we will be authorized, subject to the limits imposed
by Delaware law, to issue preferred stock in one or more series, to establish
from time to time the number of shares to be included in each series, to fix the
rights, preferences and privileges of the shares of each wholly unissued series
and any of its qualifications, limitations or restrictions. Our board can also
increase or decrease the number of shares of any series, but not below the
number of shares of that series then outstanding, without any further vote or
action by the stockholders.
The board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in our control and may cause the market price
of our common stock to decline or impair the voting and other rights of the
holders of our common stock. We have no current plans to issue any shares of
preferred stock.
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<PAGE>
WARRANTS
As of June 30, 1999, we had outstanding the following warrants to purchase
our common stock:
<TABLE>
<CAPTION>
TOTAL NUMBER OF EXERCISE
SHARES SUBJECT PRICE
TO WARRANTS PER SHARE EXPIRATION DATE
- --------------- ------------- --------------------------------------------------
<C> <C> <S>
212,692 $ 0.025 January 21, 2002
72,727 0.55 December 31, 2002
72,727 0.55 June 30, 2003
530,000 0.65 December 31, 2001
71,753 0.65 June 30, 2004
32,615 0.65 3 years after this offering
294,443 0.90 3 years after this offering
</TABLE>
REGISTRATION RIGHTS
The holders of approximately 26,054,757 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
DEMAND REGISTRATION RIGHTS
At any time six months after this offering, stockholders with registration
rights can request that we file a registration statement so that they can
publicly sell their shares. The underwriters of any underwritten offering will
have the right to limit the number of shares to be included in the filed
registration statement.
WHO MAY MAKE A DEMAND. At any time six months after the closing of this
offering, GE Capital Equity Investments, Inc., VeriSign, Inc. or the holders of
at least 50% of the shares having registration rights has the right to demand
that we file a registration statement on a form other than Form S-3, as long as
the aggregate amount of securities to be sold under the registration statement
exceeds $7.5 million. If we are eligible to file a registration statement on
Form S-3, any holder of shares having registration rights has the right to
demand that we file a registration statement on Form S-3, as long as the amount
of securities to be sold under the registration statement exceed $750,000.
NUMBER OF TIMES HOLDERS CAN MAKE DEMANDS. We will be required to file one
registration statement on a form other than Form S-3 for each of GE Capital,
VeriSign and the holders of at least 50% of shares having registration rights.
If we are eligible to file a registration statement on Form S-3, we are not
required to file more than one registration statement during any 12 month
period.
POSTPONEMENT. We may postpone the filing of a registration statement for up
to 90 days once in a 12-month period if we determine that the filing would be
seriously detrimental to us or our stockholders.
PIGGYBACK REGISTRATION RIGHTS
If we register any securities for public sale, stockholders with
registration rights will have the right to include their shares in the
registration statement. The underwriters of any underwritten offering will have
the right to limit the number of shares to be included in the registration
statement.
EXPENSES OF REGISTRATION.
We will pay all expenses relating to any demand or piggyback registration.
However, we will not pay for any expenses of any demand registration if the
request is subsequently withdrawn by the holders of a majority of the shares
having registration rights, subject to very limited exceptions.
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<PAGE>
EXPIRATION OF REGISTRATION RIGHTS
The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier with
respect to a particular stockholder if that holder owns less than 1% of our
outstanding securities, that holder can resell all of its securities in a three
month period under Rule 144 of the Securities Act and we are subject to the
reporting requirements of the Securities Exchange Act of 1934.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our certificate of incorporation and our
bylaws described below may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.
DELAWARE LAW
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an "interested stockholder" unless:
- the transaction is approved by the board prior to the date the "interested
stockholder" attained that status;
- upon the closing of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
- on or subsequent to the date the "business combination" is approved by the
board and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
"interested stockholder."
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation, to be filed upon the closing of this
offering, states that our board of directors is divided into three classes. The
directors in each class will serve for a three-year term, with our stockholders
electing one class each year. For more information on the classification of our
board, please see "Management--Board Composition." This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us, because it generally
makes it more difficult for stockholders to replace a majority of the directors.
Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or a special meeting of the stockholders may
only be taken if it is properly brought before the meeting. Our stockholders may
not take any action by written consent instead of by a meeting. Our certificate
of incorporation provides that our board of directors may issue preferred stock
with voting or other rights without stockholder action. Our bylaws and
certificate of incorporation provide that special meetings of the stockholders
may only be called by our board, the chairman of our board, our chief executive
officer or our president.
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<PAGE>
Our bylaws provide that we will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to us, which may include services in connection with
takeover defense measures. These provisions may have the effect of preventing
changes in our management.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide them indemnification protection in the event our
certificate of incorporation is subsequently amended. For more information,
please see "Management-- Indemnification of Directors and Executive Officers and
Limitation of Liability."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is . The
address of our transfer agent and registrar is , and its telephone
number at this location is .
LISTING
We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading symbol "KEYN."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity
securities. Furthermore, as described below, no shares currently outstanding
will be available for sale immediately after this offering due to contractual
restrictions on resale. Sales of substantial amounts of our common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants. Of these shares, the
shares sold in this offering will be freely tradable without restriction under
the Securities Act unless purchased by our "affiliates." The remaining shares
will become eligible for public sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
SHARES THAT
DATE MAY BE SOLD COMMENT
- ------------------------------- -------------------------- ----------------------------------------------------
<S> <C> <C>
Date of this Prospectus 0 Freely tradable shares
181 days after the date of this 29,720,911 Underwriter's lock-up released. These shares may be
Prospectus sold under Rule 144, 144(k) or 701
April 26, 2000 6,807,583 Restricted securities held for at least one year may
be sold under Rule 144
April 30, 2000 644,826 Restricted securities held for at least one year may
be sold under Rule 144
May 11, 2000 159,097 Restricted securities held for at least one year may
be sold under Rule 144
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to sell, dispose of,
loan, pledge or grant any rights with respect to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of BancBoston Robertson Stephens
Inc. for a period of 180 days after the date of this prospectus.
BancBoston Robertson Stephens may choose to release some of these shares
from these restrictions prior to the expiration of this 180-day period, although
it has no current intention to do so.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
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<PAGE>
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, shares that have been held by a non-affiliate for at least two years
may be sold in the open market immediately after the lock-up agreements expire.
RULE 701
Any employee, officer or director of, or consultant to, us who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 26,054,757 shares of common
stock, or their transferees, will be entitled to certain rights with respect to
the registration of those shares under the Securities Act. For a discussion of
these rights please see "Description of Capital Stock--Registration Rights."
After these shares are registered, they will be freely tradable without
restriction under the Securities Act.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
on Form S-8 under the Securities Act covering shares of common stock reserved
for issuance under our stock option and employee stock purchase plans. As of
June 30, 1999, options to purchase 2,268,234 shares of common stock were issued
and outstanding.
Because these options are immediately exercisable, upon the expiration of
the lock-up agreements described above, options to purchase at least 2,268,234
shares of common stock will be immediately exercisable, based on options
outstanding as of June 30, 1999. This registration statement on Form S-8 is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under this
registration statement will, subject to Rule 144 volume limitations applicable
to our affiliates, be available for sale in the open market immediately after
the lock-up agreements expire.
WARRANTS
As of June 30, 1999, we had outstanding warrants to purchase 1,286,957
shares of common stock. When these warrants are exercised and the exercise price
is paid in cash, the shares must be held for one year before they can be sold
under Rule 144. Warrants to purchase up to 1,074,264 shares of common stock
contain "net exercise provisions." These provisions allow a holder to exercise
the warrant for a lesser number of shares of common stock instead of paying
cash. The number of shares which would be issued in this case would be based
upon the market price of the common stock at the time of the net exercise. If
the warrant had been held for at least one year at the time of the net exercise,
the shares of common stock could be publicly sold under Rule 144. After the
lock-up agreements described above expire, each of the outstanding warrants will
have been outstanding for at least one year.
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, have entered into an
underwriting agreement with us to purchase the number of shares of common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for all of the shares listed below if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BancBoston Robertson Stephens Inc...........................................
Hambrecht & Quist LLC.......................................................
Dain Rauscher Wessels.......................................................
----------------
Total...................................................................
----------------
----------------
</TABLE>
Shares sold by the underwriters will initially be offered to the public at
the initial public offering price set forth on the cover page of this
prospectus. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to per share from the initial public offering price.
These securities dealers may resell any shares purchased from the underwriters
to other brokers or dealers at a discount of up to per share from the inital
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment, to purchase approximately the same
percentage of these additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of the
shares in this offering. If purchased, these additional shares will be
sold by the underwriters on the same terms as those on which the shares
are being sold.
INDEMNIFICATION. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENT. Each of our officers, directors and securityholders
agreed with the representatives or us for a period of 180 days after the
effective date of this prospectus, not to dispose of or hedge any shares of
common stock, or securities convertible into or exchangeable for shares of
common stock, now owned or later acquired by them without the prior written
consent of BancBoston Robertson Stephens Inc. However, BancBoston Robertson
Stephens Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements. All
of the shares of common stock subject to the lock-up agreements will be eligible
for sale in the public market upon the expiration of the lock-up agreements,
subject to holding period, volume limitations and other conditions of Rule 144.
FUTURE SALES. In addition, we have agreed that during the period of 180
days following the effective date of this prospectus, we will not, without the
prior written consent of BancBoston Robertson Stephens Inc., subject to limited
exceptions, including in connection with acquisitions, dispose of or hedge any
shares of common stock, or any securities convertible into, exercisable for or
exchangeable for shares of
67
<PAGE>
common stock, other than our sales of shares in this offering, the issuance of
common stock upon the exercise of outstanding options or warrants or our
issuance of options or shares under existing stock option or stock purchase
plans. See "Shares Eligible for Future Sales."
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
DETERMINATION OF OFFERING PRICE. Prior to this offering, there has been no
public market for our common stock. Consequently, the initial public offering
price for the common stock in this offering has been determined through
negotiations among us and the representatives of the underwriters. The factors
considered in these negotiations included prevailing market conditions, our
financial information, the market valuation of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the business potential of the industry in which we compete, an
assessment of our management, our past and present operation, the prospects for
our future revenues and other factors deemed relevant.
STABILIZATION. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, some persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids that may have the effect
of stabilizing or maintaining the market price of the common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common stock on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common stock. A
"syndicate covering transaction" is the bid for the purchase of the common stock
on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by this underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by this underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
RESERVED SHARES. The underwriters have reserved for sale at the initial
public offering price up to 5% of the common stock in this offering for
individuals designated by us who have expressed an interest in purchasing shares
of common stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer any reserved shares not so purchased to the
general public on the same basis as other shares in this offering described
above.
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<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus. Brobeck,
Phleger & Harrison LLP, Palo Alto, California, will pass upon certain legal
matters in connection with this offering for the underwriters. As of June 30,
1999, an investment partnership and a partner of Fenwick & West LLP beneficially
owned an aggregate of 126,923 shares of our common stock.
EXPERTS
The financial statements of Keynote as of September 30, 1997 and 1998, and
for each of the years in the three-year period ended September 30, 1998, have
been included in this prospectus and in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of KPMG as experts in accounting and
auditing.
Effective February 1999, our board of directors engaged KPMG as our
principal accountants to audit our financial statements. Keynote did not consult
with KPMG on any accounting or financial reporting matters in the periods before
their appointment. The change in accountants was approved by the board. Arthur
Andersen LLP served as our independent auditors from inception until the
dismissal of Arthur Andersen effective February 1999, which was approved by our
board. Arthur Andersen performed the first full fiscal year audit of our
financial statements for the then fiscal year ended December 31, 1996, as well
as the audit for the fiscal year ended December 31, 1997. The report of Arthur
Andersen on our financial statements prepared in connection with the December
31, 1996 and 1997 audits was unqualified. Furthermore, in connection with the
December 31, 1997 audit and during the subsequent interim period prior to the
dismissal of Arthur Andersen, there were no disagreements between Arthur
Andersen and us on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make
reference to the subject matter of such disagreements in connection with its
report.
Subsequent to KPMG's completion of the audit for the fiscal year ended
December 31, 1998, we changed our fiscal year end from December 31 to September
30. As the prior year audits performed by Arthur Andersen were as of December
31, KPMG audited the prior periods ended September 30 for the purposes of
inclusion in this prospectus.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus does not contain all of
the information set forth in the registration statement and related exhibits and
schedules. For further information with respect to us and our common stock being
offered, see the registration statement and the related exhibits and schedules.
Statements contained in this prospectus concerning the contents of any contract
or any other document are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement, please see the copy
of the contract or document that has been filed. Each statement in this
prospectus relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit. The registration statement and the related
exhibits and schedules, may be inspected without charge at the principal office
of the Securities and Exchange Commission located at Room 1024, 450 Fifth
Street, Washington, D.C., 20549. Copies of all or any part of the registration
statement may be obtained from that office after payment of fees prescribed by
the Securities and Exchange Commission. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission at http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial data for the first three
quarters of each year.
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<PAGE>
KEYNOTE SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Form of Independent Auditors' Report....................................................................... F-2
Balance Sheets as of September 30, 1997 and 1998, and March 31, 1999 (unaudited)........................... F-3
Statements of Operations for the years ended September 30, 1996, 1997 and 1998, and for the six months
ended March 31, 1998 and 1999 (unaudited)................................................................ F-4
Statements of Stockholders' Equity (Deficit) for the years ended September 30, 1996, 1997 and 1998, and for
the six months ended March 31, 1999 (unaudited).......................................................... F-5
Statements of Cash Flows for the years ended September 30, 1996, 1997 and 1998, and for the six months
ended March 31, 1998 and 1999 (unaudited)................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
When the events referred to in note 12(e) to the financial statements have
been consumated, we will be in a position to render the following report:
/s/ KPMG LLP
FORM OF INDEPENDENT AUDITORS' REPORT
The Board of Directors
Keynote Systems, Inc.:
We have audited the accompanying balance sheets of Keynote Systems, Inc.
(the Company) as of September 30, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended September 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Keynote Systems, Inc. as of
September 30, 1997 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended September 30, 1998,
in conformity with generally accepted accounting principles.
Mountain View, California
July 2, 1999 except as to Note 12(e),
which is as of , 1999
F-2
<PAGE>
KEYNOTE SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1,150 $ 2,293 $ 3,546 $ 3,546
Accounts receivable, less allowance for doubtful
accounts of $10, $22, and $33, as of September 30,
1997 and 1998 and March 31, 1999..................... 55 454 775 775
Prepaids and other current assets..................... 32 55 231 231
--------- --------- --------- -----------
Total current assets................................ 1,237 2,802 4,552 4,552
Property and equipment, net............................. 431 1,105 1,334 1,334
Other assets............................................ 2 11 172 172
--------- --------- --------- -----------
$ 1,670 $ 3,918 $ 6,058 $ 6,058
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable...................... $ 83 $ 194 $ 796 $ 796
Accounts payable and accrued expenses................. 79 206 286 286
Deferred revenue...................................... 69 238 522 522
--------- --------- --------- -----------
Total current liabilities........................... 231 638 1,604 1,604
Notes payable, less current portion..................... 199 303 3,012 3,012
--------- --------- --------- -----------
Total liabilities................................... 430 941 4,616 4,616
--------- --------- --------- -----------
Commitments
Redeemable convertible preferred stock, $0.001 par
value; actual-- 21,781,478, 39,781,478 and 39,781,478
shares authorized as of September 30, 1997 and 1998,
and March 31,1999, respectively; 10,745,285,
18,443,251, and 18,443,251 shares issued and
outstanding as September 30, 1997 and 1998, and March
31, 1999 respectively; aggregate liquidation
preference of $3,843, $8,564 and $8,564 as of
September 30, 1997 and 1998, and March 31, 1999,
respectively; pro forma--39,781,478 shares authorized;
no shares issued and outstanding...................... 3,828 8,529 8,581 --
Stockholders' equity (deficit):
Common stock, $0.001 par value; 40,000,000 shares
authorized; actual--7,190,997, 9,854,604 and
11,087,458 shares issued and outstanding as of
September 30, 1997 and 1998, and March 31, 1999,
respectively; pro forma--40,000,000 shares
authorized; 29,094,981 shares issued and
outstanding.......................................... 7 10 11 29
Additional paid-in capital............................ 99 342 1,637 10,200
Deferred stock-based compensation..................... -- -- (941) (941)
Stockholder notes receivable.......................... (34) (326) (405) (405)
Accumulated deficit................................... (2,660) (5,578) (7,441) (7,441)
--------- --------- --------- -----------
Total stockholders' equity (deficit).............. (2,588) (5,552) (7,139) 1,442
--------- --------- --------- -----------
$ 1,670 $ 3,918 $ 6,058 $ 6,058
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
KEYNOTE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription services....................................... $ -- $ 81 $ 1,539 $ 545 $ 2,164
Consulting services......................................... 30 -- -- -- 26
--------- --------- --------- --------- ---------
Total revenues............................................ 30 81 1,539 545 2,190
--------- --------- --------- --------- ---------
Expenses:
Cost of subscription services............................... -- 209 580 175 453
Cost of consulting services................................. -- -- -- -- 87
Research and development.................................... 392 732 1,226 499 663
Sales and marketing......................................... 186 817 1,529 577 1,563
Operations.................................................. -- 63 514 121 549
General and administrative.................................. 80 278 647 308 589
--------- --------- --------- --------- ---------
Total expenses............................................ 658 2,099 4,496 1,680 3,904
--------- --------- --------- --------- ---------
Loss from operations...................................... (628) (2,018) (2,957) (1,135) (1,714)
Interest income (expense), net................................ 6 (31) 39 (8) (149)
--------- --------- --------- --------- ---------
Net loss.................................................. $ (622) $ (2,049) $ (2,918) $ (1,143) $ (1,863)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net loss per share.......................... $ (0.11) $ (0.42) $ (0.58) $ (0.21) $ (0.26)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing basic and diluted net loss per
share....................................................... 5,465 4,868 5,071 5,481 7,179
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
KEYNOTE SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED STOCKHOLDER TOTAL
------------------- PAID-IN STOCK-BASED NOTES ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE DEFICIT EQUITY (DEFICIT)
---------- ------- ---------- ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of September 30,
1995........................ 3,858,095 $ 3 $ 20 $ -- $ -- $ 11 $ 34
Issuance of common stock
pursuant to exercise of
stock options for cash and
notes and purchase of
restricted shares with
notes....................... 2,881,905 3 67 -- (16) -- 54
Repurchase of common stock.... (1,333,334) (1) (32) -- -- -- (33)
Net loss...................... -- -- -- -- -- (622) (622)
---------- ------- ---------- ----- ----- ----------- -------
Balances as of September 30,
1996........................ 5,406,666 5 55 -- (16) (611) (567)
Issuance of common stock
pursuant to exercise of
stock options for cash and
notes and purchase of
restricted shares with
notes....................... 1,804,331 2 45 -- (32) -- 15
Repurchase of common stock.... (20,000) -- (1) -- -- -- (1)
Repayment of stockholder note
receivable.................. -- -- -- -- 14 -- 14
Net loss...................... -- -- -- -- -- (2,049) (2,049)
---------- ------- ---------- ----- ----- ----------- -------
Balances as of September 30,
1997........................ 7,190,997 7 99 -- (34) (2,660) (2,588)
Issuance of common stock
pursuant to exercise of
stock options for cash and
notes and purchase of
restricted shares with
notes....................... 3,690,232 4 363 -- (294) -- 73
Repurchase of common stock.... (1,026,625) (1) (120) -- -- -- (121)
Repayment of stockholder note
receivable.................. -- -- -- -- 2 -- 2
Net loss...................... -- -- -- -- -- (2,918) (2,918)
---------- ------- ---------- ----- ----- ----------- -------
Balances as of September 30,
1998........................ 9,854,604 10 342 -- (326) (5,578) (5,552)
Issuance of common stock
pursuant to exercise of
stock options for cash and
notes and purchase of
restricted shares with notes
(unaudited)................. 1,232,854 1 208 -- (79) -- 130
Deferred compensation related
to stock option grants
(unaudited)................. -- -- 1,028 (1028) -- -- --
Amortization of stock-based
compensation (unaudited).... -- -- -- 87 -- -- 87
Compensation related to
performance based stock
options (unaudited)......... -- -- 59 -- -- -- 59
Net loss (unaudited).......... -- -- -- -- -- (1,863) (1,863)
---------- ------- ---------- ----- ----- ----------- -------
Balances as of March 31, 1999
(unaudited)................. 11,087,458 $ 11 $1,637 $(941) $(405) $(7,441) $(7,139)
---------- ------- ---------- ----- ----- ----------- -------
---------- ------- ---------- ----- ----- ----------- -------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
KEYNOTE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (622) $ (2,049) $ (2,918) $ (1,143) $ (1,863)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization................. 27 133 336 117 291
Amortization of discount on notes............. -- 2 10 6 16
Amortization of stock-based compensation...... -- -- -- -- 87
Compensation related to performance based
stock options................................ -- -- -- -- 59
Changes in operating assets and liabilities:
Accounts receivable......................... 14 (55) (399) (121) (321)
Prepaids and other assets................... (23) (9) (32) (10) (337)
Accounts payable and accrued expenses....... 13 61 128 112 80
Deferred revenue............................ -- 69 169 (20) 284
--------- --------- --------- --------- ---------
Net cash used for operating activities.... (591) (1,848) (2,706) (1,059) (1,704)
--------- --------- --------- --------- ---------
Cash flows used for investing activities--
Purchases of property and equipment............. (157) (423) (1,011) (228) (519)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Repayments of notes payable................... -- (38) (134) (48) (98)
Proceeds from issuance of notes payable....... -- 320 338 65 3,394
Issuance of warrants to purchase preferred
stock in connection with notes............... -- 16 41 -- 50
Net proceeds from issuance of preferred
stock........................................ 1,262 1,650 4,661 4,661 --
Proceeds from bridge financing................ -- 900 -- -- --
Proceeds from issuance of common stock........ 54 15 73 1 130
Repurchase of common stock.................... (33) (1) (121) -- --
Repayments of stockholder notes............... -- 14 2 -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities... 1,283 2,876 4,860 4,679 3,476
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents......... 535 605 1,143 3,392 1,253
Cash and cash equivalents at beginning of
period.......................................... 10 545 1,150 1,150 2,293
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period........ $ 545 $ 1,150 $ 2,293 $ 4,542 $ 3,546
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Noncash financing activities:
Conversion of bridge financing to preferred
stock........................................ $ -- $ 900 $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Issuance of common stock for stockholder notes
receivable................................... $ 16 $ 32 $ 294 $ -- $ 79
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred compensation related to stock option
grants and performance based stock options... $ -- $ -- $ -- $ -- $ 1,028
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(1) THE COMPANY
Keynote Systems, Inc. (the Company) was incorporated on June 15, 1995, for
the purpose of developing and licensing new technologies to measure and manage
the responsiveness of Web-based business applications on the Internet,
intranets, and extranets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Subscription services consists of fees from subscriptions to the Company's
Internet measurement and diagnostic services. Subscription revenues are
recognized ratably over the service period, generally ranging from one to twelve
months. Consulting revenue is recognized as the services are performed,
typically a period of one month. For longer consulting projects, the Company
anticipates recognizing revenue on a percentage of completion basis.
Cost of subscription revenues consists of co-location fees to Internet
service providers for deployment of our computer measurement agents around the
world, depreciation, maintenance and other equipment charges for our measurement
infrastructure. Cost of consulting services consists of compensation for
consulting personnel and related costs. Operations expenses consist primarily of
compensation and related costs for management personnel, technical support
employees and consultants who manage and maintain our measurements and
headquarter infrastructure and support our customer base.
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET
In June 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission (SEC) that would permit
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering (IPO). If the offering is consummated under the
terms presently anticipated, all the then outstanding shares of the Company's
Series A, Series B and Series D redeemable convertible preferred stock will
automatically convert into shares of common stock on a one-for-one basis and
each outstanding share of Series C redeemable convertible preferred stock will
convert into 1.06 shares of common stock upon the closing of the proposed IPO.
The conversion of all of the redeemable convertible preferred stock has been
reflected in the accompanying unaudited pro forma balance sheet as if it had
occurred on March 31, 1999.
F-7
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) CASH AND CASH EQUIVALENTS
The Company considers all cash and highly liquid investments with an
original maturity of three months or less to be cash equivalents. As of
September 30, 1997 and 1998 and March 31, 1999, cash and cash equivalents
consist of checking and money market accounts. The Company is exposed to credit
risk in the event of default of the financial institutions to the extent of the
amounts recorded on the balance sheet.
(e) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally three years.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the assets or the lease term.
(F) COMPREHENSIVE INCOME (LOSS)
The Company has no components of other comprehensive loss for any periods
presented.
(G) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable and equipment notes payable
approximates fair market value. Cash and cash equivalents and accounts
receivable approximate fair market value due to their short term nature.
Equipment notes approximate fair market value as interest rates on these notes
approximate market rates. Financial instruments that subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable.
Credit risk is concentrated in North America. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company has had immaterial
write-offs of accounts receivable to date. Based on its ongoing credit
evaluations, the Company has adequately reserved for doubtful accounts as of the
date of each balance sheet presented herein.
(H) PREPAIDS AND OTHER ASSETS
Prepaids and other assets consist principally of deposits under operating
leases, advances to employees and prepayments.
(I) STOCK-BASED COMPENSATION
The Company accounts for stock option grants under SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, which permits the use of the intrinsic-value
method in accordance with Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. Expense
associated with stock-based compensation is being amortized ratably over the
vesting period of the individual award.
F-8
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
(K) IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(L) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred until technological
feasibility has been established. To date, the Company's software has been
available for general release concurrent with the establishment of technological
feasibility and, accordingly, no development costs have been capitalized.
(M) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company classifies its investments in debt securities as
available-for-sale. Available-for-sale securities are carried at fair market
value, which approximates amortized cost.
(N) UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, the accompanying unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, for the fair presentation of the Company's balance sheet
as of March 31, 1999 and results of operations and its cash flows for the six
months ended March 31, 1998 and 1999. The results reported for the interim
period are not indicative of the results for the year.
(O) NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock excluding shares of restricted stock subject
to repurchase summarized below. Diluted net loss
F-9
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
per share is computed using the weighted-average number of shares of common
stock outstanding and, when dilutive, potential common shares from options and
warrants to purchase common stock using the treasury stock method and from
convertible securities using the "if-converted" basis.
The following potential common shares have been excluded from the
computation of diluted net loss per share for all periods presented because the
effect would have been antidilutive (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock
options............................ 150 595 1,484 4,302 1,452
Shares of restricted stock subject to
repurchase......................... 580 1,935 4,072 1,532 1,869
Shares issuable pursuant to warrants
to purchase:
convertible preferred stock........ -- 73 744 645 1,022
common stock....................... -- 220 220 220 220
Shares of convertible preferred stock
on an "as-if" converted basis...... 6,078 10,745 18,443 18,443 18,443
</TABLE>
The weighted-average exercise price of outstanding stock options was $.03
$.07, $.11, $.10, and $.42 for the years ended September 30, 1996, 1997 and
1998, and for the six months ended March 31, 1998 and 1999, respectively. The
weighted-average purchase price of restricted stock was $.03, $.03, $.08, $.03,
and $.11 for the years ended September 30, 1996, 1997 and 1998, and for the six
months ended March 31, 1998 and 1999, respectively. The weighted-average
exercise price of the convertible preferred stock warrants was $.55, $.63, $.63,
and $.70 for the years ended September 30, 1997 and 1998, and for the six months
ended March 31, 1998 and 1999, respectively. The weighted average exercise price
of common stock warrants was $.03 for all periods presented.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SFAS No. 133 in fiscal 2001.
(3) STOCKHOLDER NOTES RECEIVABLE
The Company has outstanding full recourse stockholder notes receivable
related to the purchase of common stock. The notes have a term of 5 years and
bear interest at 6% to 7% per annum.
F-10
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Computer equipment and software............................... $ 553 $ 1,536 $ 2,046
Furniture and fixtures........................................ 24 52 61
Leasehold improvements........................................ 16 16 16
--------- --------- -----------
593 1,604 2,123
Less accumulated depreciation and amortization................ (162) (499) (789)
--------- --------- -----------
$ 431 $ 1,105 $ 1,334
--------- --------- -----------
--------- --------- -----------
</TABLE>
(5) NOTES PAYABLE
Notes payable comprised the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
--------------- -----------
<S> <C> <C>
Equipment notes at an annual interest rate of between 8.86% and
10.25% payable in monthly installments, aggregating approximately
$44,000 monthly through July 1999, increasing to $109,000 monthly
through April 2002............................................... $ 497 $ 3,058
Promissory note at an annual interest rate of 8.25% payable in
February 2002.................................................... -- 750
----- -----------
497 3,808
Less current portion............................................... 194 796
----- -----------
$ 303 $ 3,012
----- -----------
----- -----------
</TABLE>
As of March 31, 1999, the aggregate maturities of notes payable for the
fiscal years ending September 30, 1999, 2000, 2001 and 2002 are as follows:
$374,000, $1,354,000, $1,348,000 and $732,000, respectively. The Company has
granted a security interest in substantially all of its assets to secure the
equipment and promissory notes.
In connection with certain of the equipment notes, the Company issued
warrants for the purchase of 145,454 shares of Series B redeemable convertible
preferred stock at $0.55 per share and warrants for the purchase of 376,238
shares of Series C redeemable convertible preferred stock at $0.65 and $0.90 per
share. Of the 145,454 Series B warrants issued, 72,727 expire on December 31,
2002, and 72,727 expire on June 30, 2003. The Series C warrants expire by June
30, 2004. As of September 30, 1998, the lender had not exercised the warrants.
The fair value of the warrants on the dates of issuance determined using the
Black-Scholes option pricing model has been recorded in Preferred Stock and as a
discount on the notes payable. The fair value of the warrants granted in each of
the years ended September 30, 1997 and 1998 and the six months ended March 31,
1999 were $16,000, $41,000 and $50,000, respectively. The fair value of each
warrant was estimated using the following assumptions: no dividends, risk free
interest rate of between 5.5% and 6.7%, volatility of 50% and a contractual life
of five years. The note discount is being amortized to interest expense using
the interest method over the term of the related notes payable.
F-11
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(6) WARRANTS
In connection with a $900,000 1997 bridge financing which later converted to
shares of Series B preferred stock, the Company issued warrants to purchase
360,000 common shares. The warrants are exercisable at $0.025 per share and
expire on the earlier of January 21, 2002, or the closing of an underwritten
initial public offering of the Company's common stock. To date, warrants to
purchase 140,000 shares of common stock were exercised and warrants to purchase
220,000 shares of common stock remain outstanding. The fair value of each
warrant was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions: no dividends, risk free interest
rate of 6.32%, volatility of 50% and contractual life of 5 years. The fair value
of the warrants at the date of grant was not material. In December 1997, the
Company issued a warrant to an officer to purchase 500,000 shares of Series C
redeemable convertible preferred stock at a price of $0.65 per share,
representing the fair value of a Series C redeemable convertible preferred
share. This warrant expires on December 31, 2001. The $0.65 per share represents
the estimated fair value of the warrant at the date of grant.
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock outstanding as of September 30, 1998,
is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND
DESIGNATED OUTSTANDING CARRYING VALUE
------------ ------------ --------------
<S> <C> <C> <C>
Series:
Series A........................................ 6,078,444 6,078,444 $ 1,261,790
Series A1....................................... 6,078,444 -- --
Series B........................................ 4,812,295 4,666,841 2,582,371
Series B1....................................... 4,812,295 -- --
Series C........................................ 9,000,000 7,262,238 4,685,580
Series C1....................................... 9,000,000 -- --
------------ ------------ --------------
39,781,478 18,007,523 $ 8,529,741
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The issuance costs associated with the issuance of Series A, B, and C
redeemable convertible preferred stock was approximately $15,000, $16,000 and
$60,000, respectively.
The rights and preferences of Series A, B, and C redeemable convertible
preferred stock are as follows:
- Each share of preferred stock is convertible into one share of common
stock at the option of the stockholder, subject to adjustments to prevent
dilution in the event of a stock split, stock dividend, combination, or
recapitilization.
- Each share will automatically convert into common stock in the event of
the closing of an underwritten public offering of the Company's common
stock resulting in proceeds of more than $10,000,000 for an offering price
not less than $3.25 per share.
- In the event of any liquidation, dissolution, or winding up of the
Company, holders of Series A, B, and C preferred stock are entitled to
receive, in preference to holders of common stock, the amount of $0.21,
$0.55, and $0.65 per share, respectively, plus all declared but unpaid
dividends prior to any
F-12
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
distribution to the holders of common stock. In the event funds are not
available to sufficiently satisfy the full preferential amount, the entire
assets of the Company will be distributed to the holders of preferred
stock ratably based on the total preferential amount of preferred stock
held.
- The holders of Series A, B, and C preferred stock are entitled to receive
noncumulative dividends at an annual rate of $0.02, $0.06, and $0.07 per
share, respectively, as and if declared by the Board of Directors.
Dividends declared are prior and in preference to the payment of dividends
on common stock. To date, no dividends have been declared.
- Each share of preferred stock is entitled to voting rights equal to the
number of shares of common stock into which such preferred stock is
convertible.
- At the election of at least a majority of the holders of preferred stock,
the Company shall be required to redeem the outstanding Series A, B, and C
preferred stock in three equal annual installments beginning on April 15,
2002. Such redemptions shall be at a purchase price equal to the original
purchase price per share plus any declared and unpaid dividends.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) STOCK OPTION PLANS
As of March 31, 1999, the Company is authorized to issue up to 9.7 million
shares of common stock in connection with its 1996 and 1999 stock option plans
(the Plans) to employees, directors, and consultants. The Plans provide for the
issuance of incentive stock options or nonqualified stock options.
The stock options are generally immediately exercisable subject to a
restricted stock purchase agreement whereby the Company has the right to
repurchase the unvested portion of the shares upon the voluntary or involuntary
termination of the purchaser's employment with the Company at the original
issuance cost. The Company's right of repurchase lapses with respect to 25% of
the shares after one year, and ratably on a monthly basis over the following
three years. Through March 31, 1999, the Company has issued shares under the
Plans, of which 1.9 million are subject to repurchase at a weighted-average
price of $0.11 per share. Certain of these restricted shares were issued to
officers of the Company for full recourse promissory notes with interest rates
ranging from 6% to 7% and terms of 5 years.
Under the Plans, the exercise price for incentive stock options is at least
100% of the stock's fair market value on the date of the grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonqualified stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for employees owning more than 10% of the voting power of all
classes of stock and no less than 85% for employees owning less than 10% of the
voting power of all classes of stock. Options expire 10 years after the date of
grant.
(b) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted because
F-13
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
the exercise price of each option equaled or exceeded the fair value of the
underlying common stock as of the grant date for each stock option, except for
stock options granted from October 1998 to April 1999. With respect to the stock
options granted from October 1998 to April 1999, the Company recorded deferred
stock compensation of $1,028,000 for the difference at the grant date between
the exercise price of each stock option granted and the fair value of the
underlying common stock. This amount is being amortized on a straight line basis
over the vesting period, generally four years. Had the Company determined
compensation costs based on the fair value at the grant date for its stock
options under SFAS No. 123 for all of the Company's stock-based compensation
plans, net loss and basic and diluted net loss per share would have been as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net loss (in thouands):
As reported................................................... $ (622) $ (2,049) $ (2,918)
--------- --------- ---------
--------- --------- ---------
Pro forma..................................................... $ (622) $ (2,051) $ (2,934)
--------- --------- ---------
--------- --------- ---------
Basic and diluted net loss per share:
As reported................................................... $ (0.11) $ (0.42) $ (0.58)
--------- --------- ---------
--------- --------- ---------
Pro forma..................................................... $ (0.11) $ (0.42) $ (0.58)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends, risk free interest rate of 6.60%, 6.22% and 5.55% for fiscal 1996,
1997, and 1998, respectively, and expected life of 3.77, 3.17, and 2.84 years
for fiscal 1996, 1997, and 1998, respectively.
F-14
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
A summary of activity under the Company's option plans is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31, 1999
---------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1997 1998
------------------ ----------------- -----------------
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................... -- $ -- 150 $ 0.03 595 $ 0.07 1,484 $ 0.11
Granted............................ 739 0.03 2,212 0.04 4,693 0.11 1,344 0.51
Exercised.......................... (580) 0.03 (1,664) 0.03 (3,690) 0.10 (1,233) 0.17
Canceled........................... (9) 0.03 (103) 0.03 (114) 0.07 (143) 0.12
------ ------ ------ ------
Outstanding at end of period....... 150 0.03 595 0.07 1,484 0.11 1,452 0.42
------ ------ ------ ------
------ ------ ------ ------
Options exercisable at end of
period........................... 60 0.03 370 0.07 1,284 0.11 1,322 0.42
------ ------ ------ ------
------ ------ ------ ------
Weighted-average fair value of
options granted during the period
with exercise prices equal to
fair value at date of grant...... 0.01 0.01 0.02 --
Weighted-average fair value of
options granted during the period
with exercise prices less than
fair value at date of grant...... -- -- -- 0.85
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ------------- ------------- --------------- ----------- ----------- -----------
$0.03 155 8.5 $ 0.03 155 $ 0.03
0.10 288 8.9 0.10 228 0.10
0.12 1,041 8.6 0.12 901 0.12
----- -----
1,484 8.6 0.11 1,284 0.11
----- -----
----- -----
</TABLE>
The Company has granted approximately 170,000 performance based stock
options to various employees. The Company has accounted for the options in
accordance with APB 25 and Financial Accounting Standards Board ("FASB")
Interpretation No. 28. As a result, the Company recorded a compensation charge
of $59,000 during the six-month period ended March 31, 1999.
F-15
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(9) INCOME TAXES
The differences between the income tax benefit computed at the federal
statutory rate and the Company's tax provision for all periods presented
primarily relate to net operating losses not benefited. The components of net
deferred tax are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Deferred start-up costs...................................... $ 300 $ 235 $ 202
Net operating loss carryforwards............................. 710 1,832 2,515
Tax credit carryforwards..................................... 56 141 190
Other........................................................ 11 21 54
--------- --------- -----------
Total deferred tax assets.................................... 1,077 2,229 2,961
Valuation allowance.......................................... (1,077) (2,229) (2,961)
--------- --------- -----------
Net deferred tax assets...................................... $ -- $ -- $ --
--------- --------- -----------
--------- --------- -----------
</TABLE>
In light of the Company's recent history of operating losses, the Company
has provided a valuation allowance for all of its deferred tax assets as it is
presently unable to conclude that it is more likely than not that the deferred
tax assets will be realized.
As of September 30, 1998 the Company had net operating loss carryforwards
for federal income tax reporting purposes of approximately $4,822,000 available
to reduce future income subject to income taxes. As of September 30, 1998, the
Company had net operating loss carryforwards for state income tax purposes of
approximately $3,308,000 available to reduce future income subject to income
taxes. The federal net operating loss carryforwards expire in various periods
through 2018. State net loss carryforwards expire in various periods through
2003. In addition, as of September 30, 1998, the Company had federal and state
research and development tax credit carryforwards of approximately $97,000. The
federal credit carryforwards expire in various periods through 2018. As of
September 30, 1998, the Company had California research and development tax
credit carryforwards of approximately $66,000. The California credit may be
carried over indefinitely. The U.S. Tax Reform Act of 1986 contains provisions
that limit the net operating loss carryforwards and research and development
credits available to be used in any given year upon the occurrence of certain
events, including a significant change to ownership.
(10) LEASES
The Company leases its facilities and certain equipment under noncancelable
operating leases, which expire on various dates through December 2000. Rent
expense for the years ended September 30, 1996,
F-16
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(10) LEASES (CONTINUED)
September 30, 1997 and September 30, 1998 and for the six months ended March 31,
1998 and 1999 was approximately $21,000, $84,000, $115,000, $56,000 and $58,000.
Minimum future lease payments under noncancelable operating leases as of
September 30, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
- -------------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 554
2000........................................................................... 726
---------
$ 1,280
---------
---------
</TABLE>
(11) GEOGRAPHIC, SEGMENT, AND SIGNIFICANT CUSTOMER INFORMATION
In fiscal 1999, the Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
the manner in which public companies report information about operating segments
in annual and interim financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way management organizes the operating segments within the Company for making
operating decisions and assessing financial performance. The Company's chief
operating decision-maker is considered to be the chief executive officer (CEO).
The financial information that the CEO reviews is identical to the information
presented in the accompanying statements of operations. Therefore, the Company
has determined that it operates in a single operating segment: developing and
licensing new technologies to measure and manage the responsiveness of Web-based
business applications on the Internet, intranets, and extranets.
The Company markets its products from its operations in the United States.
International sales are primarily to customers in Europe. These sales, and
foreign owned assets are not significant.
Significant customer information is as follows:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUE
------------------------------------------
SIX MONTHS PERCENT OF
YEARS ENDED SEPTEMBER TOTAL ACCOUNTS RECEIVABLE
30, ENDED MARCH 31, ----------------------------
------------------------ --------------- SEPTEMBER 30, MARCH 31,
1996 1997 1998 1998 1999 1998 1999
------ ------ ------ ------ ------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Customer A.................... -- 11% 1% 2% -- -- --
Customer B.................... -- 1% 15% 20% 8% 10% 9%
</TABLE>
(12) EVENTS SUBSEQUENT TO MARCH 31, 1999
(a) COMMON AND SERIES D PREFERRED STOCK
On April 26, 1999, the Company issued 876,961 shares of common stock for
$1,938,084 and 6,734,545 shares of Series D redeemable convertible preferred
stock for $14,883,344. Both common and Series D preferred stock were issued at
$2.21 per share. The rights and preferences of the Series D preferred stock are
F-17
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND MARCH 31, 1998 AND 1999
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
(12) EVENTS SUBSEQUENT TO MARCH 31, 1999 (CONTINUED)
substantially the same as the rights and preferences of Series A, B, and C
preferred stock detailed in Note 8, except that the liquidation preference of
Series D is $2.21 per share, and each Series D preferred stock is entitled to
receive noncumulative dividends at the Series D annual rate of $0.22 per share.
(b) OPTION GRANTS
Subsequent to March 31, 1999, the Company granted 871,194 stock options with
exercise prices ranging from $1.60 to $4.00. Additionally, as a result of
anti-dilution provisions contained in the Series C preferred stock agreement,
each outstanding share of Series C preferred stock is now convertible into 1.06
shares of common stock.
(c) 1999 EQUITY INCENTIVE PLAN
The Company's Board of Directors intends to adopt the 1999 Equity Incentive
Plan (Incentive Plan) prior to the completion of the Company's initial public
offering. The Incentive Plan provides for the award of incentive stock options,
nonqualified stock options, restricted stock awards and stock bonuses. Options
may be exercisable only as they vest or may be immediately exercisable with the
shares issued subject to the Company's right of repurchase that lapses as the
shares vest. In general, options will vest over a four-year period.
(d) 1999 EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors intends to adopt the 1999 Employee Stock
Purchase Plan (Purchase Plan) prior to the completion of the Company's initial
public offering. The number of shares of common stock to be reserved will be
determined by the Board of Directors and will be subject to shareholder
approval. The number of shares reserved under the Purchase Plan will increase
automatically by a number of shares equal to 1% of the Company's outstanding
shares on the preceding December 31. Under the Purchase Plan, eligible employees
may purchase common stock in an amount not to exceed 10% of the employee's
compensation as defined in the Purchase Plan. The purchase price per share will
be 85% of the lesser of the fair market value of the common stock on the first
and last day of the applicable offering period. The Purchase Plan will be
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code.
(e) REINCORPORATION
On June 28, 1999, the Company's Board of Directors approved a
reincorporation in the state of Delaware to be completed prior to the
effectiveness of the Company's initial public offering. In connection with this
reincorporation, the Company will establish a par value for its common stock of
$0.001 per share. Previously, the Company's common stock was no par value. The
accompanying financial statements have been retroactively restated to give
effect to the $0.001 par value.
F-18
<PAGE>
[KEYNOTE LOGO]
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 13, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
SHARES
COMMON STOCK
--------------
Keynote is offering shares of its common stock. This is our
initial public offering, and no public market currently exists for our shares.
We have applied for approval for quotation of our common stock on the Nasdaq
National Market under the symbol "KEYN." We anticipate that the initial public
offering price will be between $ and $ per share.
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public Offering Price........................................................... $ $
Underwriting Discounts and Commissions.......................................... $ $
Proceeds to Keynote............................................................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Keynote has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover any over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
-------------------
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LIMITED
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, have entered into an
underwriting agreement with us to purchase the number of shares of common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for all of the shares listed below if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BancBoston Robertson Stephens Inc...........................................
Hambrecht & Quist LLC.......................................................
Dain Rauscher Wessels.......................................................
----------------
Total...................................................................
----------------
----------------
<CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITER SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BancBoston Robertson Stephens International Limited.........................
Hambrecht & Quist LLC.......................................................
Dain Rauscher Wessels.......................................................
----------------
Total...................................................................
----------------
----------------
</TABLE>
Shares sold by the underwriters will initially be offered to the public at
the initial public offering price set forth on the cover page of this
prospectus. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to per share from the initial public offering price.
These securities dealers may resell any shares purchased from the underwriters
to other brokers or dealers at a discount of up to per share from the inital
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment, to purchase approximately the same
percentage of these additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of the
shares in this offering. If purchased, these additional shares will be
sold by the underwriters on the same terms as those on which the shares
are being sold.
INDEMNIFICATION. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENT. Each of our officers, directors and securityholders
agreed with the representatives or us for a period of 180 days after the
effective date of this prospectus, not to dispose of or hedge any shares of
common stock, or securities convertible into or exchangeable for shares of
common stock, now
67
<PAGE>
owned or later acquired by them without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. All of the shares of common stock
subject to the lock-up agreements will be eligible for sale in the public market
upon the expiration of the lock-up agreements, subject to holding period, volume
limitations and other conditions of Rule 144.
FUTURE SALES. In addition, we have agreed that during the period of 180
days following the effective date of this prospectus, we will not, without the
prior written consent of BancBoston Robertson Stephens Inc., subject to limited
exceptions, including in connection with acquisitions, dispose of or hedge any
shares of common stock, or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than our sales of shares in this
offering, the issuance of common stock upon the exercise of outstanding options
or warrants or our issuance of options or shares under existing stock option or
stock purchase plans. See "Shares Eligible for Future Sales."
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
DETERMINATION OF OFFERING PRICE. Prior to this offering, there has been no
public market for our common stock. Consequently, the initial public offering
price for the common stock in this offering has been determined through
negotiations among us and the representatives of the underwriters. The factors
considered in these negotiations included prevailing market conditions, our
financial information, the market valuation of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the business potential of the industry in which we compete, an
assessment of our management, our past and present operation, the prospects for
our future revenues and other factors deemed relevant.
STABILIZATION. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, some persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids that may have the effect
of stabilizing or maintaining the market price of the common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common stock on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common stock. A
"syndicate covering transaction" is the bid for the purchase of the common stock
on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by this underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by this underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
RESERVED SHARES. The underwriters have reserved for sale at the initial
public offering price up to 5% of the common stock in this offering for
individuals designated by us who have expressed an interest in purchasing shares
of common stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer any reserved shares not so purchased to the
general public on the same basis as other shares in this offering described
above.
68
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 11,120
NASD filing fee.................................................... 4,500
Nasdaq National Market initial filing fee.......................... 5,000
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Road show expenses................................................. *
Printing and engraving expenses.................................... *
Blue sky fees and expenses......................................... *
Transfer agent and registrar fees and expenses..................... *
Miscellaneous...................................................... *
---------
Total.......................................................... $ *
---------
---------
</TABLE>
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
Bylaws provide that:
- the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;
- the Registrant may indemnify its other employees and agents as set forth
in the Delaware General Corporation Law;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions; and
- the rights conferred in the Bylaws are not exclusive.
II-1
<PAGE>
The Registrant intends to enter into Indemnification Agreements with each of
its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Certificate of Incorporation and to provide additional
procedural protections in the event of litigation. At present, there is no
pending litigation or proceeding involving a director, officer or employee of
the Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnity
Agreements entered into between the Registrant and each of its directors and
officers may be sufficiently broad to permit indemnification of the Registrant's
directors and officers for liabilities arising under the Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
- ------------------------------------------------------------------------------------ -----------
<S> <C>
Underwriting Agreement (draft dated July 12, 1999).................................. 1.01
Registrant's Certificate of Incorporation........................................... 3.01
Registrant's Bylaws................................................................. 3.03
Third Amended and Restated Investors' Rights Agreement dated April 26, 1999......... 4.02
Form of Indemnity Agreement......................................................... 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception we have issue and sold the following securities:
1. We granted direct issuances or stock options to purchase shares of
our common stock at exercise prices ranging from $0.025 to $4.00 per share to
our employees, consultants, directors and other service providers under our 1996
Stock Option Plan and our 1999 Stock Option Plan.
2. Through June 30, 1999, we issued and sold an aggregate of 12,154,621
shares of our common stock to employees, consultants, directors and other
service providers at prices ranging from $0.025 to $4.00 per share under direct
issuances or exercises of options granted under our 1996 Stock Option Plan and
our 1999 Stock Option Plan.
3. In May and June 1996, we issued and sold an aggregate of 6,078,444
shares of our Series A preferred stock to private investors for an aggregate
purchase price of approximately $1,276,473.
4. In January 1997, in connection with a bridge loan that converted into
Series B preferred stock, we issued warrants to private investors to purchase
360,000 shares of our common stock at an exercise price of $0.025 per share.
5. In April and December 1997, in connection with equipment leases, we
issued warrants to an equipment lessor to purchase 145,454 shares of our Series
B preferred stock at an exercise price of $0.55 per share.
6. In July 1997, we issued and sold an aggregate of 4,666,841 shares of our
Series B preferred stock to private investors for an aggregate purchase price of
approximately $2,566,763.
II-2
<PAGE>
7. In December 1997, we issued a warrant to Umang Gupta to purchase 500,000
shares of Series C preferred stock at an exercise price of $0.65 per share.
8. In March 1998, we issued and sold an aggregate of 7,262,238 shares of
our Series C preferred stock to private investors for an aggregate purchase
price of $4,720,455.
9. In June and August 1998, in connection with equipment leases, we issued
warrants to equipment lessors to purchase 98,461 shares of our Series C
preferred stock at an exercise price of $0.65 per share.
10. In September 1998, in connection with an equipment lease, we issued a
warrant to an equipment lessor to purchase 277,777 shares of our Series C
preferred stock at an exercise price of $0.90 per share.
11. In April and May 1999, we issued and sold an aggregate of 6,734,545
shares of Series D preferred stock to private investors for an aggregate
purchase price of $14,883,334.
Upon the completion of this offering, each outstanding share of Series A
preferred stock, Series B preferred stock and Series D preferred stock will
convert into 1 share of common stock and each outstanding share of Series C
preferred stock will convert into 1.06 shares of common stock.
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2) of
the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the shares were being acquired
for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement (draft dated as of July 12, 1999).
3.01 Registrant's Amended and Restated Articles of Incorporation.
3.02* Registrant's Amended and Restated Certificate of Incorporation (to be filed immediately after the
closing of this offering).
3.03 Registrant's Amended and Restated Bylaws.
3.04* Registrant's Amended and Restated Bylaws (to be filed immediately after the closing of this offering).
4.01* Form of Specimen Certificate for Registrant's common stock.
4.02 Third Amended and Restated Investors' Rights Agreement, dated as of April 26, 1999.
5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered.
10.01* Form of Indemnity Agreement between Registrant and each of its directors and executive officers.
10.02 1996 Stock Option Plan.
10.03 1999 Stock Option Plan.
10.04 1999 Equity Incentive Plan.
10.05 1999 Employee Stock Purchase Plan.
10.06 401(k) Plan.
10.07* Memorandum of Understanding between Registrant and VeriSign, Inc. dated as of February 17, 1999.
10.08 Employment Agreement dated as of December 9, 1997 between Registrant and Umang Gupta.
10.09* Loan Agreement between the Registrant and Umang Gupta, dated as of June 28, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.10 Loan and Security Agreement between the Registrant and Lloyd Taylor, dated as of January , 1999.
10.11 Loan and Pledge Agreement between the Registrant and Lloyd Taylor, dated as of January 15, 1999.
10.12* Warrant to purchase 500,000 shares of Series C preferred stock of Registrant issued to Umang Gupta.
10.13 Warrant to purchase 110,000 shares of common stock of Registrant held by Applewood Associates, L.P.
10.14 Warrant to purchase 25,632 shares of common stock of Registrant held by Irwin Lieber.
10.15 Warrant to purchase 25,632 shares of common stock of Registrant held by Woodland Partners, L.P.
10.16 Office sublease between Registrant and Electronics for Imaging, Inc., dated as of February 23, 1999.
23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, independent accountants.
24.01 Power of Attorney (See Page II-5).
27.01 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial statement schedules:
Financial statement schedules are omitted because the information called for
is not required or is shown either in the consolidated financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo, State of
California, on this 12th day of July, 1999.
<TABLE>
<S> <C> <C>
KEYNOTE SYSTEMS INCORPORATED
By: /s/ UMANG GUPTA
-----------------------------------------
Umang Gupta
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Umang Gupta and Eugene Shklar, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ UMANG GUPTA Chairman of the Board,
- ------------------------------ Chief Executive Officer July 12, 1999
Umang Gupta and Director
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ EUGENE SHKLAR
- ------------------------------ Co-Chief Financial Officer July 9, 1999
Eugene Shklar and Director
ADDITIONAL DIRECTORS:
- ------------------------------ Director July 12, 1999
David Cowan
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ MARK LESLIE
- ------------------------------ Director July 12, 1999
Mark Leslie
- ------------------------------ Director July 12, 1999
Stratton Sclavos
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement (draft dated as of July 12, 1999).
3.01 Registrant's Amended and Restated Articles of Incorporation.
3.03 Registrant's Amended and Restated Bylaws.
4.02 Third Amended and Restated Investors' Rights Agreement, dated as of April 26, 1999.
10.02 1996 Stock Option Plan.
10.03 1999 Stock Option Plan.
10.04 1999 Equity Incentive Plan.
10.05 1999 Employee Stock Purchase Plan.
10.06 401(k) Plan.
10.08 Employment Agreement dated as of December 9, 1997 between Registrant and Umang Gupta.
10.10 Loan and Security Agreement between the Registrant and Lloyd Taylor, dated as of January , 1999.
10.11 Loan and Pledge Agreement between the Registrant and Lloyd Taylor, dated as of January 15, 1999.
10.13 Warrant to purchase 110,000 shares of common stock of Registrant held by Applewood Associates, L.P.
10.14 Warrant to purchase 25,632 shares of common stock of Registrant held by Irwin Lieber.
10.15 Warrant to purchase 25,632 shares of common stock of Registrant held by Woodland Partners, L.P.
10.16 Office Sublease between Registrant and Electronics for Imaging, Inc., dated as of February 23, 1999.
23.02 Consent of KPMG LLP, independent accountants.
24.01 Power of Attorney (See page II-5).
27.01 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 1.01
DRAFT
UNDERWRITING AGREEMENT
July 12, 1999
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
Dain Rauscher Wessels
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. Keynote Systems, Incorporated, a Delaware
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in SCHEDULE A (the "Underwriters") an aggregate of [___]
shares (the "Firm Shares") of its Common Stock, par value $0.001 per share (the
"Common Shares"). In addition, the Company has granted to the Underwriters an
option to purchase up to an additional [___] Common Shares (the "Option Shares")
as provided in Section 2. The Firm Shares and, if and to the extent such option
is exercised, the Option Shares, are collectively called the "Shares".
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of BancBoston Robertson
Stephens Inc., elected to rely upon Rule 434 under the Securities Act, the term
<PAGE>
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [___] (such preliminary prospectus is called the
"Rule 434 preliminary prospectus"), together with the applicable term sheet (the
"Term Sheet") prepared and filed by the Company with the Commission under Rules
434 and 424(b) under the Securities Act and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. All references
in this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale
of the Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time
it became effective and at all subsequent times, complied and will comply in
all material respects with the Securities Act and did not and will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as of its
date and at all subsequent times, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The representations and warranties set
forth in the two immediately preceding sentences do not apply to statements
in or omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus or to
be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to each Representative one complete conformed copy of the Registration
Statement and of each consent and certificate of experts filed as a part
thereof, and conformed copies of the Registration Statement (without exhibits)
and preliminary prospectuses and the Prospectus, as amended or supplemented, in
such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
2
<PAGE>
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) AUTHORIZATION OF THE SHARES. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) NO MATERIAL ADVERSE CHANGE. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(h) INDEPENDENT ACCOUNTANTS. KPMG LLP, who have expressed their opinion
with respect to the financial statements (which term as used in this Agreement
includes the related notes thereto) and supporting schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the financial position of the Company (or the
consolidated financial position of the Company and its subsidiaries, as the case
may be) as of and at the dates indicated and the results of their operations and
cash flows for the periods specified. The supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. Such financial statements and supporting schedules have been prepared
in conformity
3
<PAGE>
with generally accepted accounting principles as applied in the United States
applied on a consistent basis throughout the periods involved, except as may
be expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under
the captions "Summary--Summary Selected Financial Data", "Selected Financial
Data" and "Capitalization" fairly present the information set forth therein
on a basis consistent with that of the audited financial statements contained
in the Registration Statement.
(j) COMPANY'S ACCOUNTING SYSTEM. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) SUBSIDIARIES OF THE COMPANY. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries, if any, listed in Exhibit 21 to the Registration Statement.
(l) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation or limited liability company, as the
case may be, in good standing under the laws of the jurisdiction in which it is
organized with full corporate power and authority to own its properties and
conduct its business as described in the prospectus, and is duly qualified to do
business as a foreign corporation, except for qualification in jurisdictions in
which the failure to qualify as a foreign corporation could not reasonably be
expected to result in a Material Adverse Effect, and is in good standing under
the laws of each jurisdiction which requires such qualification.
(m) CAPITALIZATION OF THE SUBSIDIARIES, IF ANY. All the outstanding
shares of capital stock of each subsidiary have been duly and validly authorized
and issued and are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital stock of the
subsidiaries are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any security interests, claims, liens or
encumbrances.
(n) NO PROHIBITION ON SUBSIDIARIES FROM PAYING DIVIDENDS OR MAKING
OTHER DISTRIBUTIONS. No subsidiary of the Company, if any, is currently
prohibited, directly or indirectly, from paying any dividends to the Company,
from making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from the
Company or from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, except as described in or
contemplated by the Prospectus.
(o) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects
4
<PAGE>
to the description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal
and state securities laws. None of the outstanding Common Shares were issued
in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There
are no authorized or outstanding options, warrants, preemptive rights, rights
of first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in
the Prospectus. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights
granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(p) STOCK EXCHANGE LISTING. The Shares have been approved for inclusion
on the Nasdaq National Market, subject only to official notice of issuance.
(q) NO CONSENTS, APPROVALS OR AUTHORIZATIONS REQUIRED. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(r) NON-CONTRAVENTION OF EXISTING INSTRUMENTS AGREEMENTS. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties.
(s) NO DEFAULTS OR VIOLATIONS. Neither the Company nor any subsidiary
is in violation or default of (i) any provision of its charter or by-laws, (ii)
the terms of any material indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its property
is subject or (iii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or such
subsidiary or any of its properties, as applicable, except any such violation or
default which would not, singly or in the aggregate, result in a Material
Adverse Change except as otherwise disclosed in the Prospectus.
(t) NO ACTIONS, SUITS OR PROCEEDINGS. Except to the extent described in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could
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reasonably be expected to have a Material Adverse Effect on the performance
of this Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.
(u) ALL NECESSARY PERMITS, ETC. Except to the extent described in the
Prospectus, the Company and each subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any notice
of proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(v) TITLE TO PROPERTIES. Except to the extent described in the
Prospectus, the Company and its subsidiaries have good and marketable title to
all the properties and assets reflected as owned in the financial statements
referred to in Section 1(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company or such
subsidiary. The real property, improvements, equipment and personal property
held under lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company or such
subsidiary.
(w) TAX LAW COMPLIANCE. Each of the Company and its subsidiaries has
filed all necessary federal, state and foreign income and franchise tax returns
or has properly requested extensions thereof and has paid all taxes required to
be paid by it, and, if due and payable, any related or similar assessment, fine
or penalty levied against it. The Company has made adequate charges, accruals
and reserves in the applicable financial statements referred to in Section 1(i)
above in respect of all federal, state and foreign income and franchise taxes
for all periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined. The Company is not aware of any
tax deficiency that has been or might be asserted or threatened against the
Company that could result in a Material Adverse Change.
(x) INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus;
except to the extent described in the Prospectus, the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a Material Adverse Change. There is no claim being made against the Company
regarding patents, patent rights or licenses, inventions, collaborative
research, trade
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secrets, know-how, trademarks, service marks, trade names or copyrights. The
Company and its subsidiaries do not in the conduct of their business as now
or proposed to be conducted as described in the Prospectus infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process which is the subject of a patent application
filed by any third party, known to the Company or any of its subsidiaries,
which such infringement or conflict is reasonably likely to result in a
Material Adverse Change.
(y) YEAR 2000 PREPAREDNESS. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus by the Securities Act which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. Except to the extent described in the
Prospectus, all internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company and
each of its subsidiaries fully comply with Year 2000 Qualification Requirements.
"Year 2000 Qualifications Requirements" means that the internal computer systems
and each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its Subsidiaries (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and date
data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any Material Adverse Change.
(z) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares.
(aa) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(bb) INSURANCE. Each of the Company and its subsidiaries is insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses in their industry including,
but not limited to, policies covering real and personal
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property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and earthquakes, general liability and
Directors and Officers liability. The Company has no reason to believe that
it or any subsidiary will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to
conduct its business as now conducted and at a cost that would not result in
a Material Adverse Change. Neither the Company nor any subsidiary has been
denied any insurance coverage which it has sought or for which it has applied.
(cc) LABOR MATTERS. To the best of the Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, resellers,
subcontractors, authorized dealers or distributors that might reasonably be
expected to result in a Material Adverse Change.
(dd) NO PRICE STABILIZATION OR MANIPULATION. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ee) LOCK-UP AGREEMENTS. Each officer and director of the company and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company has agreed to sign an agreement substantially in the form
attached hereto as EXHIBIT A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants and agrees
that it will not release any of its officers, directors or other securityholders
from any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of BancBoston Robertson Stephens Inc.
(ff) RELATED PARTY TRANSACTIONS. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
(gg) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(hh) ENVIRONMENTAL LAWS. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended
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(42 U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated
site under applicable state or local law.
(ii) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(jj) Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to be
a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
THE FIRM SHARES. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on SCHEDULE A. The purchase price per
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(a) THE FIRST CLOSING DATE. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Fenwick &
West LLP, Two Palo Alto Square, Palo Alto, CA 94306 (or at such other place as
may be agreed upon among the Representatives and the Company), (i) on the third
(3rd) full business day following the first day that Shares are traded, (ii) if
this Agreement is executed and delivered after 1:30 P.M., San Francisco time,
the fourth (4th) full business day following the day that this Agreement is
executed and delivered or (iii) at such other time and date not later that seven
(7) full business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in
Section 2(f) and 3(e)
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hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later than two (2) full business days following
delivery of copies of the Prospectus to the Representatives.
(b) THE OPTION SHARES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on SCHEDULE A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(c) PUBLIC OFFERING OF THE SHARES. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(d) PAYMENT FOR THE SHARES. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as a Representative
of the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but
any such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
(e) DELIVERY OF THE SHARES. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing
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Date, as the case may be), to an account or accounts at The Depository Trust
Company as designated by the Representatives for the accounts of the
Representatives and the several Underwriters, against the irrevocable release
of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(f) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) REGISTRATION STATEMENT MATTERS. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) SECURITIES ACT COMPLIANCE. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) BLUE SKY COMPLIANCE. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and
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other documents, as are or may be required to continue such qualifications in
effect for so long a period as the Representatives may reasonably request for
distribution of the Shares.
(d) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) INSURANCE. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) NOTICE OF SUBSEQUENT EVENTS. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) USE OF PROCEEDS. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) EARNINGS STATEMENT. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need
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not be audited) covering the twelve-month period ending [the date of the end
of the first quarter ending one year following the effective date] that
satisfies the provisions of Section 11(a) of the Securities Act.
(k) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan, stock purchase
plan or dividend reinvestment plan of the Company in effect at the date of the
Prospectus and described in the Prospectus so long as none of those shares may
be transferred on during the period of 180 days from the date that the
Registration Statement is declared effective (the "Lock-Up Period") and the
Company shall enter stop transfer instructions with its transfer agent and
registrar against the transfer of any such Common Shares and (ii) the Company
may issue Common Shares issuable upon the conversion of securities or the
exercise of warrants outstanding at the date of the Prospectus and described in
the Prospectus.
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall
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have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or any Underwriter, threatened
by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel; and the National Association of Securities Dealers,
LLC shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(b) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) NO MATERIAL ADVERSE CHANGE. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus;
(d) OPINION OF COUNSEL FOR THE COMPANY. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Fenwick & West LLP counsel for the Company substantially in the form of
Exhibit B attached hereto, dated the First Closing Date, or the Second Closing
Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in EXHIBIT B may rely as
to questions of law not involving the laws of the United States, the State of
new York or the State of California or general corporate laws of the State of
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying
and that they have no knowledge of any material misstatement or inaccuracy in
any such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. You shall have received
on the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, substantially in the form of
EXHIBIT C hereto. The Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(f) ACCOUNTANTS' COMFORT LETTER. You shall have received on the
First Closing Date and on the Second Closing Date, as the case may be, a
letter from KPMG LLP addressed to the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations and
based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than four
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(4) business days prior to the First Closing Date or the Second Closing Date,
as the case may be, (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of the First
Closing Date or the Second Closing Date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. The Original Letter from KPMG
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
September 30, 1998 and related consolidated statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended
September 30, 1998, (iii) state that KPMG LLP has performed the procedures
set out in Statement on Auditing Standards No. 71 ("SAS 71") for a review of
interim financial information and providing the report of KPMG LLP as
described in SAS 71 on the financial statements for each of the quarters in
the two-quarter period ended June 30, 1999 (the "Quarterly Financial
Statements"), (iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications
need to be made to any of the Quarterly Financial Statements in order for
them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, (v) state that KPMG LLP
has performed the procedures set out in Statement of Auditing standards No.
86 with respect to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Prospectus and (vi)
address other matters agreed upon by KPMG LLP and you. In addition, you shall
have received from KPMG LLP a letter addressed to the Company and made
available to you for the use of the Underwriters stating that their review of
the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the
Company's financial statements as of September 30, 1998, did not disclose any
weaknesses in internal controls that they considered to be material
weaknesses.
(g) OFFICERS' CERTIFICATE. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First
Closing Date or the Second Closing Date, as the case may be, and
the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or
prior to the First Closing Date or the Second Closing Date, as
the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
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(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto contained all material information required
to be included therein by the Securities Act and in all material
respects conformed to the requirements of the Securities Act, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and, since the effective date of the
Registration Statement, there has occurred no event required to
be set forth in an amended or supplemented Prospectus which has
not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial
or otherwise), earnings, operations, business or prospects of the
Company and its subsidiaries considered as one enterprise, (b)
any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company
and its subsidiaries considered as one enterprise, incurred by
the Company or its subsidiaries, except obligations incurred in
the ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of
any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage
(whether or not insured) to the property of the Company or any of
its subsidiaries which has been sustained or will have been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
prospects of the Company and its subsidiaries considered as one
enterprise.
(h) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY. The
Company shall have obtained and delivered to you an agreement substantially in
the form of EXHIBIT A attached hereto from each officer and director of the
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(i) STOCK EXCHANGE LISTING. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(j) COMPLIANCE WITH PROSPECTUS DELIVERY REQUIREMENTS. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(k) ADDITIONAL DOCUMENTS. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
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If any condition specified in this Section 4 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part
of any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7
(Indemnification and Contribution) and Section 10 (Representations and
Indemnities to Survive Delivery) shall at all times be effective and shall
survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer
agent of the Common Stock, (iii) all necessary issue, transfer and other
stamp taxes in connection with the issuance and sale of the Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v)
all costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection
with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey", an
"International Blue Sky Survey" or other memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the reasonable fees and
expenses of counsel for the Underwriters in connection with, the National
Association of Securities Dealers, LLC review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common
Shares on the Nasdaq National Market, (ix) all costs and expenses incident to
the preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to
in Item 13 of Part II of the Registration Statement. Except as provided in
this Section 5, Section 6, and Section 7 hereof, the Underwriters shall pay
their own expenses, including the fees and disbursements of their counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 4, Section
7, Section 8, Section 9, or if the sale to the Underwriters of the Shares on
the First Closing Date is not consummated because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or to
comply with any provision hereof, the Company agrees to reimburse the
Representatives and the other Underwriters (or such Underwriters as have
terminated this Agreement with respect to themselves), severally, upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by
the Representatives and the Underwriters in connection with the proposed
purchase and the offering and sale of the Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, facsimile and telephone charges.
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SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Company shall indemnify
and hold harmless each Underwriter, its officers and employees, and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company, which consent shall not
be unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of
or is based (i) upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any amendment
thereto, including any information deemed to be a part thereof pursuant to
Rule 430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole
or in part upon any inaccuracy in the representations and warranties of the
Company contained herein; or (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i), (ii), (iii) or (iv) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court
of competent jurisdiction shall have determined by a final judgment that such
loss, claim, damage, liability or action resulted directly from any such acts
or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each
Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by BancBoston
Robertson Stephens Inc.) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage,
liability or expense. The indemnity agreement set forth in this Section 7(a)
shall be in addition to any liabilities that the Company may otherwise have.
Notwithstanding the foregoing,
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any amounts to be paid by an indemnifying party shall be offset by any
amounts paid to the indemnified parties pursuant to the insurance described
in Section 1(bb).
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
Notwithstanding the foregoing, any amounts to be paid by an indemnifying
party shall be offset by any amounts paid to the indemnified parties pursuant
to the insurance described in Section 1(bb).
(c) INFORMATION PROVIDED BY THE UNDERWRITERS. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph, the second paragraph
and the [________] paragraph under the caption "Underwriting" in the Prospectus;
and the Underwriters confirm that such statements are correct.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in
this Section 7 or to the extent it is not prejudiced as a proximate result of
such failure. In case any such action is brought against any indemnified
party and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate
in, and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded on advice of
counsel that a conflict may arise between the positions of the indemnifying
party and the indemnified party in conducting
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the defense of any such action or that there may be legal defenses available
to it and/or other indemnified parties which are different from or additional
to those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf
of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the next preceding sentence (it
being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (BancBoston Robertson Stephens
Inc. in the case of Section 7(b) and Section 8), representing the indemnified
parties who are parties to such action), (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement
of the action, or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying
party, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 7 shall
not be liable for any settlement of any proceeding effected without its
written consent, which consent shall not be unreasonably withheld, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
7(d) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes (i) an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) then
each indemnifying party shall contribute to the aggregate amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
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claims, damages or liabilities, (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company bears to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section
7(f). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 7(f) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim after
taking into account amounts paid pursuant to the insurance described in
Section 1(bb). Notwithstanding the provisions of this subsection (f), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) TIMING OF ANY PAYMENTS OF INDEMNIFICATION. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled
to indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) SURVIVAL. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, the Company, its directors or
officers or any persons controlling the Company, (ii) acceptance of any
Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, its directors
or officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
(i) ACKNOWLEDGEMENTS OF PARTIES. The parties to this Agreement
hereby acknowledge that they are sophisticated business persons who were
represented by counsel during the negotiations regarding the provisions
hereof including, without limitation, the provisions of this Section 7, and
are fully informed regarding said provisions. They further acknowledge that
the provisions of this Section 7 fairly allocate the risks in light of the
ability of the parties to investigate the Company and its business in order
to assure that adequate
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disclosure is made in the Registration Statement and Prospectus as required
by the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If,
on the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase
Shares that it or they have agreed to purchase hereunder on such date, and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of
the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the
number of Firm Common Shares set forth opposite their respective names on
SCHEDULE A bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares and the aggregate number of Shares with respect to which such default
occurs exceeds 10% of the aggregate number of Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company
for the purchase of such Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in
no event for longer than seven days in order that the required changes, if
any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given
to the Company if at any time (i) trading or quotation in any of the
Company's securities shall have been suspended or limited by the Commission
or by the Nasdaq Stock Market, or trading in securities generally on either
the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the National
Association of Securities Dealers, LLC; (ii) a general banking moratorium
shall have been declared by any of federal, New York or California
authorities; (iii) there shall have occurred any outbreak or escalation of
national or international hostilities or any crisis or calamity, or any
change in the United States or international financial markets, or any
substantial change or development involving a prospective change in United
States' or international political, financial or economic conditions, as in
the judgment of the Representatives is material and adverse and makes it
impracticable or inadvisable to market the Common Shares in the manner and on
the terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained
a loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have
22
<PAGE>
been insured. Any termination pursuant to this Section 9 shall be without
liability on the part of (a) the Company to any Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter
to the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive
such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, CA 94403
Facsimile: (650) 522-1099
Attention: Chief Financial Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94303
Attention: Matthew P. Quilter
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers
and directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the
Shares as such from any of the Underwriters merely by reason of such purchase.
23
<PAGE>
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes)
as are necessary to make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or
the courts of the State of California in each case located in the City and
County of San Francisco (collectively, the "Specified Courts"), and each
party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive)
of such courts in any such suit, action or proceeding. Service of any
process, summons, notice or document by mail to such party's address set
forth above shall be effective service of process for any suit, action or
other proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit,
action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum. Each party not located in the United States
irrevocably appoints CT Corporation System, which currently maintains a San
Francisco office at 49 Stevenson Street, San Francisco, California 94105,
United States of America, as its agent to receive service of process or other
legal summons for purposes of any such suit, action or proceeding that may be
instituted in any state or federal court in the City and County of San
Francisco.
(c) WAIVER OF IMMUNITY. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law,
all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which it might otherwise be entitled in the Specified
Courts, and with respect to any Related Judgment, each party waives any such
immunity in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement may not be amended or modified unless in
writing by all of the parties hereto, and no condition herein (express or
implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit. The Table of Contents and the
24
<PAGE>
Section headings herein are for the convenience of the parties only and shall
not affect the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
25
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
KEYNOTE SYSTEMS INCORPORATED
By:
-----------------------------------------
[Title]
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
HAMBRECHT & QUIST LLC
DAIN RAUSCHER WESSELS, A DIVISION OF DAIN RAUSCHER INCORPORATED
On their behalf and on behalf of each of the several underwriters named in
SCHEDULE A hereto.
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:
-------------------------------------
Authorized Signatory
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM COMMON
UNDERWRITERS SHARES TO BE PURCHASED
- -------------------------------------------------------------------------- ----------------------
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC......................................... [___]
HAMBRECHT & QUIST LLC..................................................... [___]
DAIN RAUSCHER WESSELS, a division of Dain Rauscher Incorporated........... [___]
[---]..................................................................... [___]
[---]..................................................................... [___]
Total............................................................ [___]
</TABLE>
<PAGE>
EXHIBIT A
LOCK-UP AGREEMENT
A-1
<PAGE>
LOCK-UP AGREEMENT
__________________, 1999
BancBoston Robertson Stephens
[___________________]
[___________________]
As Representatives of the Several Underwriters
555 California Street
San Francisco, CA 94104
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the
several underwriters (the "Underwriters"), propose to enter into an
Underwriting Agreement (the "Underwriting Agreement") with Keynote Systems,
Inc. (the "Company") providing for the initial public offering (the "Public
Offering") by the Underwriters, including yourselves, of Common Stock of the
Company (the "Common Stock") pursuant to the Company's Registration Statement
on Form S-1 to be filed with the Securities and Exchange Commission on or
about [________], 1999 (the "Registration Statement").
In consideration of the Underwriters' agreement to purchase and
make the Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned
hereby agrees, for a period of 180 days after the effective date of the
Registration Statement (the "Lock-Up Period"), not to offer to sell, contract
to sell or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition") any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Securities"), now owned or hereafter acquired directly by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree to be bound by this Lock-Up Agreement, (ii) as
a distribution to limited partners or shareholders of the undersigned,
provided that the distributees thereof agree in writing to be bound by the
terms of this Lock-Up Agreement or (iii) with the prior written consent of
BancBoston Robertson Stephens. The foregoing restriction is expressly agreed
to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-Up Period even if such
Securities would be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions would include without limitation any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including without limitation any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Notwithstanding the foregoing, this
Lock-Up Agreement does not prohibit the sale of shares of the Common Stock by
the undersigned to the Underwriters in the Public Offering.
Furthermore, the undersigned hereby agrees and consents to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by the undersigned except in compliance
with this Lock-Up Agreement. In the event that
A-2
<PAGE>
the Registration Statement shall not have been declared effective on or
before September 30, 1999 this Lock-Up Agreement shall be of no further force
or effect.
Very truly yours,
---------------------------------------------------
(signature)
Name:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
Accepted as of the date first set forth above:
BancBoston Robertson Stephens
[_______________]
[_______________]
As Representatives of the Several
Underwriters
BancBoston Robertson Stephens
By:
----------------------------------
Name:
--------------------------------
The Company requests that this Lock-Up Agreement be completed an delivered to
underwriters' counsel, Brobeck, Phleger & Harrison LLP, Attn: Judy G. Hamel.
A-3
<PAGE>
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Significant Subsidiary (as that term is defined in
Regulation S-X of the Act) has been duly incorporated and is validly existing as
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company and each Significant Subsidiary has the corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. To
such counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than [list
subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein, the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each Significant
Subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, have not been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right and are owned
by the Company free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be issued
by the Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right.
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability
B-1
<PAGE>
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or by
general equitable principles;
(ix) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(xii) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xiii) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts, leases
or documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations;
(xvi) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company or
B-2
<PAGE>
any of its subsidiaries, or over any of their properties or operations is
necessary in connection with the consummation by the Company of the
transactions herein contemplated, except (i) such as have been obtained under
the Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters, (iii) such as may be required
by the National Association of Securities Dealers, LLC and (iv) such as may
be required under the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its subsidiaries
of a character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act, other than those described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective charter or
bylaws, or (b) in material breach of any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, or over any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus no holders of Company Shares or other securities of the
Company have registration rights with respect to securities of the Company and,
except as set forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to registration of
such shares of Company Shares or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights.
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(xxi) To such counsel's knowledge, the Company owns or possesses sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals, trade
secrets and other similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct their business as now conducted; and the
expected expiration of any such Intellectual Property Rights would not result in
a Material Adverse Effect. The Company has not received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Effect. To such counsel's knowledge, the Company's
discoveries, inventions, products, or processes referred to in the Registration
Statement or Prospectus do not infringe or conflict with any right or patent
which is the subject of a patent application known to the Company.
(xxii) In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public
B-3
<PAGE>
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which leads them to believe that,
at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing
Date, as the case may be, the Registration Statement and any amendment or
supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom,
as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or at the First Closing Date or the Second Closing Date, as the case may be,
the Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
B-4
<PAGE>
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Firm Shares have been duly authorized and, upon issuance and
delivery and payment therefor in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and
non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened
or are pending under the Securities Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Firm Shares or the Option Shares have been validly registered under
the Securities Act and the Rules and Regulations of the Exchange Act
and the applicable rules and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the
opinions addressed to the Representatives from Fenwick & West, LLP, each
dated the date hereof, and furnished to you in accordance with the provisions
of the Underwriting Agreement. Such opinion appears on its face to be
appropriately responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not verified the accuracy or
completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads
them to believe that, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the First Closing Date or
Second Closing Date, as the case may be, the Registration Statement and any
amendment or supplement thereto (other than the financial statements
including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus
and any amendment or supplement thereto (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
C-1
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
KEYNOTE SYSTEMS INCORPORATED
Umang Gupta and Matthew P. Quilter hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Keynote Systems Incorporated, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:
FIRST
The name of the Corporation is Keynote Systems Incorporated.
SECOND
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD
This Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock, par value $0.00001 per share, and
Preferred Stock, par value $0.00001 per share. The total number of shares of
Common Stock this Corporation shall have authority to issue is Fifty Million
(50,000,000), and the total number of shares of Preferred Stock this Corporation
shall have authority to issue is Fifty Million (50,000,000). The Preferred
Stock may be issued from time to time in one or more series. Subject to Section
6 of Article FOURTH, the Board of Directors is authorized (i) to fix the number
of shares of any series of Preferred Stock and to determine the designation
thereof, and (ii) to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series of Preferred Stock and the limits and restrictions
provided herein, to increase or decrease (but not below the number of shares of
any such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. Six Million
Seventy-Eight Thousand Four Hundred Forty-Four (6,078,444) shares of Preferred
Stock are designated Series A Preferred Stock ("Series A Preferred"), Six
Million Seventy-Eight Thousand Four Hundred Forty-Four (6,078,444) shares are
designated Series A1 Preferred Stock ("Series A1 Preferred"), Four Million Eight
Hundred Twelve Thousand Two Hundred Ninety-Five
<PAGE>
(4,812,295) shares are designated Series B Preferred Stock ("Series B
Preferred"), Four Million Eight Hundred Twelve Thousand Two Hundred
Ninety-Five (4,812,295) shares are designated Series B1 Preferred Stock
("Series B1 Preferred"), Eight Million One Hundred Thirty Eight Thousand Four
Hundred Seventy-Six (8,138,476) shares are designated Series C Preferred
Stock ("Series C Preferred"), Eight Million One Hundred Thirty Eight Thousand
Four Hundred Seventy-Six (8,138,476) shares are designated Series C1
Preferred Stock ("Series C1 Preferred"), and Eight Million (8,000,000) shares
are designated Series D Preferred Stock ("Series D Preferred"). The Series A
Preferred, the Series Al Preferred, the Series B Preferred, the Series B1
Preferred, the Series C Preferred, the Series C1 Preferred, and the Series D
Preferred are collectively referred to herein as the "Preferred Stock".
FOURTH
The relative rights, preferences, privileges, and restrictions granted to
or imposed on the respective classes of the shares of capital stock or the
holders thereof are as follows:
1. DIVIDENDS.
(a) The holders of Series A Preferred, Series A1 Preferred,
Series B Preferred, Series B1 Preferred, Series C Preferred, Series C1
Preferred, and Series D Preferred shall be entitled to receive, out of any funds
legally available therefor, dividends at an annual rate of (i) $0.021 per share
on each outstanding share of Series A Preferred and Series A1 Preferred, (ii)
$0.055 per share on each outstanding share of Series B Preferred and Series B1
Preferred, and (iii) $0.065 per share on each outstanding share of Series C
Preferred and Series C1 Preferred, and (iv) $0.221 per share on each outstanding
share of Series D Preferred (each as appropriately adjusted for stock splits or
combinations of, or dividends payable in shares of, Series A Preferred Stock,
Series Al Preferred Stock, Series B Preferred, Series B1 Preferred, Series C
Preferred, Series C1 Preferred, and Series D Preferred, or Common Stock or
similar events (each, a "Recapitalization Event") occurring after the Original
Issue Date), payable in preference and priority to any payment of any dividend
on any shares of Common Stock of the Corporation (other than those payable
solely in Common Stock or involving the repurchase of shares of Common Stock
from terminated employees, officers, directors, or consultants pursuant to
contractual arrangements), when and as declared by the Board of Directors. The
right to such dividends shall not be cumulative, and no right shall accrue to
holders of Series A Preferred, Series A1 Preferred, Series B Preferred, Series
B1 Preferred, Series C Preferred, Series C1 Preferred, and Series D Preferred by
reason of the fact that dividends on such shares are not declared or paid in any
prior year whether or not the earnings of the Corporation in that prior year
were sufficient to pay such dividends in whole or in part. Dividends, if paid,
or if declared and set apart for payment, must be paid on, or declared and set
apart for payment on, all outstanding Series A Preferred, Series A1 Preferred,
Series B Preferred, Series B1 Preferred, Series C Preferred, Series C1
Preferred, and Series D Preferred contemporaneously. No shares of Common Stock
shall receive any dividend at a rate which is greater than the rate at which
dividends are simultaneously paid in respect of the Series A Preferred, Series
Al Preferred, Series B Preferred, Series B1 Preferred, Series C Preferred,
Series C1 Preferred, and Series D Preferred (on an as-converted to Common Stock
basis). In the event that the Corporation shall
-2-
<PAGE>
have declared but unpaid dividends outstanding immediately prior to, and in
the event of, a conversion of Preferred Stock (as provided in Section 5
hereof), the Corporation shall, at the option of the holder, pay in cash to
the holder(s) of Preferred Stock subject to conversion the full amount of any
such dividends or allow such dividends to be converted into Common Stock in
accordance with, and pursuant to the terms specified in, Section 5 hereof.
(b) Dividends shall be paid by forwarding a check, postage
prepaid, to the address of each holder (or, in the case of joint holders, to the
address of any such holder) of Preferred Stock as shown on the books of the
Corporation, or to such other address as such holder specifies for such purpose
by written notice to the Corporation. The forwarding of such check shall
satisfy all obligations of the Corporation with respect to such dividends,
unless such check is not paid upon timely presentation.
2. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution, or winding up of the Corporation (each a "Liquidation Event"),
either voluntary or involuntary, distributions to the shareholders of the
Corporation shall be made in the following manner:
(a) Prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Series A
Preferred, Series A1 Preferred, Series B Preferred, Series B1 Preferred, Series
C Preferred, Series C1 Preferred, and Common Stock, by reason of their ownership
of such stock, the holders of Series D Preferred shall be entitled to receive
the amount of $2.21 per share for each share of Series D Preferred then held by
them (as adjusted for any combinations, consolidations, subdivisions, or stock
splits with respect to such shares) and, in addition, an amount equal to all
accrued but unpaid dividends on such shares of Series D Preferred. If the
assets and funds thus distributed among the holders of the Series D Preferred
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series D Preferred in proportion to the aforementioned
preferential amounts applicable to the shares of Series D Preferred held by each
such holder.
(b) After payment has been made to the holders of the Series D
Preferred of the full amounts to which they are entitled pursuant to paragraph
(a) above, but prior and in preference to any distribution of any of the assets
or surplus funds of the Corporation to the holders of the Series A Preferred,
Series A1 Preferred, Series B Preferred, Series B1 Preferred and Common Stock,
by reason of their ownership of such stock, the holders of Series C Preferred
and Series C1 Preferred shall be entitled to receive the amount of $0.65 per
share for each share of Series C Preferred or Series Cl Preferred then held by
them (as adjusted for any combinations, consolidations, subdivisions, or stock
splits with respect to such shares) and, in addition, an amount equal to all
accrued but unpaid dividends on such shares of Series C Preferred and Series Cl
Preferred. If the assets and funds thus distributed among the holders of the
Series C Preferred and Series C1 Preferred shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution to
such holders shall be distributed ratably among the holders of the Series C
Preferred and Series C1 Preferred in proportion to the aforementioned
preferential
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amounts applicable to the shares of Series C Preferred and Series C1
Preferred held by each such holder.
(c) After payment has been made to the holders of the Series C
Preferred and Series C1 Preferred of the full amounts to which they are entitled
pursuant to paragraph (b) above, but prior and in preference to any distribution
of the remaining assets or funds of the Corporation to the holders of the Common
Stock, by reason of their ownership of such stock, the holders of Series A
Preferred, Series A1 Preferred, Series B Preferred and Series B1 Preferred shall
be entitled to receive the amount of (i) $0.21 per share for each share of
Series A Preferred or Series Al Preferred then held by them (as adjusted for any
combinations, consolidations, subdivisions, or stock splits with respect to such
shares) plus all accrued but unpaid dividends on such shares of Series A
Preferred and Series Al Preferred, and (ii) $0.55 per share for each share of
Series B Preferred and Series B1 Preferred then held by them (as adjusted for
any combinations consolidations, subdivisions, or stock splits with respect to
such shares) plus all accrued but unpaid dividends on such shares of Series B
Preferred and Series B1 Preferred. If the assets and funds thus distributed
among the holders of the Series A Preferred, Series A1 Preferred, Series B
Preferred and Series B1 Preferred shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amount, then the entire assets
and funds of the Corporation legally available for distribution to such holders
shall be distributed ratably based on the total preferential amount due each
such holder under this Section 2(c).
(d) After payment has been made to the holders of the Preferred
Stock of the full amounts to which they are entitled pursuant to paragraphs (a),
(b), and (c) above, all of the remaining assets and funds of the Corporation
available for distribution shall be distributed ratable among the holders of
Common Stock.
(e) For purposes of this Section 2 and Section 6, any
transaction or series of transactions, including without limitation a merger,
consolidation, or other corporate reorganization of the Corporation with or into
any other corporation or corporations, in which more than fifty percent (50%) of
the outstanding voting power of the Corporation is disposed of, or a sale of all
or substantially all of the assets of the Corporation, shall be treated as a
Liquidation Event, irrespective of the form of payment made in such transaction
or series of transactions.
(f) Each holder of Preferred Stock shall be deemed to have
consented, for purposes of Sections 502, 503, and 506 of the California
Corporations Code, to distributions made by the Corporation in connection with
the repurchase by the Corporation of shares of Common Stock issued to or held by
employees, officers, directors, or consultants of the Corporation or its
subsidiaries upon termination of their employment or services pursuant to an
agreement (whether now existing or hereafter entered into) providing for the
right of said repurchase.
(g) The value of securities and property paid or distributed
pursuant to this Section 2 shall be computed at fair market value at the time of
payment to the Corporation or at the time made available to shareholders, all as
determined by the Board of Directors in the good
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faith exercise of its reasonable business judgment, provided that (i) if such
securities are listed on any established stock exchange or a national market
system, their fair market value shall be the closing sales price for such
securities as quoted on such system or exchange (or the largest such
exchange) for the date the value is to be determined (or if there are no
sales for such date, then for the last preceding business day on which there
were sales), as reported in the Wall Street Journal or similar publication,
and (ii) if such securities are regularly quoted by a recognized securities
dealer but selling prices are not reported, their fair market value shall be
the mean between the high bid and low asked prices for such securities on the
date the value is to be determined (or if there are no quoted prices for such
date, then for the last preceding business day on which there were quoted
prices).
(h) Nothing hereinabove set forth shall affect in any way the
right of each holder of Preferred Stock to convert such shares at any time and
from time to time into Common Stock in accordance with Section 5 hereof.
3. REDEMPTION RIGHTS.
(a) Upon the Corporation's receipt on or after April 15, 2002,
of a written request for redemption from the holders of at least a majority of
the then outstanding Series A Preferred, Series A1 Preferred, Series B Preferred
and Series B1 Preferred, this Corporation shall redeem, on the terms and
conditions and according to the schedules stated herein, out of funds legally
available therefor, all of the then outstanding Series A Preferred, Series A1
Preferred, Series B Preferred and Series B1 Preferred (the "A and B Redemption
Stock"). Upon the Corporation's receipt on or after April 15, 2002, of a
written request for redemption from the holders of at least a majority of the
then outstanding Series C Preferred and Series C1 Preferred, this Corporation
shall redeem, on the terms and conditions and according to the schedules stated
herein, out of funds legally available therefor, all of the then outstanding
Series C Preferred and Series C1 Preferred (the "C Redemption Stock"). Upon the
Corporation's receipt on or after April 15, 2002 of a written request for
redemption from the holders of at least a majority of the then outstanding
Series D Preferred, the Corporation shall redeem, on the terms and conditions
and according to the schedules stated herein, out of funds legally available
therefor, all of the then outstanding Series D Preferred (the "D Redemption
Stock") Within twenty (20) days after receipt of the written request, the
Corporation shall fix a date, which shall not be more than sixty (60) days after
receipt of the written request (the "Initial Redemption Date"), on which the
first 1/3 of the then outstanding shares of A and B Redemption Stock and/or C
Redemption Stock and/or D Redemption Stock, as the case may be, shall be
redeemed. On the first anniversary of the Initial Redemption Date, the
Corporation shall redeem 50% of the shares of A and B Redemption Stock and/or C
Redemption Stock and/or Stock D Redemption Stock, as the case may be, then
outstanding (the "Second Redemption Date"). On the second anniversary of the
Initial Redemption Date, the Corporation shall redeem 100% of the shares of A
and B Redemption Stock and/or C Redemption Stock and/or D Redemption Stock, as
the case may be, then outstanding (the "Third Redemption Date").
(b) The Redemption Price for each share of A and B Redemption
Stock and/or C Redemption Stock and/or D Redemption Stock, as the case may be,
shall be an amount in cash
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equal to $0.21 (as adjusted for any Recapitalization Event) for each share of
Series A Preferred and Series A1 Preferred, $0.55 (as adjusted for any
Recapitalization Event) for each share of Series B Preferred and Series B1
Preferred, $0.65 (as adjusted for any Recapitalization Event) for each share
of Series C Preferred and Series C1 Preferred, and $2.21 (as adjusted for any
Recapitalization Event) for each share of Series D Preferred respectively,
plus all declared or accrued but unpaid dividends thereon.
(c) If on any Redemption Date, the funds of the Corporation
legally available therefor shall be insufficient to redeem the full number of
shares of A and B Redemption Stock and/or C Redemption Stock and/or D Redemption
Stock, as the case may be, to be redeemed on such Redemption Date, those funds
that are legally available will be used to effect such redemption ratably among
the holders of A and B Redemption Stock and/or C Redemption Stock and/or D
Redemption Stock, as the case may be, in proportion to the aggregate Redemption
Price to which each holder is entitled under this Section 3. If the Corporation
is unable to redeem the full number of shares to be redeemed on any Redemption
Date, the shares not redeemed by this Corporation as provided in this Section 3
shall be redeemed as soon as practicable after funds are legally available
therefor.
(d) Within twenty (20) days following receipt of a written
request described in the paragraph (a) above in the case of the Initial
Redemption Date, and not less than thirty (30) days prior to each of the Second
Redemption Date and the Third Redemption Date, the Corporation shall give
written notice by certified or registered mail, postage prepaid to all holders
of outstanding A and B Redemption Stock and/or C Redemption Stock and/or D
Redemption Stock, as the case may be, addressed as set forth below, stating the
Redemption Date, the applicable Redemption Price for such shares, the then
current Conversion Price(s) (as hereinafter defined) for such shares, and the
date of termination of the right to convert (which date shall not be earlier
than thirty (30) days after the written notice by the Corporation has been
given) and shall call upon such holder to surrender to the Corporation on the
Redemption Date at the place designated in the notice such holder's certificate
or certificates representing the shares to be redeemed to the extent such shares
have not been converted. On or before the Redemption Date stated in such
notice, the holder of each share of A and B Redemption Stock and/or C Redemption
Stock and/or D Redemption Stock, as the case may be, called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the applicable Redemption Price for the A and B Redemption Stock and/or C
Redemption Stock and/or D Redemption Stock, as the case may be, surrendered. If
less than all of the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
If such notice of redemption shall have been duly given, and if on the
Redemption Date funds necessary for the redemption shall be available therefor,
then, as to any certificates evidencing any A and B Redemption Stock and/or C
Redemption Stock and/or D Redemption Stock, as the case may be, and so called
for redemption and not surrendered, all rights of the holders of such shares so
called for redemption and not surrendered shall cease with respect to such
shares, except only the right of the holders to receive the applicable
Redemption Price for the A and B Redemption Stock and/or C Redemption Stock
and/or D Redemption Stock, as the case may be, which they hold, without
interest, upon surrender of their certificates therefor.
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(e) If, on or prior to a Redemption Date, the Corporation
deposits, with any bank or trust company in the State of California having
aggregate capital and surplus in excess of $100,000,000, as a trust fund, a sum
sufficient to redeem on the Initial Redemption Date, the Second Redemption Date
or the Third Redemption Date (each, a "Redemption Date") the shares called for
redemption pursuant to Section 3(a) on such a Redemption Date, with irrevocable
instructions and authority to the bank or trust company to give the notice of
redemption thereof (or to complete the giving of such notice if theretofore
commenced) and to pay, on or after such Redemption Date or prior thereto, the
Redemption Price for such shares to their respective holders upon the surrender
of their share certificates, then from and after the date of the deposit, the
shares so called shall be deemed redeemed. The deposit shall constitute full
payment of the shares to their holders, and from and after the date of the
deposit the shares so called for redemption on such Redemption Date shall be
redeemed and shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares, and shall
have no rights with respect thereto except the right to receive from the bank or
trust company payment of the Redemption Price for the A and B Redemption Stock
and/or C Redemption Stock and/or D Redemption Stock, as the case may be, which
they hold, without interest, upon the surrender of their certificates therefor
and the right to convert said shares as provided herein at any time up to but
not after the close of business on the fifth day prior to the Redemption Date of
such shares (which date will not be earlier than thirty (30) days after the
written notice of redemption has been given). Any monies so deposited on
account of the Redemption Price of the A and B Redemption Stock and/or C
Redemption Stock and/or D Redemption Stock, as the case may be, converted into
Common Stock subsequent to the making of such deposit shall be repaid to the
Corporation forthwith upon the conversion of such A and B Redemption Stock
and/or C Redemption Stock and/or D Redemption Stock, as the case may be. Any
interest accrued on any funds so deposited shall be the property of, and paid
to, the Corporation. If the holders of A and B Redemption Stock and/or C
Redemption tock and/or D Redemption Stock, as the case may be, so called for
redemption shall not, at the end of one (1) year after the applicable Redemption
Date, have claimed any funds so deposited, such bank or trust company shall
thereupon pay over to the Corporation such unclaimed funds, and such bank or
trust company shall thereafter be relieved of all responsibility in respect
thereof to such holders and such holders shall look only to the Corporation for
payment of the applicable Redemption Price for the A and B Redemption Stock
and/or C Redemption Stock and/or D Redemption Stock, as the case may be, which
they hold.
(f) Notwithstanding the above, the Corporation shall be under
no obligation to make any redemption payment due on a Redemption Date if it
receives a waiver of such obligation prior to the fifth day preceding such
Redemption Date, from holders of a majority of the A and B Redemption Stock (in
the case of a waiver of a redemption payment on the A and B Redemption Stock)
and/or C Redemption Stock (in the case of a waiver of a redemption payment on
the C Redemption Stock) and/or D Redemption Stock (in the case of a waiver of a
redemption payment on the D Redemption Stock), as the case may be.
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4. VOTING RIGHTS.
(a) Except as otherwise required by law or hereunder, the
holder of each share of Common Stock issued and outstanding shall have one vote
and the holder of each share of Preferred Stock shall be entitled to the number
of votes equal to the number of shares of Common Stock into which such share of
Preferred Stock could be converted at the record date for determination of the
shareholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, such votes to be counted together with all other
shares of stock of the Company having general voting power and not separately as
a class. Fractional votes by the holders of Preferred Stock shall not, however,
be permitted and any fractional voting rights shall (after aggregating all
shares into which shares of Preferred Stock held by each holder could be
converted) be rounded to the nearest whole number. Holders of Common Stock and
Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the Bylaws of the Corporation.
(b) Notwithstanding the foregoing, at each annual or special
meeting called for the purpose of electing directors, the holders of the Series
D Preferred, voting together as a separate class, shall be entitled to elect one
(1) director; the holders of the Series C Preferred and Series C1 Preferred,
voting together as a separate class shall be entitled to elect one director; the
holders of the Series A Preferred, Series A1 Preferred, Series B Preferred, and
Series B1 Preferred, voting together as a separate class, shall be entitled to
elect two (2) directors, and the holders of Common Stock shall be entitled to
elect the remaining directors. The provisions of this Section 4(b) shall expire
and be of no further force or effect upon conversion of all outstanding shares
of Preferred Stock into Common Stock pursuant to the provisions of Section 5
hereof. In the case of any vacancy in the office of a director elected by a
specified group of shareholders, a successor shall be elected to hold office for
the unexpired term of such director by the affirmative vote of a majority of the
shares of such specified group given at a special meeting of such shareholders
duly called or by an action by written consent for that purpose. Subject to
Section 303 of the California Corporations Code, any director who shall have
been elected by a specified group of shareholders may be removed during the
aforesaid term of office, either for or without cause, by, and only by, the
affirmative vote of the holders of a majority of the shares of such specified
group, given at a special meeting of such shareholders duly called or by an
action by written consent for that purpose, and any such vacancy thereby created
may, be filled by the vote of the holders of a majority of the shares of such
specified group represented at such meeting or in such consent.
5. CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Subject to Subsection (d), each share of
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, but not later than on or
prior to such date, if any, as may have been fixed for redemption pursuant to
Section 3, at the office of the Corporation or any transfer agent for such
Preferred Stock. Each share of Preferred Stock shall be convertible into the
number of shares of Common Stock which results from dividing the "Conversion
Price" per share in effect for such
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series of Preferred Stock at the time of conversion into the "Original Issue
Price" per share of such series of Preferred Stock. The number of shares of
Common Stock into which one share of a series of Preferred Stock is
convertible is hereinafter referred to as the "Conversion Rate" for such
series. The Conversion Price per share of Series A Preferred and Series A1
Preferred on the Series D Issue Date shall be $0.21, the Conversion Price per
share of the Series B Preferred and Series B1 Preferred on the Series D Issue
Date shall be $0.55, the initial Conversion Price per share of the Series C
Preferred and Series C1 Preferred on the Series D Issue Date shall be
$0.61273, and the initial Conversion Price per share of the Series D
Preferred shall be $2.21. The Original Issue Price per share of Series A
Preferred and Series A1 Preferred shall be $0.21, the Original Issue Price
per share of Series B Preferred and Series B1 Preferred shall be $0.55 per
share, the Original Issue Price per share of Series C Preferred and Series C1
Preferred shall be $0.65 per share, and the Original Issue Price per share of
Series D Preferred shall be $2.21 per share. The initial Conversion Price of
each series of Preferred Stock shall be subject to adjustment as hereinafter
provided.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at its then effective
Conversion Rate upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public at a price per share (prior to
underwriter commissions and offering expenses) of not less than $5.00 per share
(appropriately adjusted for any stock combination, stock split, stock dividend,
recapitalization, or other similar transaction) and an aggregate offering price
to the public of at least $20,000,000 (the "Automatic Conversion"). In the
event of the Automatic Conversion of the Preferred Stock upon a public offering
as aforesaid, which Automatic Conversion shall apply equally and at the same
time to all then outstanding Preferred Stock, the person(s) entitled to receive
the Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the fair market value of such fractional
interest as determined by the Corporation's Board of Directors. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock and to receive certificates therefor, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at such office of its election to convert
the same; provided, however, that in the event of an automatic conversion
pursuant to Section 5(b), the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen, or destroyed and
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executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such
certificates. The Corporation shall, as soon as practicable after such
delivery, or such agreement and indemnification in the case of a lost
certificate, issue and deliver at such office to such holder of Preferred
Stock, a certificate or certificates for the number of shares of Common Stock
to which the holder shall be entitled as aforesaid and a check payable to the
holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Preferred Stock to be converted, or
in the case of Automatic Conersion on the date of closing of the offering or
the effective date of such written consent, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section
5(d), the following definitions shall apply:
(A) "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(B) "SERIES D ISSUE DATE" shall mean the date on
which the first share of Series D Preferred was issued.
(C) "SERIES C ISSUE DATE" shall mean the date on
which the first share of Series C Preferred was issued.
(D) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares (other than Common Stock) or other securities
(other than Options) convertible into or exchangeable for Common Stock.
(E) "SHARES" shall mean shares of Preferred
Stock.
(F) "ADDITIONAL STOCK" shall mean all shares of
Common Stock issued (or, pursuant to Section 5(d)(iv), deemed to be issued) by
the Corporation after the Series D Issue Date, other than shares of Common Stock
issued or issuable at any time:
(I) upon conversion of the Shares;
(II) to officers, directors, and employees
of, and consultants to, the Corporation pursuant to issuances approved by the
Board of Directors under stock option plans and equity incentive plans and
programs (the "OPTION POOL") in an aggregate amount of not more than 4,000,000
shares or such greater number as may be approved by the Board with the
affirmative vote of the director elected by the holders of Series D Preferred
(net of option expirations and terminations and shares repurchased by the
Corporation from officers,
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directors, employees, and consultants), appropriately adjusted for any stock
combination, stock split, stock dividend, recapitalization, or other similar
transactions; or
(III) as a dividend or distribution on the
Shares.
(G) [Intentionally Omitted]
(H) "FINANCING" means any issuance of Additional
Stock in a transaction or series of related transactions with gross proceeds to
the Corporation equal to or greater than $500,000.
(I) "PREFERRED PRO RATA AMOUNT" for a particular
holder of Series A Preferred, Series B Preferred, or Series C Preferred shall
mean the amount determined by multiplying the total number of shares of
Additional Stock (other than Options) offered for sale by the Corporation in a
Financing by a fraction, (x) the numerator of which is the total number of
shares of Common Stock into which shares of the Series A Preferred, Series B
Preferred, and Series C Preferred held by such holder are convertible, plus the
total number of shares of Common Stock held by such holder and (y) the
denominator of which is the total number of shares of Common Stock into which
shares of the Series A Preferred, Series B Preferred, and Series C Preferred
held by such holder are convertible plus the total number of shares of Common
Stock and Options outstanding immediately prior to the Financing.
(J) "DILUTIVE ISSUANCE" shall mean an issuance of
Additional Stock in a Financing for a consideration per share less than the
Conversion Price of the Series A Preferred, the Series B Preferred, or the
Series C Preferred, as the case may be, in effect on the date of and immediately
prior to such issuance.
(K) "PARTICIPATING INVESTOR" shall mean any
holder of Series A Preferred, Series B Preferred, or Series C Preferred that,
together with any affiliated entities or persons of such holder, purchases at
least its or its affiliates' Preferred Pro Rata Amount of a Dilutive Issuance
for such holder.
(L) "NONPARTICIPATING INVESTOR" shall mean any
holder of Series A Preferred, Series B Preferred, or Series C Preferred that is
not a Participating Investor.
(ii) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL STOCK. In the event this Corporation shall issue Additional Stock
(including Additional Stock deemed to be issued pursuant to Section 5(d)(iv))
without consideration or for a consideration per share less than the applicable
Conversion Price for the Series A Preferred, the Series B Preferred, the Series
C Preferred, or the Series D Preferred then in effect, then, and thereafter
successively upon each such issuance or sale, the Conversion Price then in
effect for such Series A Preferred, Series B Preferred, Series C Preferred, or
the Series D Preferred shall simultaneously with such issuance or sale be
reduced to a Conversion Price (calculated to the nearest 1/100th of one cent)
determined by multiplying the Conversion Price then in effect by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock which the aggregate consideration
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received by the Corporation for the total number of shares of Additional
Stock so issued would purchase at the existing Conversion Price then in
effect; and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale plus the
number of shares of Additional Stock so issued, provided that, for purposes
of this Section (d)(ii), all shares of Common Stock issuable upon conversion
of all outstanding Preferred Stock and all outstanding Convertible Securities
shall be deemed to be outstanding, and immediately after any Additional Stock
is deemed issued pursuant to Section (iv), such Additional Stock shall be
deemed to be outstanding. Each share of Series A Preferred, Series B
Preferred, and Series C Preferred held by a Nonparticipating Investor shall,
immediately prior to the closing of the Dilutive Issuance, be automatically
converted into one share of fully paid and nonassessable Series A1 Preferred,
Series B1 Preferred, or Series C1 Preferred, as the case may be; provided,
however, that no such conversion shll occur and the Nonparticipating Investor
shall continue to be treated as a Participating Investor for purposes of
adjustments pursuant to this Section 5(d)(ii) if the Nonparticipating
Investor did not purchase its Pro Rata Amount in the Dilutive Issuance
pursuant to the written request of the Corporation that such holder waive any
rights of first refusal with respect to such Dilutive Issuance. Upon the
conversion of the Series A Preferred, Series B Preferred, or Series C
Preferred held by a Nonparticipating Investor as set forth herein, such
shares of Preferred Stock shall no longer be outstanding on the books of the
Corporation and the Nonparticipating Investor shall be treated for all
purposes as the record holder of such shares of Series Al Preferred, Series
B1 Preferred, or Series C1 Preferred as the case may be, on the date of the
closing of the applicable Dilutive Issuance.
(A) EXCHANGE OF CERTIFICATES. The holder of any
shares of Series A Preferred, Series B Preferred, or Series C Preferred
converted pursuant to this subsection (d)(ii) shall deliver to this Corporation
during regular business hours at the office of any transfer agent of this
Corporation for the Series A Preferred, the Series B Preferred, or the Series C
Preferred or at such other place as may be designated by this Corporation, the
certificate or certificates for the shares converted, duly endorsed or assigned
in blank or to this Corporation. As promptly as practicable thereafter, this
Corporation shall issue and deliver to such holder, at the place designated by
such holder, a certificate or certificates for the number of full shares of
Series A1 Preferred, Series B1 Preferred, or Series C1 Preferred to be issued
and such holder shall be deemed to have become a shareholder of record of Series
Al Preferred, Series B1 Preferred, or Series C1 Preferred on the date such
holder's shares of Series A Preferred, Series B Preferred, or Series C Preferred
as the case may be, were converted pursuant to Section 5(d)(ii) above unless the
transfer books of this Corporation are closed on that date, in which event he,
she or it shall be deemed to have become a shareholder of record of Series A1
Preferred, Series B1 Preferred, or Series C1 Preferred, as the case may be, on
the next succeeding date on which the transfer books are open.
(B) FURTHER DESIGNATIONS. In the event that any
shares of Series A1 Preferred, Series B1 Preferred, or Series C1 Preferred are
issued, concurrently with such issuance, this Corporation shall use its best
efforts to take all such action as may be required, including amending its
Articles of Incorporation, (a) to cancel all authorized shares of Series A1
Preferred, Series B1 Preferred, or Series C1 Preferred that remain unissued
after such issuance, (b) to create, and reserve for issuance upon conversion
pursuant to Section 5(d)(ii)
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above of any Series A Preferred, Series B Preferred, or Series C Preferred a
new series of Preferred Stock equal in number to the number of shares of
Series A1 Preferred, Series B1 Preferred, and Series C1 Preferred so canceled
and designated Series A2 Preferred, Series B2 Preferred, or Series C2
Preferred with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then
applicable to the Series A1 Preferred, Series B1 Preferred, or Series C1
Preferred except that the Conversion Prices for such shares of Series A2
Preferred, Series B2 Preferred, or Series C2 Preferred once initially issued
shall be the Conversion Price in effect for the Series A Preferred, Series B
Preferred, or Series C Preferred as the case may be, immediately prior to
such issuance and (c) to amend the provisions of this Section 5(d)(ii) to
provide that any subsequent conversion pursuant to Section 5(d)(ii) will be
into shares of Series A2 Preferred, Series B2 Preferred, or Series C2
Preferred rather than Series Al Preferred, Series B1 Preferred, or Series C1
Preferred as the case may be. This Corporation shall take the same actions
with respect to the Series A2 Preferred, Series B2 Preferred, or Series C2
Preferred and each subsequently authorized series of Preferred Stock upon
initial issuance of shares of the last such series to be authorized. The
right to receive any dividend declared but unpaid at the time of conversion
on any shares of Preferred Stock converted pursuant to the provisions of this
Section 5(d)(ii) shall accrue to the benefit of the new shares of Preferred
Stock issued upon conversion thereof.
(iii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in
the Conversion Price of the Series A Preferred, the Series B Preferred, the
Series C Preferred, or the Series D Preferred shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect for such series of
Preferred Stock on the date of, and immediately prior to such issue. No
adjustment in the Conversion Price of Series A1 Preferred, Series B1 Preferred,
or Series C1 Preferred shall be made in respect of the issuance of Additional
Stock (other than in the event of stock dividends, subdivisions, split-ups,
combinations or recapitalization which are covered by Section 5(d)(vi)).
(iv) DEEMED ISSUE OF ADDITIONAL STOCK. Except as
otherwise provided in Section 5(d)(iii), in the event the Corporation at any
time or from time to time after the Original Issue Date shall issue any Options
or Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Stock issued as of the time of such issue or, in case
such a record date shall have been fixed, as of the close of business on such
record date, provided that Additional Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(d)(v) hereof) of such Additional Stock would be less than the Conversion Price
in effect on the date of and immediately prior to such issuance, or such record
date, as the case may be, and provided further that in any such case in which
Additional Stock is deemed to be issued:
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(A) except as provided in Section 5(d)(iv)(B), no
further adjustment in the Conversion Price shall be made upon the subsequent
issue of Convertible Securities or shares of Common Stock upon the exercise of
such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if;
(I) in the case of Convertible Securities
or Options for Common Stock, the only Additional Shares of Common Stock issued
were shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount that
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by
their terms not more than 90 days after the date of issue thereof, no adjustment
of the Conversion Price shall be
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made (except as to shares of Series A Preferred, Series B Preferred, Series C
Preferred, or Series D Preferred converted in such period) until the
expiration or exercise of all such Options.
(v) DETERMINATION OF CONSIDERATION. For purposes of
this Section 5(d), the consideration received by the Corporation for the issue
of any Additional Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Stock is
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(d)(iv), relating
to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(3) STOCK DIVIDENDS. Any Additional Stock
relating to stock dividends which may be issued by the Corporation shall not be
deemed to have been issued for purposes of Section 5(d)(ii) but shall to be
covered by Section 5(d)(vi).
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<PAGE>
(vi) ADJUSTMENTS FOR DIVIDENDS, SPLITS, SUBDIVISIONS,
COMBINATIONS OR CONSOLIDATION OF COMMON STOCK. In the event the outstanding
shares of Common Stock shall be increased by stock dividend payable in Common
Stock, stock split, subdivision, or other similar transaction into a greater
number of shares of Common Stock, the Conversion Prices of the Series A
Preferred, the Series A1 Preferred, the Series B Preferred, the Series B1
Preferred, the Series C Preferred, the Series C1 Preferred, and the Series D
Preferred then in effect shall, concurrently with the effectiveness of such
event, be decreased proportionally. In the event the outstanding shares of
Common Stock shall be decreased by reverse stock split, combination,
consolidation, or other similar transaction into a lesser number of shares of
Common Stock, the Conversion Prices of the Series A Preferred, the Series A1
Preferred, the Series B Preferred, the Series B1 Preferred, the Series C
Preferred, the Series C1 Preferred, and the Series D Preferred then in effect
shall, concurrently with the effectiveness of such event, be increased
proportionally.
(vii) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event
the Corporation at any time or from time to time makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 5, then and in
each such event provision shall be made so that the holders of Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
which these would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Preferred Stock.
(viii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Common Stock issuable upon conversion of the Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for above), the Conversion Prices then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of such
Preferred Stock immediately before that change.
(e) NO IMPAIRMENT. Except as provided in Section 5, the
Corporation will not, by amendment of its Articles of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or
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appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for a series of Preferred
Stock pursuant to this Section 5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of the Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event that this Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock, or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease, or convey all or substantially all its property or
business, or to liquidate, dissolve, or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of Preferred Stock:
(1) at least 20 days prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least 20 days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event or the record date
for the determination of such holders if such record date is earlier).
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Each such written notice shall be delivered personally, or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
(h) ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes (other than income taxes) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of Preferred
Stock pursuant hereto; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to its Articles of
Incorporation.
(j) STATUS OF CONVERTED STOCK. In case any series of Preferred
Stock shall be converted pursuant to this Section 5, the shares so converted
shall resume the status of authorized but unissued shares of Preferred Stock.
6. COVENANTS. In addition to any other rights provided by law, this
Corporation shall not, (a) without first obtaining the affirmative vote or
written consent of the holders of more than fifty percent (50%) of the
outstanding shares of Series A Preferred, Series A1 Preferred, Series B
Preferred and Series B1 Preferred:
(i) amend or repeal any provision of, or add any
provision to, this Corporation's Articles of Incorporation if such action would
materially and adversely alter or change the preferences, rights, privileges, or
powers of, or the restrictions provided for the benefit of, the Series A
Preferred, Series A1 Preferred, Series B Preferred or Series B1 Preferred; or
(ii) increase the authorized number of shares of the
Series A Preferred, Series A1 Preferred, Series B Preferred or Series B1
Preferred;
(b) without first obtaining the affirmative vote or written
consent of the holders of more than fifty percent (50%) of the outstanding
shares of Series C Preferred and Series C1 Preferred:
(i) amend or repeal any provision of, or add any
provision to, this Corporation's Articles of Incorporation if such action would
materially and adversely alter or
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change the preferences, rights, privileges, or powers of, or the restrictions
provided for the benefit of, the Series C Preferred or Series C1 Preferred; or
(ii) increase the authorized number of shares of the
Series A Preferred, Series A1 Preferred, Series B Preferred, Series B1
Preferred, Series C Preferred or Series C1 Preferred; and
(c) without first obtaining the affirmative vote or written
consent of the holders of more than seventy-five percent (75%) of the
outstanding shares of Series D Preferred:
(i) amend or repeal any provision of, or add any
provision to, this Corporation's Articles of Incorporation if such action would
materially and adversely alter or change the preferences, rights, privileges, or
powers of, or the restrictions provided for the benefit of, the Series D
Preferred; or
(ii) increase the authorized number of shares of the
Series A Preferred, Series A1 Preferred, Series B Preferred, Series B1
Preferred, Series C Preferred, Series C1 Preferred, or Series D Preferred; and
(d) without first obtaining the affirmative vote or written
consent of the holders of the lesser of (i) sixty percent (60%) of the
outstanding shares of Preferred Stock, and (ii) the highest percentage
permissible under Section 710 of the California Corporations Code;
(i) increase the authorized number of shares of
Preferred Stock;
(ii) authorize or issue shares of any class or series of
stock having any preference or priority as to dividends or redemption rights,
liquidation preferences, conversion rights, or voting rights, superior to or on
a parity with any preference or priority of any series of Preferred Stock;
(iii) reclassify any shares of capital stock of this
Corporation into shares having any preference or priority as to dividends or
redemption rights, liquidation preferences, conversion rights, or voting rights,
superior to or on a parity with any preference or priority of any series of
Preferred Stock;
(iv) enter into or authorize any transaction or series of
transactions constituting a Liquidation Event;
(v) pay any dividends on the Common Stock of this
Corporation; or
(vi) repurchase or acquire any shares of Common Stock
other than pursuant to the terms of any stock purchase agreement between the
Corporation and any shareholder in connection with the employment of, or the
rendering of services for the benefit of the Corporation, by such shareholder.
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FIFTH
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
This Corporation is also authorized, to the fullest extent permissible under
California law, to indemnify its agents (as defined in Section 317 of the
California Corporations Code), whether by bylaw, agreement, or otherwise, for
breach of duty to this Corporation and its shareholders in excess of that
expressly permitted by Section 317 and to advance defense expenses to its agents
in connection with such matters as they are incurred. If, after the effective
date of this Article, California law is amended in a manner which permits a
corporation to limit the monetary or other liability of its directors or to
authorize indemnification of, or advancement of such defense expenses to, its
directors or other persons, in any such case to a greater extent than is
permitted on such effective date, the references in this Article to California
law shall to that extent be deemed to refer to California law as so amended.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of the
Corporation.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of the shareholders of
this Corporation in accordance with Section 902 of the California Corporations
Code. The Corporation has two classes of stock outstanding. The total number
of outstanding shares entitled to vote is 11,045,602 shares of Common Stock,
18,007,523 shares of Preferred Stock, including 6,078,444 shares of Series A
Preferred Stock, 4,666,841 shares of Series B Preferred Stock and 7,262,238
shares of Series C Preferred Stock; there are no outstanding shares of Series A1
Preferred Stock, Series B1 Preferred Stock and Series C1 Preferred Stock. The
number of shares voting in favor of the amendment and restatement equaled or
exceeded the vote required. The percentage vote required was more than 50% of
the outstanding shares of Common Stock, more than 75% of the outstanding shares
of Preferred Stock, more than 50% of the outstanding shares of Series B
Preferred Stock and more than 50% of the outstanding shares of Series C
Preferred Stock.
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The undersigned further declare under penalty of perjury that the matters
set forth in the foregoing Amended and Restated Articles of Incorporation are
true and correct of their own knowledge.
Executed at San Mateo, California, this 31st day of March, 1999.
-----------------------------------
Umang Gupta, President
-----------------------------------
Matthew P. Quilter, Secretary
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BYLAWS
OF
KEYNOTE SYSTEMS INCORPORATED
(a California corporation)
As Amended February 24, 1998
ARTICLE I
OFFICES
SECTION 1.1: PRINCIPAL OFFICE. The principal executive office for the
transaction of the business of this corporation (the "COMPANY") shall be
located at such place as the Board of Directors may from time to time decide.
The Board of Directors is hereby granted full power and authority to change
the location of the principal executive office from one location to another.
SECTION 1.2: OTHER OFFICES. One or more branch or other subordinate
offices may at any time be fixed and located by the Board of Directors at
such place or places within or outside the State of California as it deems
appropriate.
ARTICLE II
DIRECTORS
SECTION 2.1: EXERCISE OF CORPORATE POWERS. Except as otherwise
provided by these Bylaws, by the Articles of Incorporation of the Company or
by the laws of the State of California now or hereafter in force, the
business and affairs of the Company shall be managed and all corporate powers
shall be exercised by or under the ultimate direction of a board of directors
(the "BOARD OF DIRECTORS").
SECTION 2.2: NUMBER. The authorized number of directors of the
Company shall be five (5). Any amendment to these Bylaws reducing such
number of authorized directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares
not consenting in the case of action by written consent, are equal to more
than 16-2/3% of the outstanding shares entitled to vote.
SECTION 2.3: NEED NOT BE SHAREHOLDERS. The directors of the Company
need not be shareholders of this Company.
SECTION 2.4: COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services as may be fixed or
determined by resolution of the Board
<PAGE>
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the Company in any other capacity and receiving
compensation therefor.
SECTION 2.5: ELECTION AND TERM OF OFFICE. The directors shall be
elected annually by the shareholders at the annual meeting of the
shareholders. The term of office of the directors shall begin immediately
after their election and shall continue until the next annual meeting of the
shareholders and until their respective successors are elected. A reduction
of the authorized number of directors shall not shorten the term of any
incumbent director or remove any incumbent director prior to the expiration
of such director's term of office.
SECTION 2.6: VACANCIES. A vacancy or vacancies on the Board of
Directors shall exist:
(a) in the case of the death of any director; or
(b) in the case of the resignation or removal of any director; or
(c) if the authorized number of directors is increased; or
(d) if the shareholders fail, at any annual meeting of shareholders at
which any director is elected, to elect the full authorized number of directors
at that meeting.
The Board of Directors may declare vacant the office of a director if he or
she is declared of unsound mind by an order of court or convicted of a felony
or if, within 60 days after notice of his or her election, he or she does not
accept the office. Any vacancy, except for a vacancy created by removal of a
director as provided in Section 2.7 hereof, may be filled by a person
selected by a majority of the remaining directors then in office, whether or
not less than a quorum, or by a sole remaining director. Vacancies occurring
in the Board of Directors by reason of removal of directors shall be filled
only by approval of shareholders. The shareholders may elect a director at
any time to fill any vacancy not filled by the directors. Any such election
by the written consent of shareholders, other than to fill a vacancy created
by removal, requires the consent of shareholders holding a majority of the
outstanding shares entitled to vote. If, after the filling of any vacancy by
the directors, the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the directors then in
office, any holder or holders of an aggregate of 5% or more of the total
number of shares at that time having the right to vote for such directors may
call a special meeting of shareholders to be held to elect the entire Board
of Directors. The term of office of any director then in office shall
terminate upon the election of such director's successor. Any director may
resign effective upon giving written notice to the Chairman of the Board, if
any, the President, the Secretary or the Board of Directors, unless the
notice specifies a later time for the effectiveness of such resignation.
After the notice is given and if the resignation is effective at a future
time, a successor may be elected or appointed to take office when the
resignation becomes effective.
SECTION 2.7: REMOVAL. The entire Board of Directors or any individual
director may be removed from office without cause by an affirmative vote of
shareholders holding a majority of the outstanding shares entitled to vote.
If the entire Board of Directors is not removed, however, then no individual
director shall be removed if the votes cast against removal of that director,
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<PAGE>
plus the votes not consenting in writing to such removal, would be sufficient
to elect that director if voted cumulatively in an election at which the
following were true:
(a) the same total number of votes were cast, or, if such action is
taken by written consent, all shares entitled to vote were voted; and
(b) the entire number of directors authorized at the time of the
director's most recent election were then being elected.
If any or all directors are so removed, new directors may be elected at the
same meeting or at a subsequent meeting. If at any time a class or series of
shares is entitled to elect one or more directors under authority granted by
the Articles of Incorporation, the provisions of this Section 2.7 shall apply
to the vote of that class or series and not to the vote of the outstanding
shares as a whole.
SECTION 2.8: POWERS AND DUTIES. Without limiting the generality or
extent of the general corporate powers to be exercised by the Board of
Directors pursuant to Section 2.1 of these Bylaws, it is hereby provided that
the Board of Directors shall have full power with respect to the following
matters:
(a) To purchase, lease and acquire any and all kinds of property, real,
personal or mixed, and at its discretion to pay therefor in money, in
property and/or in stocks, bonds, debentures or other securities of the
Company.
(b) To enter into any and all contracts and agreements which in its
judgment may be beneficial to the interests and purposes of the Company.
(c) To fix and determine and to vary from time to time the amount or
amounts to be set aside or retained as reserve funds or as working capital of
the Company or for maintenance, repairs, replacements or enlargements of its
properties.
(d) To declare and pay dividends in cash, shares and/or property out of
any funds of the Company at the time legally available for the declaration
and payment of dividends on its shares.
(e) To adopt such rules and regulations for the conduct of its meetings
and the management of the affairs of the Company as it may deem proper.
(f) To prescribe the manner in which and the person or persons by whom
any or all of the checks, drafts, notes, bills of exchange, contracts and
other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the office
of a director as provided in Section 2.6 hereof; and, in case of vacancy in
the office of directors, to fill the same to the extent provided in Section
2.6 hereof.
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(h) To create offices in addition to those for which provision is made
by law or these Bylaws; to elect and remove at pleasure all officers of the
Company, fix their terms of office, prescribe their titles, powers and
duties, limit their authority and fix their salaries in any way it may deem
advisable that is not contrary to law or these Bylaws.
(i) To designate one or more persons to perform the duties and exercise
the powers of any officer of the Company during the temporary absence or
disability of such officer.
(j) To appoint or employ and to remove at pleasure such agents and
employees as it may see fit, to prescribe their titles, powers and duties,
limit their authority and fix their salaries in any way it may deem advisable
that is not contrary to law or these Bylaws.
(k) To fix a time in the future, which shall not be more than 60 days
nor less than 10 days prior to the date of the meeting nor more than 60 days
prior to any other action for which it is fixed, as a record date for the
determination of the shareholders entitled to notice of and to vote at any
meeting, or entitled to receive any payment of any dividend or other
distribution, or allotment of any rights, or entitled to exercise any rights
in respect of any other lawful action; and in such case only shareholders of
record on the date so fixed shall be entitled to notice of and to vote at the
meeting or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Company after any record date fixed as aforesaid.
The Board of Directors may close the books of the Company against transfers
of shares during the whole or any part of such period.
(l) To fix and locate from time to time the principal office for the
transaction of the business of the Company and one or more branch or other
subordinate offices of the Company within or without the State of California;
to designate any place within or without the State of California for the
holding of any meeting or meetings of the shareholders or the Board of
Directors, as provided in Sections 3.1 and 7.1 hereof; to adopt, make and use
a corporate seal, and to prescribe the forms of certificates for shares and
to alter the form of such seal and of such certificates from time to time as
in its judgment it may deem best, provided such seal and such certificates
shall at all times comply with the provisions of law now or hereafter in
effect.
(m) To authorize the issuance of shares of stock of the Company in
accordance with the laws of the State of California and the Articles of
Incorporation.
(n) Subject to the limitation provided in Section 10.2 hereof, to
adopt, amend or repeal from time to time and at any time these Bylaws and any
and all amendments thereof.
(o) To borrow money, make guarantees of indebtedness or other
obligations of third parties (except to the extent such guarantees are not
permitted by Section 2.8(p) of these Bylaws, Section 315 of the California
Corporations Code (or any successor provision) or other applicable law) and
incur indebtedness on behalf of the Company, including the power and
authority to borrow money from any of the shareholders, directors or officers
of the Company; and to cause to be executed and delivered therefor in the
corporate name promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges (or other transfers of property as security or collateral
for a debt), or other evidences of debt and securities therefor; and the note
or other obligation given for
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any indebtedness of the Company, signed officially by any officer or officers
thereunto duly authorized by the Board of Directors, shall be binding on the
Company.
(p) To approve a loan of money or property to any officer or director
of the Company or of any parent or subsidiary company, to guarantee the
obligation of any such officer or director or to approve an employee benefit
plan authorizing such a loan or guarantee to any such officer or director,
but only if (i) the loan or guarantee is made pursuant to a transaction, plan
or agreement (including a stock purchase plan or agreement or stock option
plan or agreement) permitted by Section 408 of the California Corporations
Code; or (ii) the transaction, or an employee benefit plan authorizing such
loans or guarantees after disclosure of the right under such plan to include
officers or directors thereunder, is approved by any vote of the shareholders
of the Company then required under Section 315 of the California Corporations
Code (or any successor provision) or other then applicable law; PROVIDED
HOWEVER, that notwithstanding the foregoing, if the Company has outstanding
shares held of record by 100 or more persons (determined as provided in
Section 605 of the California Corporations Code or any successor provision)
on the date of approval by the Board of Directors of a loan or guarantee to
an officer of the Company, and this Section 2.8(p) has been approved by the
outstanding shares (as defined in Section 152 of the California Corporations
Code or any successor provision), then the Board of Directors alone (without
the need for any further approval by the Company's shareholders) may, by a
vote of the Board of Directors sufficient for approval without counting the
vote of any interested director or directors, approve such a loan or
guarantee to an officer of the Company, whether or not such officer is a
director, or an employee benefit plan authorizing such a loan or guarantee to
an officer of the Company, if the Board of Directors determines (without
counting the vote of any interested director or directors) that such loan,
guarantee or plan may reasonably be expected to benefit the Company.
(q) Generally to do and perform every act and thing whatsoever that may
pertain to the office of a director or to a board of directors.
ARTICLE III
MEETINGS OF DIRECTORS
SECTION 3.1: PLACE OF MEETINGS. Meetings (whether regular, special or
adjourned) of the Board of Directors of the Company shall be held at the
principal executive office of the Company or at any other place within or
outside the State of California which may be designated from time to time by
resolution of the Board of Directors or which is designated in the notice of
the meeting.
SECTION 3.2: REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held after the adjournment of each annual meeting of the
shareholders (which regular directors' meeting shall be designated the
"REGULAR ANNUAL MEETING") and at such other times as may be designated from
time to time by resolution of the Board of Directors. Notice of the time and
place of all regular meetings shall be given in the same manner as for
special meetings, except that no such notice need be given if (a) the time
and place of such meetings are fixed by the
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Board of Directors or (b) the Regular Annual Meeting is held at the principal
executive office of this Corporation and on the date specified by the Board
of Directors.
SECTION 3.3: SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, if any, or
the President, or any Vice President, or the Secretary or by any two or more
directors.
SECTION 3.4: NOTICE OF SPECIAL MEETINGS. Special meetings of the
Board of Directors shall be held upon no less than 4 days' notice by mail or
48 hours' notice delivered personally or by telephone or telegraph to each
director. Notice need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to such director. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. Any
oral notice given personally or by telephone may be communicated either to
the director or to a person at the home or office of the director who the
person giving the notice has reason to believe will promptly communicate it
to the director. A notice or waiver of notice need not specify the purpose
of any meeting of the Board of Directors. If the address of a director is not
shown on the records of the Company and is not readily ascertainable, notice
shall be addressed to him or her at the city or place in which meetings of
the directors are regularly held. If a meeting is adjourned for more than 24
hours, notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting to all directors not present at
the time of adjournment.
SECTION 3.5: QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board of Directors for the transaction of
business. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors subject to provisions of law relating to interested
directors and indemnification of agents of the Company. A majority of the
directors present, whether or not a quorum is present, may adjourn any
meeting to another time and place. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
SECTION 3.6: CONFERENCE TELEPHONE. Members of the Board of Directors
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all directors participating in such
meeting can hear one another. Participation in a meeting pursuant to this
Section constitutes presence in person at such meeting.
SECTION 3.7: WAIVER OF NOTICE AND CONSENT. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever
held, shall be as valid as though had at a meeting duly held after regular
call and notice if a quorum is present, and if, either before or after the
meeting, each of the directors not present signs a written waiver of notice,
a consent to holding such meeting or an approval of the minutes thereof. All
such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
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SECTION 3.8: ACTION WITHOUT A MEETING. Any action required or
permitted by law to be taken by the Board of Directors may be taken without a
meeting, if all members of the Board of Directors shall individually or
collectively consent in writing to the taking of such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors. Such action by written consent shall have the same force
and effect as a unanimous vote of such directors at a duly held meeting.
SECTION 3.9: COMMITTEES. The provisions of this Article apply also to
committees of the Board of Directors and action by such committees.
ARTICLE IV
COMMITTEES
SECTION 4.1: APPOINTMENT AND PROCEDURE. The Board of Directors may,
by resolution adopted by a majority of the authorized number of directors,
appoint from among its members one or more committees, including without
limitation an executive committee, an audit committee and a compensation
committee, of two or more directors. Each committee may make its own rules
of procedure subject to Section 3.9 hereof, and shall meet as provided by
such rules or by a resolution adopted by the Board of Directors (which
resolution shall take precedence). A majority of the members of the
committee shall constitute a quorum, and in every case the affirmative vote
of a majority of all members of the committee shall be necessary to the
adoption of any resolution.
SECTION 4.2: EXECUTIVE COMMITTEE POWERS. During the intervals between
the meetings of the Board of Directors, the Executive Committee, if any, in
all cases in which specific directions shall not have been given by the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Company in such manner as the Executive Committee may deem best for the
interests of the Company.
SECTION 4.3: POWERS OF OTHER COMMITTEES. Other committees shall have
such powers as are given them in a resolution of the Board of Directors.
SECTION 4.4: LIMITATIONS ON POWERS OF COMMITTEES. No committee shall
have the power to act with respect to:
(a) any action for which the laws of the State of California also
require shareholder approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
Board of Directors or on any committee;
(d) the amendment or repeal of these Bylaws or the adoption of new
Bylaws;
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(e) the amendment or repeal of any resolution of the Board of Directors
which by its express terms is not amendable or repealable;
(f) a distribution to the shareholders of the Company, except at a rate
or in a periodic amount or within a price range as set forth in the Articles
of Incorporation or determined by the Board of Directors; and
(g) the appointment of other committees of the Board of Directors or
the members thereof.
ARTICLE V
OFFICERS
SECTION 5.1: ELECTION AND QUALIFICATIONS. The officers of the Company
shall consist of a President and/or a Chief Executive Officer, a Secretary, a
Chief Financial Officer and such other officers, including, but not limited
to, a Chairman of the Board of Directors, one or more Vice Presidents, a
Treasurer, and Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers, as the Board of Directors shall deem expedient, who shall be
chosen in such manner and hold their offices for such terms as the Board of
Directors may prescribe. Any number of offices may be held by the same
person. Any Vice President, Assistant Treasurer or Assistant Secretary,
respectively, may exercise any of the powers of the President, the Chief
Financial Officer or the Secretary, respectively, as directed by the Board of
Directors, and shall perform such other duties as are imposed upon him or her
by these Bylaws or the Board of Directors.
SECTION 5.2: TERM OF OFFICE AND COMPENSATION. The term of office and
salary of each of said officers and the manner and time of the payment of
such salaries shall be fixed and determined by the Board of Directors and may
be altered by said Board of Directors from time to time at its pleasure,
subject to the rights, if any, of any officer under any contract of
employment. Any officer may resign at any time upon written notice to the
Company, without prejudice to the rights, if any, of the Company under any
contract to which the officer is a party. If any vacancy occurs in any
office of the Company, the Board of Directors may appoint a successor to fill
such vacancy.
SECTION 5.3 CHIEF EXECUTIVE OFFICER. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given by
the Board of Directors, the powers and duties of the Chief Executive Officer
of the Company are:
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Company.
(b) To preside at all meetings of the shareholders and, in the absence
of the Chairman of the Board of Directors or if there be no Chairman, at all
meetings of the Board of Directors.
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(c) To call meetings of the shareholders and meetings of the Board of
Directors to be held at such times and, subject to the limitations prescribed
by law or by these Bylaws, at such places as he or she shall deem proper.
(d) To affix the signature of the Company to all deeds, conveyances,
mortgages, leases, obligations, bonds, certificates and other papers and
instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed
on behalf of the Company; to sign certificates for shares of stock of the
Company; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Company and to supervise and control
all officers, agents and employees of the Company.
The President shall be the Chief Executive Officer of the Company unless
the Board of Directors shall designate the Chairman of the Board or another
officer to be the Chief Executive Officer. If there is no President, then
the Chairman of the Board shall be the Chief Executive Officer.
SECTION 5.4: CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings
of the Board of Directors and shall have such other powers and shall be
subject to such other duties as the Board of Directors may from time to time
prescribe.
SECTION 5.5 PRESIDENT. Subject to the supervisory powers of the
Chief Executive Officer, if not the President, and to such supervisory powers
as may be given by the Board of Directors to the Chairman of the Board, if
one is elected, or to any other officer, the President shall have the general
powers and duties of management usually vested in the office of president of
a corporation and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws.
SECTION 5.6: PRESIDENT PRO TEM. If neither the Chairman of the Board
of Directors, the President, nor any Vice President is present at any meeting
of the Board of Directors, a President pro tem may be chosen by the directors
present at the meeting to preside and act at such meeting. If neither the
President nor any Vice President is present at any meeting of the
shareholders, a President pro tem may be chosen by the shareholders present
at the meeting to preside at such meeting.
SECTION 5.7: VICE PRESIDENT. The titles, powers and duties of the
Vice President or Vice Presidents, if any, shall be as prescribed by the
Board of Directors. In case of the resignation, disability or death of the
President, the Vice President, or one of the Vice Presidents, shall exercise
all powers and duties of the President. If there is more than one Vice
President, the order in which the Vice Presidents shall succeed to the powers
and duties of the President shall be as fixed by the Board of Directors.
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SECTION 5.8: SECRETARY. The powers and duties of the Secretary are:
(a) To keep a book of minutes at the principal executive office of the
Company, or such other place as the Board of Directors may order, of all
meetings of its directors and shareholders with the time and place of holding
of such meeting, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings,
the number of shares present or represented at shareholders' meetings and the
proceedings thereof.
(b) To keep the seal of the Company and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal executive office of
the Company, or at the office of the transfer agent or agents, a record of
the shareholders of the Company, giving the names and addresses of all
shareholders and the number and class of shares held by each, the number and
date of certificates issued for shares and the number and date of
cancellation of every certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the Company, to fill
in all certificates issued, and to make a proper record of each such
issuance; provided that, so long as the Company shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the Company, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of the Company any and all shares
of the Company; provided that, so long as the Company shall have one or more
duly appointed and acting transfer agents of the shares, or any class or
series of shares, of the Company, such duties with respect to such shares
shall be performed by such transfer agent or transfer agents, and the method
of transfer of each certificate shall be subject to the reasonable
regulations of the transfer agent to whom the certificate is presented for
transfer and, if the Company then has one or more duly appointed and acting
registrars, subject to the reasonable regulations of the registrar to which a
new certificate is presented for registration; and, provided further, that no
certificate for shares of stock shall be issued or delivered or, if issued or
delivered, shall have any validity whatsoever until and unless it has been
signed or authenticated in the manner provided in Section 8.2 hereof.
(f) To make service and publication of all notices that may be
necessary or proper in connection with meetings of the Board of Directors of
the shareholders of the Company. In case of the absence, disability, refusal
or neglect of the Secretary to make service or publication of any notices,
then such notices may be served and/or published by the President or a Vice
President, or by any person thereunto authorized by either of them, or by the
Board of Directors, or by the holders of a majority of the outstanding shares
of the Company.
(g) Generally to do and perform all such duties as pertain to such
office and as may be required by the Board of Directors.
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SECTION 5.9: CHIEF FINANCIAL OFFICER. The powers and duties of the
Chief Financial Officer are:
(a) To supervise and control the keeping and maintaining of adequate
and correct accounts of the Company's properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, surplus and shares. The books of account shall at
all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of the Company and, at his or her
discretion, to cause any or all thereof to be deposited for the account of
the Company with such depository as may be designated from time to time by
the Board of Directors.
(c) To receive or cause to be received, and to give or cause to be
given, receipts and acquittances for monies paid in for the account of the
Company.
(d) To disburse, or cause to be disbursed, all funds of the Company as
may be directed by the President or the Board of Directors, taking proper
vouchers for such disbursements.
(e) To render to the President or to the Board of Directors, whenever
either may require, accounts of all transactions as Chief Financial Officer
and of the financial condition of the Company.
(f) Generally to do and perform all such duties as pertain to such
office and as may be required by the Board of Directors.
SECTION 5.10: INSTRUMENTS IN WRITING. All checks, drafts, demands for
money, notes and written contracts of the Company shall be signed by such
officer or officers, agent or agents, as the Board of Directors may from time
to time designate. No officer, agent, or employee of the Company shall have
the power to bind the Company by contract or otherwise unless authorized to
do so by these Bylaws or by the Board of Directors.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1: INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
The Company shall indemnify each person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative (a
"PROCEEDING") by reason of the fact that such person is or was a director,
officer or employee of the Company, or is or was serving at the request of
the Company as a director, officer or employee of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer or employee of a foreign or domestic corporation which was
a predecessor corporation of the Company or of another enterprise at the
request of such predecessor corporation, to the fullest extent permitted by
the California Corporations Code, against all expenses, including, without
limitation, attorneys' fees and any expenses of
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establishing a right to indemnification, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
Proceeding, and such indemnification shall continue as to a person who has
ceased to be such a director, officer or employee, and shall inure to the
benefit of the heirs, executors and administrators of such person; PROVIDED,
HOWEVER, that the Company shall indemnify any such person seeking indemnity
in connection with a Proceeding (or part thereof) initiated by such person
only if such Proceeding (or part thereof) was authorized by the Board of
Directors of the Company.
SECTION 6.2: ADVANCEMENT OF EXPENSES. The Company shall pay all
expenses incurred by such a director, officer or employee in defending any
Proceeding as they are incurred in advance of its final disposition;
provided, however, that the payment of such expenses incurred by a director,
officer or employee in advance of the final disposition of a Proceeding shall
be made only upon receipt by the Company of an agreement by or on behalf of
such director, officer or employee to repay such amount if it shall be
determined ultimately that such person is not entitled to be indemnified
under this Article VI or otherwise; and provided further that the Company
shall not be required to advance any expenses to a person against whom the
Company brings an action, alleging that such person committed an act or
omission not in good faith or that involved intentional misconduct or a
knowing violation of law, or that was contrary to the best interest of the
Company, or derived an improper personal benefit from a transaction.
SECTION 6.3: NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person in this Article VI shall not be deemed exclusive of any other rights
that such person may have or hereafter acquire under any statute, by law,
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in an official capacity and as to action in another capacity
while holding such office. Additionally, nothing in this Article VI shall
limit the ability of the Company, in its discretion, to indemnify or advance
expenses to persons whom the Company is not obligated to indemnify or advance
expenses to pursuant to this Article VI.
SECTION 6.4: INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to cause the Company to enter into a contract with any director,
officer, employee or agent of the Company, or any person serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than (to the extent permitted by the Company's Articles
of Incorporation and the California Corporations Code) those provided for in
this Article VI.
SECTION 6.5: EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VI shall be prospective only,
and shall not adversely affect any right or protection conferred on a person
pursuant to this Article VI and existing at the time of such amendment,
repeal or modification.
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ARTICLE VII
MEETINGS OF, AND REPORTS TO, SHAREHOLDERS
SECTION 7.1: PLACE OF MEETINGS. Meetings (whether regular, special or
adjourned) of the shareholders of the Company shall be held at the principal
executive office for the transaction of business of the Company, or at any
place within or outside the State of California which may be designated by
written consent of all the shareholders entitled to vote thereat, or which
may be designated by resolution of the Board of Directors. Any meeting shall
be valid wherever held if held by the written consent of all the shareholders
entitled to vote thereat, given either before or after the meeting and filed
with the Secretary of the Company.
SECTION 7.2: ANNUAL MEETINGS. The annual meetings of the shareholders
shall be held at the place provided pursuant to Section 7.1 hereof and at
such time in a particular year as may be designated by written consent of all
the shareholders entitled to vote thereat or which may be designated by
resolution of the Board of Directors of the Company. Said annual meetings
shall be held for the purpose of the election of directors, for the making of
reports of the affairs of the Company and for the transaction of such other
business as may properly come before the meeting.
SECTION 7.3: SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes whatsoever may be called at any time by the
President, the Chairman of the Board of Directors or by the Board of
Directors, or by two or more members thereof, or by one or more holders of
shares entitled to cast not less than 10% of the votes at the meeting. Upon
request in writing sent by registered mail to the Chairman of the Board of
Directors, President, Vice President or Secretary, or delivered to any such
officer in person, by any person entitled to call a special meeting of
shareholders, it shall be the duty of such officer forthwith to cause notice
to be given to the shareholders entitled to vote that a meeting will be held
at a time requested by the person or persons calling the meeting, which
(except where called by the Board of Directors) shall be not less than 35
days nor more than 60 days after the receipt of such request. If the notice
is not given within 20 days after receipt of the request, the person entitled
to call the meeting may give the notice. Notices of meetings called by the
Board of Directors shall be given in accordance with Section 7.4.
SECTION 7.4: NOTICE OF MEETINGS. Notice of any meeting of
shareholders shall be given in writing not less than 10 (or, if sent by
third-class mail, 30) nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat by the Secretary or an Assistant
Secretary, or such other person charged with that duty, or if there be no
such officer or person, or in case of his or her neglect or refusal, by any
director or shareholder. The notice shall state the place, date and hour of
the meeting and (a) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted, or
(b) in the case of the annual meeting, those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the shareholders, but any proper matter may be presented at the
meeting for such action, except that notice must be given or waived in
writing of any proposal relating to approval of contracts between the Company
and any director of the Company, amendment of the Articles of Incorporation,
reorganization of the Company or
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winding up of the affairs of the Company. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at
the time of the notice to be presented by the Board of Directors for
election. Notice of a shareholders' meeting or any report shall be given to
any shareholder, either (a) personally or (b) by first-class mail, or, in
case the Company has outstanding shares held of record by 500 or more persons
on the record date for the shareholders' meeting, notice may be sent by
third-class mail, or other means of written communication, charges prepaid,
addressed to such shareholder at such shareholder's address appearing on the
books of the Company or given by such shareholder to the Company for the
purpose of notice. If a shareholder gives no address or no such address
appears on the books of the Company, notice shall be deemed to have been
given if sent by mail or other means of written communication addressed to
the place where the principal executive office of the Company is located, or
if published at least once in a newspaper of general circulation in the
county in which such office is located. The notice or report shall be deemed
to have been given at the time when delivered personally or deposited in the
United States mail, postage prepaid, or sent by other means of written
communication and addressed as hereinbefore provided. An affidavit or
declaration of delivery or mailing of any notice or report in accordance with
the provisions of this Section 7.4, executed by the Secretary, Assistant
Secretary or any transfer agent, shall be prima facie evidence of the giving
of the notice or report. If any notice or report addressed to the
shareholder at the address of such shareholder appearing on the books of the
Company is returned to the Company by the United States Postal Service marked
to indicate that the United States Postal Service is unable to deliver the
notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if
the same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the Company for a period of
one year from the date of the giving of the notice or report to all other
shareholders.
SECTION 7.5: CONSENT TO SHAREHOLDERS' MEETINGS. The transactions of
any meeting of shareholders, however called and noticed, and wherever held,
are as valid as though they had taken place at a meeting duly held after
regular call and notice, if the following conditions are met:
(a) a quorum is present, either in person or by proxy, and
(b) either before or after the meeting, each of the shareholders
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of such meeting or an approval
of the minutes thereof. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute both a waiver of notice
of and presence at such meeting, except: (a) when the person objects, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened; or (b) when the person expressly
makes an objection at some time during the meeting to the consideration of
matters required by law to be included in the notice but not so included.
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Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of shareholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, except as to approval of contracts between the Company and any of
its directors, amendment of the Articles of Incorporation, reorganization of
the Company or winding up the affairs of the Company.
SECTION 7.6: QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of the
shareholders shall constitute a quorum for the transaction of business.
Shares shall not be counted to make up a quorum for a meeting if voting of
such shares at the meeting has been enjoined or for any reason they cannot be
lawfully voted at the meeting. Shareholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved
by at least a majority of the shares required to constitute a quorum. Except
as provided herein, the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required.
SECTION 7.7: ADJOURNED MEETINGS. Any shareholders' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
a majority of the shares, the holders of which are either present in person
or represented by proxy thereat, but, except as provided in Section 7.6
hereof, in the absence of a quorum, no other business may be transacted at
such meeting. When a meeting is adjourned for more than 45 days or if after
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled
to vote at a meeting. Except as aforesaid, it shall not be necessary to give
any notice of the time and place of the adjourned meeting or of the business
to be transacted thereat other than by announcement at the meeting at which
such adjournment is taken. At any adjourned meeting the shareholders may
transact any business which might have been transacted at the original
meeting.
SECTION 7.8: VOTING RIGHTS. Only persons in whose names shares
entitled to vote stand on the stock records of the Company at:
(a) the close of business on the business day immediately preceding the
day on which notice is given; or
(b) if notice is waived, at the close of business on the business day
immediately preceding the day on which the meeting is held; or
(c) if some other day be fixed for the determination of shareholders of
record pursuant to Section 2.8(k) hereof, then on such other day, shall be
entitled to vote at such meeting.
The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors has been taken, shall
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be the day on which the first written consent is given. In the absence of
any contrary provision in the Articles of Incorporation or in any applicable
statute relating to the election of directors or to other particular matters,
each such person shall be entitled to one vote for each share.
SECTION 7.9: ACTION BY WRITTEN CONSENTS. Any action which may be
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Unless the consents of all shareholders entitled to
vote have been solicited in writing, the Company shall provide notice of any
shareholder approval obtained without a meeting by less than unanimous
written consent to those shareholders entitled to vote but who have not yet
consented in writing at least 10 days before the consummation of the
following actions authorized by such approval: (a) contracts between the
Company and any of its directors; (b) indemnification of any person; (c)
reorganization of the Company; or (d) distributions to shareholders upon the
winding-up of the affairs of the Company. In addition, the Company shall
provide, to those shareholders entitled to vote who have not consented in
writing, prompt notice of the taking of any other corporate action approved
by the shareholders without a meeting by less than unanimous written consent.
All notices given hereunder shall conform to the requirements of Section 7.4
hereto and applicable law. When written consents are given with respect to
any shares, they shall be given by and accepted from the persons in whose
names such shares stand on the books of the Company at the time such
respective consents are given, or their proxies. Any shareholder giving a
written consent (including any shareholder's proxy holder, or a transferee of
the shares or a personal representative of the shareholder, or their
respective proxy holders) may revoke the consent by a writing. This writing
must be received by the Company prior to the time that written consents of
the number of shares required to authorize the proposed action have been
filed with the Secretary of the Company. Such revocation is effective upon
its receipt by the Secretary of the Company. Notwithstanding anything herein
to the contrary, and subject to Section 305(b) of the California Corporations
Code, directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
SECTION 7.10: ELECTION OF DIRECTORS. Every shareholder entitled to
vote at any election of directors of the Company may cumulate such
shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
the shareholder's shares are normally entitled, or distribute the
shareholder's votes on the same principle among as many candidates as such
shareholder thinks fit. No shareholder, however, may cumulate such
shareholder's votes for one or more candidates unless such candidate's or
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting, prior to voting, of such
shareholder's intention to cumulate such shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination. The candidates receiving the highest number of
affirmative votes of the shares entitled to be voted for them up to the
number of directors to be elected by such shares shall be declared elected.
Votes against the director and
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votes withheld shall have no legal effect. Election of directors need not be
by ballot except upon demand made by a shareholder at the meeting and before
the voting begins.
SECTION 7.11: PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or such person's
duly authorized agent and filed with the Secretary of the Company. No proxy
shall be valid (a) after revocation thereof, unless the proxy is specifically
made irrevocable and otherwise conforms to this Section and applicable law,
or (b) after the expiration of eleven months from the date thereof, unless
the person executing it specifies therein the length of time for which such
proxy is to continue in force. Revocation may be effected by a writing
delivered to the Secretary of the Company stating that the proxy is revoked
or by a subsequent proxy executed by the person executing the prior proxy and
presented to the meeting, or as to any meeting by attendance at the meeting
and voting in person by the person executing the proxy. A proxy is not
revoked by the death or incapacity of the maker unless, before the vote is
counted, a written notice of such death or incapacity is received by the
Secretary of the Company. In addition, a proxy may be revoked,
notwithstanding a provision making it irrevocable, by a transferee of shares
without knowledge of the existence of the provision unless the existence of
the proxy and its irrevocability appears on the certificate representing such
shares.
SECTION 7.12: INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office as inspectors of election. This appointment shall be
valid at the meeting and at any subsequent meeting that is a continuation of
the meeting at which the persons were originally appointed to be inspectors.
If no inspectors of election are so appointed, the Chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint inspectors of election at the meeting. The number of inspectors
shall be either one or three. If inspectors are appointed at a meeting on the
request of one or more shareholders or proxies, the holders of a majority of
shares or their proxies present at the meeting shall determine whether one or
three inspectors are to be appointed. If any person appointed as inspector
fails to appear or fails or refuses to act, the Chairman of the meeting may,
and upon the request of any shareholder or a shareholder's proxy shall,
appoint a person to fill that vacancy. These inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
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(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
SECTION 7.13: ANNUAL REPORTS. Provided that the Company has 100 or
fewer shareholders, the making of annual reports to the shareholders is
dispensed with and the requirement that such annual reports be made to
shareholders is expressly waived, except as may be directed from time to time
by the Board of Directors or the President.
ARTICLE VIII
SHARES AND SHARE CERTIFICATES
SECTION 8.1: SHARES HELD BY THE COMPANY. Shares in other companies
standing in the name of the Company may be voted or represented and all
rights incident thereto may be exercised on behalf of the Company by any
officer of the Company authorized to do so by resolution of the Board of
Directors.
SECTION 8.2: CERTIFICATES FOR SHARES. There shall be issued to every
holder of shares in the Company a certificate or certificates signed in the
name of the Company by the Chairman of the Board, if any, or the President or
a Vice President and by the Chief Financial Officer or an Assistant Chief
Financial Officer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Company with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
SECTION 8.3: LOST CERTIFICATES. Where the owner of any certificate
for shares of the Company claims that the certificate has been lost, stolen
or destroyed, a new certificate shall be issued in place of the original
certificate if the owner (a) so requests before the Company has notice that
the original certificate has been acquired by a bona fide purchaser and (b)
satisfies any reasonable requirements imposed by the Company, including
without limitation the filing with the Company of an indemnity bond or
agreement in such form and in such amount as shall be required by the
President or a Vice President of the Company. The Board of Directors may
adopt such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall in its
discretion deem appropriate.
SECTION 8.4: RESTRICTIONS ON TRANSFER OF SHARES.
(a) Before any shareholder of the Company may sell, assign, gift,
pledge or otherwise transfer any shares of the Company's capital stock, such
shareholder shall first notify the Company in writing of such transfer and
such transfer may not be effected unless and until legal counsel for the
Company has concluded that such transfer, when effected as proposed by such
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<PAGE>
shareholder (i) will comply with all applicable provisions of any applicable
state and federal securities laws, including but not limited to the
Securities Act of 1933, as amended, and the California Corporate Securities
Law of 1968, as amended, and (ii) will not jeopardize, terminate or adversely
affect the Company's status as an S Corporation, if applicable, as that term
is defined in the Internal Revenue Code of 1986, as amended. The Company may
require that certificates representing shares of stock of the Company be
endorsed with a legend describing the restrictions set forth in this Section.
(b) If (i) any two or more shareholders of the Company shall enter into
any agreement abridging, limiting or restricting the rights of any one or
more of them to sell, assign, transfer, mortgage, pledge, hypothecate or
transfer on the books of the Company any or all of the shares of the Company
held by them, and if a copy of said agreement shall be filed with the
Company, or if (ii) shareholders entitled to vote shall adopt any Bylaw
provision abridging, limiting or restricting the rights of any shareholders
mentioned above, then, and in either of such events, all certificates of
shares of stock subject to such abridgments, limitations or restrictions
shall have a reference thereto endorsed thereon by an officer of the Company
and such certificates shall not thereafter be transferred on the books of the
Company except in accordance with the terms and provisions of such as the
case may be; however, no restriction shall be binding with respect to shares
issued prior to adoption of the restriction unless the holders of such shares
voted in favor of, or consented in writing to, the restriction.
ARTICLE IX
CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW
SECTION 9.1: BYLAW PROVISIONS CONSTRUED AS ADDITIONAL AND SUPPLEMENTAL
TO PROVISIONS OF LAW. All restrictions, limitations, requirements and other
provisions of these Bylaws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the
subject matter thereof and shall be fully complied with in addition to the
said provisions of law unless such compliance shall be illegal.
SECTION 9.2: BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH
PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence,
clause or phrase of these Bylaws which, upon being construed in the manner
provided in Section 9.1 hereof, shall be contrary to or inconsistent with any
applicable provision of law, shall not apply so long as said provisions of
law shall remain in effect, but such result shall not affect the validity or
applicability of any other portion of these Bylaws, it being hereby declared
that these Bylaws, and each article, section, subsection, subdivision,
sentence, clause or phrase thereof, would have been adopted irrespective of
the fact that any one or more articles, sections, subsections, subdivisions,
sentences, clauses or phrases is or are illegal.
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ARTICLE X
CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL OF BYLAWS
SECTION 10.1: BY SHAREHOLDERS. Bylaws may be adopted, amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. Bylaws specifying or changing a fixed
number of directors or the maximum or minimum number or changing from a fixed
to a variable board or vice versa may be adopted only by the shareholders.
SECTION 10.2: BY THE BOARD OF DIRECTORS. Subject to the right of
shareholders to adopt, amend or repeal Bylaws, and other than a Bylaw or
amendment thereof specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or
vice versa, these Bylaws may be adopted, amended or repealed by the Board of
Directors. A Bylaw adopted by the shareholders may restrict or eliminate the
power of the Board of Directors to adopt, amend or repeal Bylaws.
SECTION 10.3: CERTIFICATION AND INSPECTION OF BYLAWS. The Company
shall keep at its principal executive office the original or a copy of these
Bylaws as amended or otherwise altered to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours.
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<PAGE>
CERTIFICATION OF BYLAWS
OF
KEYNOTE SYSTEMS INCORPORATED
(A CALIFORNIA CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, Matthew P. Quilter, certify that I am Secretary of Keynote Systems
Incorporated, a California corporation (the "COMPANY"), that I am duly
authorized to make and deliver this certification and that the attached
Bylaws are a true and correct copy of the Bylaws of the Company in effect as
of the date of this certificate.
Dated: February 24, 1998
-----------------------------
Matthew P. Quilter, Secretary
<PAGE>
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement")
is made as of April 26, 1999, by and among Keynote Systems Incorporated, a
California corporation (the "Company"), and the persons listed on the attached
Schedule A who become signatories to this Agreement (collectively, the
"INVESTORS").
R E C I T A L S
A. The Company and the Investors have entered into agreements for sale by
the Company and purchase by the Investors of the Company's securities.
B. In connection with the purchase and sale of the Company's securities,
the Company and the Investors desire to provide for the rights of the Investors
with respect to information about the Company and registration of the Common
Stock issued upon conversion or exercise of the securities according to the
terms of this Agreement. In addition, Investors who are signatories to the
Second Amended and Restated Investors' Rights Agreement made as of March 10,
1998 (the "PREVIOUS AGREEMENT") and hold a majority of the Registrable
Securities covered thereby desire to restate the Previous Agreement as set forth
below and consent to the addition, as parties to this Agreement, of the
Investors who purchase shares of the Company's Series D Preferred Stock.
THE PARTIES AGREE AS FOLLOWS:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
(a) "AFFILIATE" means, with respect to any individual, partnership or
entity, any individual, partnership or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such individual, partnership or entity.
(b) "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(c) "CONVERTIBLE SECURITIES" shall mean securities of the Company
convertible into or exchangeable for Common Stock of the Company or into other
securities that are convertible into or exchangeable for Common Stock.
(d) "FORM S-3" shall mean Form S-3 issued by the Commission or any
substantially similar form then in effect.
<PAGE>
(e) "HOLDER" shall mean any holder of outstanding Registrable
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of Registration rights as
permitted by Section 14 of this Agreement.
(f) "INITIATING HOLDERS" shall mean Holders who in the aggregate hold
more than fifty percent (50%) of the Registrable Securities.
(g) "MAJOR INVESTORS" shall mean an Investor (together with any
affiliate), or its assignee or transferee, who holds not less than (i) 238,000
shares of the Company's Series A Preferred Stock (including Common Stock
issuable upon conversion thereof) or (ii) 90,900 shares of the Company's Series
B, Series C or Series D Preferred Stock (including Common Stock issuable upon
conversion thereof).
(h) "MATERIAL ADVERSE EVENT" shall mean an occurrence having a
consequence that either (a) is materially adverse as to the business,
properties, prospects, or financial condition of the Company or (b) is
reasonably foreseeable, has a reasonable likelihood of occurring and, if it were
to occur, might materially adversely affect the business, properties, prospects
or financial condition of the Company.
(i) "QUALIFIED IPO" shall mean a firm commitment underwritten public
offering for the account of the Company of shares of its Common Stock pursuant
to an effective registration statement on Form S-1 under the Securities Act, in
which the aggregate cash proceeds to the Company (net of underwriting discounts
and commissions) equals or exceeds $20,000,000 with a minimum per share price of
$5.00.
(j) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended ("REGISTRATION
STATEMENT"), and the declaration or ordering of the effectiveness of such
Registration Statement.
(k) "REGISTRABLE SECURITIES" shall mean (1) shares of Common Stock of
the Company issued to (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued to) the Investors and (2) any
other securities of the Company granted Registration rights in connection with
Section 13 hereof; PROVIDED, HOWEVER, that the foregoing definition shall
exclude in all cases any Registrable Securities sold by a holder thereof in a
transaction in which his, her or its rights under this Agreement are not
assigned. Notwithstanding the foregoing, Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(l) "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 6 or 7 of this Agreement, including,
without limitation, all federal
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<PAGE>
and state registration, qualification and filing fees, printing expenses,
fees and disbursements of counsel for the Company and one special counsel for
Holders (if different from the Company), blue sky fees and expenses, and the
expense of any special audits incident to or required by any such
registration.
(m) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(n) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
2. FINANCIAL STATEMENTS AND REPORTS TO SHAREHOLDERS.
2.1 The Company shall deliver to each Major Investor:
(a) As soon as practicable after the end of each fiscal year
of the Company, and in any event within 90 days thereafter, an audited
consolidated balance sheet of the Company as of the end of such year and audited
consolidated statements of income, shareholders equity and cash flow for such
year, which year end financial reports shall be in reasonable detail and shall
be prepared in accordance with generally accepted accounting principles and
accompanied by the opinion of independent public accountants of nationally
recognized standing selected by the Company;
(b) As soon as practicable after the end of each fiscal
quarter, and in any event within 30 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such period, and
consolidated statements of income and cash flow for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles (other than for accompanying notes) and signed by the
Chief Financial Officer or President of the Company certifying that they fairly
and accurately present the financial condition and results of operation of the
Company, subject to changes resulting from year-end audit adjustment; provided
that the foregoing shall not restrict the right of the Company to change its
accounting principles consistent with GAAP, if the Board of Directors determines
that it is in the best interest of the Company to do so; and
(c) Such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as such Major
Investor may from time to time request; PROVIDED, HOWEVER, that the Company
shall not be obligated under this subsection (c) or any other subsection of
Section 2 to provide information which it deems in good faith to be a trade
secret or confidential information.
2.2 The Company shall deliver to each Investor: (a) contemporaneously
with delivery to holders of Common Stock, a copy of each report of the Company
delivered to holders of Common Stock and (b) an annual capitalization summary.
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3. INSPECTION.
The Company shall permit each Investor, at such Investor's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances, and accounts with its
officers, all at such reasonable times as may be requested by each such
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 3 to provide any information which it reasonably considers to be a
trade secret or confidential information. Subject to Section 14, the rights of
an Investor under this Section 3 may not be assigned as part of such Investor's
sale of any of the Registrable Securities or Convertible Securities except with
the consent of the Company, which consent shall not be unreasonably withheld.
4. RIGHT OF FIRST OFFER.
4.1 The Company hereby grants to each Investor the right of first
offer to purchase up to its Pro Rata Share of the New Securities (as defined
below) which the Company may, from time to time, propose to sell and issue.
The Investors may purchase said New Securities on the same terms and at the same
price at which the Company proposes to sell the New Securities. The "Pro Rata
Share" of each Investor, for purposes of this right of first offer, is the ratio
of (i) the total number of shares of Common Stock issued to such Investor,
including shares of Common Stock into which shares of the Convertible Securities
held by such Investor are convertible to (ii) the total number of shares of
Common Stock and Common Stock options outstanding immediately prior to the
issuance of the New Securities (including any shares of Common Stock into which
outstanding shares of the Convertible Securities are convertible).
4.2 "New Securities" shall mean any capital stock of the Company,
whether authorized or not, and any rights, options or warrants to purchase said
capital stock, and securities of any type whatsoever that are, or may become,
convertible into said capital stock; provided that "New Securities" does not
include (i) the Convertible Securities listed on Schedule A hereto or the Common
Stock issuable upon conversion of such Convertible Securities, (ii) securities
offered pursuant to a registration statement filed under the Securities Act,
(iii) securities issued by the Company pursuant to the acquisition of another
corporation by merger, purchase of substantially all of the assets or other
reorganization, (iv) shares issued or issuable to employees pursuant to a plan
or arrangement approved by the Company's Board of Directors, up to a maximum of
4,000,000 shares or such greater number as may be approved by the Board with the
affirmative vote of the director elected by the holders of Series D Preferred
Stock (net of option expirations and terminations and shares repurchased by the
Corporation from officers, directors, employees, and consultants), appropriately
adjusted for any stock combination, stock split, stock dividend,
recapitalization, or other similar transactions, (v) shares issued without
consideration pursuant to a stock dividend, stock split, or similar transaction
or (vi) warrants, and shares issuable upon exercise of such warrants, issued in
connection with equipment leasing transactions approved by the Company's Board
of Directors.
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4.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give to each Investor written notice (the "NOTICE") of its
intention, describing the type of New Securities, the price, the terms upon
which the Company proposes to issue the same, the number of shares which such
Investor is entitled to purchase pursuant to Section 4.1 and a statement that
each Investor shall have twenty (20) days to respond to such Notice. Each
Investor shall have twenty (20) days from the date of receipt of the Notice to
agree to purchase any or all of its Pro Rata Share of the New Securities for the
price and upon the terms specified in the Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased and
forwarding payment for such New Securities to the Company if immediate payment
is required by such terms.
4.4 In the event an Investor fails to exercise in full the right of
first offer within said twenty (20) day period, the Company shall notify the
other Investors and permit such other Investors to purchase their Pro Rata Share
of such remaining New Securities within a ten (10) day period following delivery
of such notice to such Investors. The Company shall have sixty (60) days
thereafter to sell or enter into an agreement (pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within thirty (30) days
from date of said agreement) to sell the New Securities respecting which such
Investor's rights were not exercised, at a price and upon general terms no more
favorable to the purchaser thereof than specified in the Notice. In the event
the Company has not sold the New Securities within said sixty (60) day period
(or sold and issued New Securities in accordance with the foregoing within
thirty (30) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such
securities to such Investors in the manner provided above.
4.5 The right of first offer granted under this Section 4 shall
expire upon the earliest to occur of:
4.5.1 The closing of a Qualified IPO;
4.5.2 With respect to any Investor or transferee to whom the
right of first offer is assignable under Section 4.6, the date on which such
Investor or transferee no longer holds any shares of Convertible Securities; or
4.5.3 The registration of the Company's Common Stock under
the Securities Exchange Act of 1934, as amended (the "1934 ACT").
4.6 The right of first offer granted under this Section 4 is
assignable by an Investor to any transferee of a minimum of 238,000 shares of
Common Stock (including any shares of Common Stock into which shares of
Convertible Securities then held by it are convertible). Notwithstanding the
limitation set forth in this Section 4.6 respecting the minimum number of shares
which must be transferred, (a) each of GE Capital Equity Investments, Inc.
("GE") and VeriSign, Inc. ("VERISIGN") may transfer its right of first offer to
any of its respective Affiliates and (b) any Investor which is a partnership or
a limited liability company ("L.L.C.") may each transfer such Investor's right
of first offer to an affiliate (including a related fund) or to
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such Investor's constituent partners or the L.L.C. members without
restriction as to the number or percentage of shares acquired by any such
constituent partner or member.
5. TERMINATION OF COVENANTS.
The covenants of the Company set forth in Sections 2 and 3 shall be
terminated and be of no further force or effect upon the earlier of (a)
immediately prior to the closing of the first public offering of the Common
Stock of the Company that is effected pursuant to a Registration Statement filed
with, and declared effective by, the Commission under the Securities Act (other
than either a public offering limited solely to employees of the Company or an
offering pursuant to Rule 145 under the Securities Act) and (b) the date the
Company registers any securities under the 1934 Act, and such covenants shall
terminate as to any Investor as of the date such Investor no longer holds any
shares of the capital stock of the Company.
6. DEMAND REGISTRATION.
6.1 REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3.
(a) Subject to the terms of this Agreement, in the event that
the Company shall receive from the Initiating Holders at any time after the
earlier of (i) April 30, 2001 and (ii) six (6) months after the closing of the
Company's initial public offering of shares of Common Stock under a Registration
Statement, a written request that the Company effect any Registration with
respect to all or a part of the Registrable Securities on a form other than Form
S-3 with an aggregate offering price to the public of at least $7,500,000, the
Company shall (A) promptly give written notice of the proposed Registration to
all other Holders and shall (B) as soon as practicable, use its best efforts to
effect Registration of the Registrable Securities specified in such request,
together with any Registrable Securities of any Holder joining in such request
as are specified in a written request given within twenty (20) days after
written notice from the Company.
(b) Subject to the terms of this Agreement, in the event that
the Company shall receive from (i) GE or (ii) VeriSign at any time after the
earlier of (A) April 30, 2001 and (B) six (6) months after the closing of the
Company's initial public offering of shares of Common Stock under a Registration
Statement, a written request that the Company effect any Registration with
respect to all or a part of the Registrable Securities on a form other than Form
S-3 with an aggregate offering price to the public of at least $7,500,000, the
Company shall (1) promptly give written notice of the proposed Registration to
all other Holders and shall (ii) as soon as practicable, use its best efforts to
effect Registration of the Registrable Securities specified in such request,
together with any Registrable Securities of GE or VeriSign, as applicable,
joining in such request as are specified in a written request given within
twenty (20) days after written notice from the Company. Each of GE and VeriSign
may initiate one (1) Registration pursuant to this Section 6.1(b).
(c) The Company shall not be obligated to take any action to
effect any such registration pursuant to this Section 6.1 (i) during the
period starting with the date sixty
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(60) days prior to the Company's estimated date of filing, and ending on the
date six (6) months immediately following the effective date of a
Registration pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan) provided that the Company is employing all reasonable
efforts in good faith to cause such Registration to become effective or (ii)
after the Company has effected one such Registration pursuant to each of
Section 6.1(a), 6.1(b)(i) and 6.1(b)(ii) and such Registrations have been
declared effective. The substantive provisions of Section 6.5 shall be
applicable to each Registration initiated under this Section 6.1.
6.2 RIGHT OF DEFERRAL OF REGISTRATION ON FORM OTHER THAN FORM S-3.
If the Company shall furnish to all such Holders who joined in
the request for Registration a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company for any
Registration to be effected as requested under Section 6.1, the Company shall
have the right, exercisable not more than once in any twelve-month period, to
defer the filing of a Registration Statement with respect to such offering for a
period of not more than ninety (90) days from delivery of the request of the
Initiating Holders.
6.3 REQUEST FOR REGISTRATION ON FORM S-3.
(a) If a Holder or Holders request that the Company file a
Registration Statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of Registrable Securities the reasonably anticipated
aggregate price to the public of which, net of underwriting discounts and
commissions, would not be less than $750,000, and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for such an
offering, the Company shall (i) promptly give written notice of the proposed
registration to all other Holders and (ii) use all reasonable efforts to cause,
as soon as reasonably practical, such Registrable Securities to be Registered
for the offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as the Holder or Holders may reasonably request;
PROVIDED, HOWEVER, that the Company shall not be required to effect more than
one Registration pursuant to this Section 6.3 in any twelve (12) month period.
The substantive provisions of Section 6.5 shall be applicable to each
Registration initiated under this Section 6.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to file a registration statement pursuant to this Section 6.3:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of the receipt
of the request of the initiating Holders, gives notice of its bona fide
intention to effect the filing of a Registration Statement with the
Commission within sixty (60) days of receipt of such request
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(other than with respect to a registration statement relating to a Rule 145
transaction or an offering solely to employees), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
Registration Statement to become effective;
(iii) within six (6) months immediately following the
effective date of any Registration Statement pertaining to the securities of the
Company (other than a Registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan); or
(iv) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a Registration Statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
Registration Statement shall be deferred for a period not to exceed ninety (90)
days from the receipt of the request to file such registration by such Holder
provided that the Company shall not exercise the right contained in this
paragraph (iv) more than once in any twelve (12) month period.
6.4 REGISTRATION OF OTHER SECURITIES IN DEMAND REGISTRATION.
Any Registration Statement filed pursuant to the request of the
Initiating Holders under this Section 6 may, subject to the provisions of
Section 6.5 of this Agreement, include securities of the Company other than
Registrable Securities; provided that the number of such securities so included
(other than Registrable Securities) shall not exceed thirty percent (30%) of the
total number of securities Registered pursuant to such Registration Statement.
6.5 UNDERWRITING IN DEMAND REGISTRATION.
6.5.1 NOTICE OF UNDERWRITING.
If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 6, and the Company shall include such information in the written
notice referred to in Section 6.1 or 6.3 of this Agreement. The right of any
Holder to Registration pursuant to Section 6 of this Agreement shall be
conditioned upon such Holder's agreement to participate in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting.
6.5.2 INCLUSION OF OTHER HOLDERS IN DEMAND REGISTRATION.
If the Company, officers or directors of the Company
holding Common Stock other than Registrable Securities, or holders of
securities other than Registrable Securities, request inclusion in such
Registration, the Initiating Holders, to the extent they deem advisable and
consistent with the goals of such Registration, may, in their sole
discretion, on behalf of all Holders, offer to any or all of the Company,
such officers or directors, and such
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holders of securities other than Registrable Securities that such securities
other than Registrable Securities be included in the underwriting and may
condition such offer on the acceptance by such persons of the terms of this
Section 6. In the event, however, that the number of shares so included
pursuant to this Section reduces the number of shares of Registrable
Securities included by all Holders to less than seventy percent (70%) of the
shares registered, such Registration shall be treated as governed by Section
7 hereof rather than this Section 6, and it shall not count as a Registration
for purposes of Section 6.1 or 6.3 hereof.
6.5.3 SELECTION OF UNDERWRITER IN DEMAND REGISTRATION.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement with the representative ("UNDERWRITER'S REPRESENTATIVE")
of the underwriter or underwriters selected for such underwriting by the Company
and reasonably acceptable to the Holders of a majority of the Registrable
Securities being registered by the Initiating Holders.
6.5.4 MARKETING LIMITATION IN DEMAND REGISTRATION.
In the event the Underwriter's Representative advises the
Initiating Holders in writing that market factors (including, without
limitation, the aggregate number of shares of Common Stock requested to be
Registered, the general condition of the market and the status of the persons
proposing to sell securities pursuant to the Registration) require a limitation
of the number of shares to be underwritten, the underwriter and the Company may
limit the number of Registrable Securities to be included in the Registration
and underwriting; PROVIDED, HOWEVER, that no Registrable Securities shall be so
excluded unless (i) first, the Common Stock (other than Registrable Securities)
held by officers or employees of the Company, (ii) second, the securities other
than Registrable Securities and (iii) third, the securities requested to be
registered by the Company, shall be excluded from such Registration to the
extent required by such limitation. If a limitation of the number of shares is
still required, the Company shall so advise all Holders and the number of shares
of Registrable Securities that may be included in the Registration and
underwriting shall be allocated, among all Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities entitled to
inclusion in such Registration held by such Holders at the time of filing the
Registration Statement; provided, however, that in the case of a demand
registration initiated by GE or VeriSign pursuant to Section 6.1(b), no
Registrable Securities of either GE or VeriSign shall be excluded from such
Registration unless the Registrable Securities held by Holders other than GE or
VeriSign are first excluded to the extent required by such limitation. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 6.5.4 shall be included in such Registration Statement.
6.5.5 RIGHT OF WITHDRAWAL IN DEMAND REGISTRATION.
If any Holder of Registrable Securities, or a holder of
other securities entitled (upon request) to be included in such Registration,
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the
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Company, the underwriter and the Initiating Holders delivered at least seven
days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration
Statement.
6.6 BLUE SKY IN DEMAND REGISTRATION.
In the event of any Registration pursuant to Section 6, the
Company will exercise its best efforts to Register and qualify the securities
covered by the Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of such securities; PROVIDED, HOWEVER, that (i) the Company shall
not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions and (ii) notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by the selling shareholders, such expenses shall be payable pro rata by
the selling shareholders.
7. PIGGYBACK REGISTRATION.
7.1 NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE
SECURITIES.
Subject to the terms of this Agreement, in the event the Company
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights) on a form that would be suitable for a registration
involving solely Registrable Securities, the Company will: (i) promptly give
each Holder written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable Blue Sky or other state securities laws) and (ii) include
in such Registration (and any related qualification under Blue Sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request delivered to the Company by any Holder
within twenty (20) days after delivery of such written notice from the Company.
7.2 UNDERWRITING IN PIGGYBACK REGISTRATION.
7.2.1 NOTICE OF UNDERWRITING IN PIGGYBACK REGISTRATION.
If the Registration of which the Company gives notice is
for a Registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
Section 7.1. In such event, the right of any Holder to Registration shall be
conditioned upon such underwriting and the inclusion of such Holder's
Registrable Securities in such underwriting to the extent provided in this
Section 7. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement with the Underwriter's Representative for such
offering. The Holders
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shall have no right to participate in the selection of the underwriters for
an offering pursuant to this Section 7.
7.2.2 MARKETING LIMITATION IN PIGGYBACK REGISTRATION.
In the event the Underwriter's Representative advises the
Company that market factors (including, without limitation, the aggregate number
of shares of Common Stock requested to be Registered, the general condition of
the market, and the status of the persons proposing to sell securities pursuant
to the Registration) require a limitation of the number of shares to be
underwritten, the Underwriter's Representative and the Company (subject to the
allocation priority set forth in Section 7.2.3) may:
(a) in the case of the Company's initial Registered
public offering, exclude some or all Registrable Securities from such
Registration and underwriting; and
(b) in the case of any Registered public offering
subsequent to the initial public offering, limit the number of shares of
Registrable Securities to be included in such Registration and underwriting to
not less than thirty percent (30%) of the securities included in such
Registration (based on aggregate market values).
7.2.3 ALLOCATION OF SHARES IN PIGGYBACK REGISTRATION.
In the event that the Underwriter's Representative and the
Company limit the number of shares to be included in a Registration pursuant to
Section 7.2.2, the shares (other than Registrable Securities) held by officers
or employees of the Company shall be excluded from such Registration and
underwriting to the extent required by such limitation. If a limitation of the
number of shares is still required after such exclusion, the number of shares
that may be included in the Registration and underwriting by selling
shareholders shall be allocated among all other Holders thereof and other
holders of securities other than Registrable Securities requesting and legally
entitled to include shares in such Registration, in proportion, as nearly as
practicable, to the respective amounts of securities (including Registrable
Securities) which such Holders and such other holders would otherwise be
entitled to include in such Registration. No Registrable Securities or other
securities excluded from the underwriting by reason of this Section 7.2.3 shall
be included in the Registration Statement.
7.2.4 WITHDRAWAL IN PIGGYBACK REGISTRATION.
If any Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the underwriter delivered at least seven days prior to the
effective date of the Registration Statement. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such Registration.
7.3 BLUE SKY IN PIGGYBACK REGISTRATION.
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In the event of any Registration of Registrable Securities
pursuant to Section 7, the Company will exercise its best efforts to Register
and qualify the securities covered by the Registration Statement under such
other securities or Blue Sky laws of such jurisdictions (not exceeding 20 unless
otherwise agreed to by the Company) as shall be reasonably appropriate for the
distribution of such securities; provided, however, that the Company shall not
be required to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act.
8. EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with any registration
or qualification pursuant to Sections 6 and 7 shall be borne by the Company.
Notwithstanding the above, the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 6 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (which Holders shall
bear such expenses); PROVIDED, HOWEVER, that if at the time of such withdrawal,
the Holders have learned of a Material Adverse Event with respect to the
condition, business or prospects of the Company not known to the Holders at the
time of their request, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 6. All expenses of
any registration not borne by the Company shall be borne by the holders of the
securities Registered pro rata on the basis of the number of shares Registered.
9. TERMINATION OF REGISTRATION RIGHTS.
The rights to cause the Company to register securities granted under
Sections 6 and 7 of this Agreement shall terminate, with respect to each Holder
five years after the closing date of the Company's initial public offering;
provided, however, that a Holder's rights provided for under Sections 6 and 7
shall terminate earlier when all three of the following criteria are satisfied:
(i) such Holder owns less than one percent (1%) of the outstanding securities of
the Company; (ii) such Holder may sell all its shares in a three (3) month
period under Rule 144 of the Act and (iii) the Company is then subject to the
reporting requirements of Section 13(a) or 15(d) of the 1934 Act.
10. REGISTRATION PROCEDURES AND OBLIGATIONS.
Whenever required under this Agreement to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such Registration Statement effective for up to one hundred twenty (120) days;
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(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement;
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them;
(d) use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement;
(f) notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such Registration; and
(h) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered for sale in connection with a registration
pursuant to this Agreement, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
11. INFORMATION FURNISHED BY HOLDER.
It shall be a condition precedent of the Company's obligations
under this Agreement that each Holder of Registrable Securities included in
any Registration furnish to the
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Company such information regarding such Holder and the distribution proposed
by such Holder or Holders as the Company may reasonably request.
12. INDEMNIFICATION.
12.1 COMPANY'S INDEMNIFICATION OF HOLDERS.
To the extent permitted by law, the Company will indemnify each
Holder, each of its officers, directors and constituent partners, each legal
counsel and independent accountant for the Holders and each person controlling
such Holder, with respect to which Registration, qualification or compliance of
Registrable Securities has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls any underwriter against all
claims, losses, damages or liabilities (or actions in respect thereof) to the
extent such claims, losses, damages or liabilities arise out of or are based
upon any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus or other document (including any related
Registration Statement) incident to any such Registration, qualification or
compliance, or are based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
such Registration, qualification or compliance; and the Company will reimburse
each such Holder, such officers, directors, constituent partners, law and
accounting firms, each such underwriter and each person who controls any such
Holder or underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that the indemnity contained in this
Section 12.1 shall not apply to amounts paid in settlement of any such claim,
loss, damage, liability, or action if settlement is effected without the consent
of the Company (which consent shall not unreasonably be withheld); and provided,
further, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based
upon any untrue statement or omission based upon written information furnished
to the Company by such Holder, underwriter, or controlling person and stated to
be for use in connection with the offering of securities of the Company.
12.2 HOLDER'S INDEMNIFICATION OF COMPANY.
To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as
to which such Registration, qualification or compliance is being effected
pursuant to this Agreement, indemnify the Company, each of its directors and
officers, each legal counsel and independent accountant of the Company, each
underwriter, if any, of the Company's securities covered by such a
Registration Statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and each other such
Holder, each of its officers, directors and constituent partners, and each
person controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue
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statement) of a material fact contained in any such Registration Statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
such Holder of any rule or regulation promulgated under the Securities Act
applicable to such Holder and relating to action or inaction required of such
Holder in connection with any such Registration, qualification or compliance,
and will reimburse the Company, such Holders, such directors, officers,
partners, persons, law and accounting firms, underwriters or control persons
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
in each case to the extent, but in each case only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use in connection with the offering of securities of the
Company; PROVIDED, HOWEVER, that the indemnity contained in this Section 12.2
shall not apply to amounts paid in settlement of any such claim, loss,
damage, liability or action if settlement is effected without the consent of
such Holder (which consent shall not be unreasonably withheld); PROVIDED,
FURTHER, that each Holder's liability under this Section 12.2 shall not
exceed such Holder's proceeds from the offering of securities made in
connection with such Registration.
12.3 INDEMNIFICATION PROCEDURE.
Promptly after receipt by an indemnified party under this Section
12 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party under
this Section 12, notify the indemnifying party in writing of the commencement
thereof and generally summarize such action. The indemnifying party shall have
the right to participate in and to assume the defense of such claim; PROVIDED,
HOWEVER, that the indemnifying party shall be entitled to select counsel for the
defense of such claim with the approval of any parties entitled to
indemnification, which approval shall not be unreasonably withheld; PROVIDED,
FURTHER, HOWEVER, that if either party reasonably determines that there may be a
conflict between the position of the Company and the Investors in conducting the
defense of such action, suit or proceeding by reason of recognized claims for
indemnity under this Section 12, then counsel for such party shall be entitled
to conduct the defense to the extent reasonably determined by such counsel to be
necessary to protect the interest of such party. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 12, but the omission so to
notify the indemnifying party will not relieve such party of any liability that
such party may have to any indemnified party otherwise other than under this
Section 12.
12.4 CONTRIBUTION.
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If the indemnification provided for in this Section 12 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
13. LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES.
From and after the date of this Agreement, the Company shall not enter
into any agreement with any holder or prospective holder of any securities of
the Company providing for the granting to such holder of any information or
Registration rights, except that, with the consent of the Holders of a majority
of the aggregate of the Registrable Securities then outstanding, additional
holders may be added as parties to this Agreement with regard to any or all
securities of the Company held by them. Any such additional parties shall
execute a counterpart of this Agreement, and upon execution by such additional
parties and by the Company, shall be considered an Investor for all purposes of
this Agreement. The additional parties and the additional Registrable
Securities shall be identified in an amendment to Schedule A hereto.
14. TRANSFER OF RIGHTS.
(a) The rights to information under Section 2.1 granted by the
Company to the Major Investors under this Agreement may be assigned by any
Holder to a transferee or assignee acquiring at least Four Hundred Seventy-Five
Thousand (475,000) shares of such Holder's Registrable Securities (equitably
adjusted for any stock splits, subdivisions, stock dividends, changes,
combinations or the like). Notwithstanding the foregoing, each of GE and
VeriSign may transfer its foregoing rights to any of its Affiliates.
(b) The rights to information under Sections 2.2 and 3 and the right
to cause the Company to register securities under Sections 6 and 7 granted by
the Company to the Investors under this Agreement may be assigned by any Holder
to a transferee or assignee of at least ten percent (10%) of the Holder's
aggregate outstanding Registrable Securities immediately prior to the transfer.
Notwithstanding the foregoing, each of GE and VeriSign may transfer its
foregoing rights to any of its Affiliates.
16
<PAGE>
(c) The Company must receive written notice prior to the time of said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such information and
Registration rights are being assigned.
(d) The transferee or assignee of such rights must not be a person
deemed by the Board of Directors of the Company, in its best judgment, to be a
competitor or potential competitor of the Company.
(e) Notwithstanding the limitation set forth in the foregoing
subsections (a) and (b) respecting the minimum number of shares which must be
transferred, any Holder which is a partnership or an L.L.C. may each transfer
such Holder's Registration rights to an affiliate (including a related fund) or
to such Holder's constituent partners or the L.L.C. members without restriction
as to the number or percentage of shares acquired by any such constituent
partner or member.
15. MARKET STANDOFF.
Each Holder hereby agrees that, if so requested by the Company and the
Underwriter's Representative (if any) in connection with the Company's initial
public offering, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company without the prior
written consent of the Company and the Underwriter's Representative for such
period of time (not to exceed 180 days) following the effective date of a
Registration Statement of the Company filed under the Securities Act as may be
requested by the Underwriter's Representative; provided, however, that:
(a) unless holders of a majority of the aggregate Registrable
Securities consent, such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company and all
two-percent securityholders with registration rights (whether or not pursuant to
this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 15.
17
<PAGE>
16. NO ACTION LETTER OR OPINION OF COUNSEL IN LIEU OF REGISTRATION;
CONVERSION OF PREFERRED STOCK.
Notwithstanding anything else in this Agreement, if the Company shall
have obtained from the Commission a "no action" letter in which the Commission
has indicated that it will take no action if, without Registration under the
Securities Act, any Holder disposes of Registrable Securities covered by any
request for Registration made under this Section in the specific manner in which
such Holder proposes to dispose of the Registrable Securities included in such
request (including, without limitation, inclusion of such Registrable Securities
in an underwriting initiated by either the Company or the holders) and that such
Shares may be sold to the public without Registration, or if in the opinion of
counsel for the Company concurred in by counsel for such Holder, which
concurrence shall not be unreasonably withheld, no Registration under the
Securities Act is required in connection with such disposition and that such
Shares may be sold to the public without Registration, the Shares included in
such request shall not be eligible for Registration under this Agreement;
provided, however, that any Registrable Securities not so disposed of shall be
eligible for Registration in accordance with the terms of this Agreement with
respect to other proposed dispositions to which this Section 16 does not apply.
The Registration rights of the Holders of the Shares set forth in this Agreement
are conditioned upon the conversion of the Shares with respect to which
registration is sought into Common Stock prior to the effective date of the
Registration Statement.
17. REPORTS UNDER THE 1934 ACT. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the Commission that may at any time permit a Holder
to sell securities of the Company to the public without Registration or pursuant
to a Registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first Registration Statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act, and the
1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so
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<PAGE>
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the Commission which permits the selling
of any such securities without Registration or pursuant to such form.
18. MISCELLANEOUS.
18.1 ENTIRE AGREEMENT: SUCCESSORS AND ASSIGNS.
This Agreement constitutes the entire contract between the
Company and the Investors relative to the subject matter hereof. Any previous
agreement between the Company and any Investor concerning Registration rights is
superseded by this Agreement. Subject to the exceptions specifically set forth
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs,
successor, and assigns of the parties (including transferees of any of the
Convertible Securities or any Common Stock issued upon conversion thereof).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
18.2 GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California excluding those laws that direct the
application of the laws of another jurisdiction.
18.3 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
18.4 HEADINGS.
The headings of the sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
18.5 NOTICES.
Any notice required or permitted hereunder shall be given in
writing and shall be conclusively deemed effectively given upon personal
delivery, or five days after deposit in the United States mail, by registered
or certified mail, postage prepaid, addressed (i) if to the Company, as set
forth below the Company's name on the signature page of this Agreement and
(ii) if to an Investor, at such Investor's address as set forth on Schedule
A, or at such other
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<PAGE>
address as the Company or such Investor may designate by ten (10) days
advance written notice to the Investors or the Company, respectively.
18.6 AMENDMENT OF AGREEMENT.
Any provision of this Agreement may be amended (and the rights of
first offer provided in Section 4 waived) only by a written instrument signed by
the Company and by persons holding a majority of the Registrable Securities as
defined in Section 1 of this Agreement; provided, however, that any amendment of
this Agreement which affects the rights, preferences or privileges of GE on the
one hand or VeriSign on the other must be approved by GE or VeriSign, as
applicable. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
18.7 SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
18.8 AGGREGATION OF STOCK.
All shares of the Convertible Securities or any Common Stock
issued upon conversion thereof held or acquired by affiliated entities or
persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
18.9 WAIVER.
The undersigned persons constitute holders of a majority of the
Registrable Securities under the Previous Agreement, and, on behalf of all the
Holders under the Previous Agreement (i) waive the right of first refusal and
related Notice requirements of Section 4 of the Previous Agreement with respect
to the Company's offering of Series D Preferred Stock and (ii) amend and restate
the Previous Agreement as set forth in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amended and Restated Investor Rights Agreement as of the date and year first
above written.
COMPANY: KEYNOTE SYSTEMS INCORPORATED,
a California corporation
By:
-----------------------------------------
Douglas Finlay, Vice President of Finance
and Operations and Chief Financial Officer
INVESTORS:
VERISIGN, INC. GE CAPITAL EQUITY INVESTMENTS, INC.
By: By:
--------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
APPLEWOOD ASSOCIATES, L.P. DALEWOOD ASSOCIATES, L.P.
By: By:
--------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
BESSEMER VENTURE PARTNERS IV L.P. BESSEC VENTURES IV L.P.
By: By:
--------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
WOODLAND PARTNERS EUGENE SHKLAR
By: By:
--------------------------- ---------------------------
Eugene Shklar
Title:
------------------------
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
ROGER GLADSTONE IRWIN LIEBER
By: By:
--------------------------- ---------------------------
Roger Gladstone Irwin Lieber
BARRY FINGERHUT COMDISCO, INC.
By: By:
--------------------------- ---------------------------
Barry Fingerhut Title:
------------------------
MARION JACK RICKARD SAMUEL URCIS
By: By:
-------------------------- ---------------------------
Marion Jack Rickard Samuel Urcis
ROBERT B. HARRINGTON ROBERT GLADSTONE
By: By:
-------------------------- ---------------------------
Robert B. Harrington Robert Gladstone
DAVID NUSSBAUM RAYMOND L. OCAMPO, JR.
By: By:
-------------------------- ---------------------------
David Nussbaum Raymond L. Ocampo, Jr.
TOM AND MARY FIELD
By:
--------------------------
Tom Field
By:
--------------------------
Mary Field
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
1996 STOCK OPTION PLAN
OF
KEYNOTE SYSTEMS INCORPORATED
1. PURPOSES OF THE PLAN
The purposes of the 1996 Stock Option Plan (the "Plan") of KeyNote
Systems Incorporated, a California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to
accept or continue employment or association with the Company or its
Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive
stock options" ("ISOs") intended to satisfy the requirements of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or
"nonqualified options" ("NQSOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company
is eligible to receive NQSOs or ISOs under this Plan. Every person who at the
date of grant is a consultant to, or non-employee director of, the Company or
any Affiliate (as defined below) of the Company is eligible to receive NQOs
under this Plan. The term "Affiliate" as used in the Plan means a parent or
subsidiary corporation as defined in the applicable provisions (currently
Sections 424(e) and (f), respectively) of the Code. The term "employee"
includes an officer or director who is an employee, of the Company. The term
"consultant" includes persons employed by, or otherwise affiliated with, a
consultant.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the total
number of shares of stock which may be issued under options granted pursuant
to this Plan shall not exceed 1,648,938 shares of Common Stock. The shares
covered by the portion of any grant under the Plan which expires unexercised
shall become available again for grants under the Plan.
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors
of the Company (the "Board") or, either in its entirety or only insofar as
required pursuant to Section 4(b) hereof,
<PAGE>
by a committee (the "Committee") of at least two Board members to which
administration of the Plan, or of part of the Plan, is delegated (in either
case, the "Administrator").
(b) From and after such time as the Company registers a class
of equity securities under Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), it is intended that this Plan shall be
administered in accordance with the disinterested administration requirements
of Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule
16b-3"), or any successor rule thereto.
(c) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its discretion: (i) to grant
Options; (ii) to determine the fair market value of the Common Stock subject
to Options; (iii) to determine the exercise price of options granted; (iv) to
determine the persons to whom, and the time or times at which, options shall
be granted, and the number of shares subject to each Option; (v) to interpret
this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to,
the time or times at which options shall be exercisable; (viii) with the
consent of the optionee, to modify or amend any Option; (ix) to defer (with
the consent of the optionee) the exercise date of any option; (x) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (xi) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The
Administrator may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper.
(d) All questions of interpretation, implementation and
application of this Plan shall be determined by the Administrator. Such
determinations shall be final and binding on all persons.
(e) With respect to persons subject to Section 16 of the
Exchange Act, if any, transactions under this Plan are intended to comply
with the applicable conditions of Rule 16b-3, or any successor rule thereto.
To the extent any provision of this Plan or action by the Administrator fails
to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Administrator. Notwithstanding the above, it
shall be the responsibility of such persons, not of the Company or the
Administrator, to comply with the requirements of Section 16 of the Exchange
Act; and neither the Company nor the Administrator shall be liable if this
Plan or any transaction under this Plan fails to comply with the applicable
conditions of Rule 16b-3 or any successor rule thereto, of if any such person
incurs any liability under Section 16 of the Exchange Act.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten years
from the date of adoption of this Plan by the Board.
(b) Each option shall be evidenced by a written stock option
agreement, in form satisfactory to the Company, executed by the Company and
the person to whom such Option is granted; provided, however, that the
failure by the Company, the optionee, or both to
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<PAGE>
execute such an agreement shall not invalidate the granting of an Option,
although the exercise of each option shall be subject to Section 6.1.3.
(c) The stock option agreement shall specify whether each
Option it evidences is a NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the
Administrator may approve the grant of Options under this Plan to persons who
are expected to become employees, directors or consultants of the Company,
but are not employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in Section 6.1. NQOs shall be also subject to the
terms and conditions set forth in Section 6.2, but not those set forth in
Section 6.3. ISOs shall also be subject to the terms and conditions set forth
in Section 6.3, but not those set forth in Section 6.2.
6.1. TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE SUBJECT. All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 CHANGES IN CAPITAL STRUCTURE. Subject to Section
6.1.2, if the stock of the Company is changed by reason of a stock split,
reverse stock split, stock dividend, or recapitalization, combination or
reclassification, appropriate adjustments shall be made by the Board in (a) the
number and class of shares of stock subject to this Plan and each option
outstanding under this Plan, and (b) the exercise price of each outstanding
option; provided, however, that the Company shall not be required to issue
fractional shares as a result of any such adjustments. Each such adjustment
shall be subject to approval by the Board in its sole discretion.
6.1.2 CORPORATE TRANSACTIONS. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 30 days prior to such proposed action. To the extent
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action. In the event of a merger or consolidation
of the Company with or into another corporation or entity in which the Company
does not survive, or in the event of a sale of all or substantially all of the
assets of the Company in which the shareholders of the Company receive
securities on the acquiring entity or an affiliate thereof, all Options shall be
assumed or equivalent options shall be substituted by the successor corporation
(or other entity) or a parent or subsidiary of such successor corporation (or
other entity). If such successor does not agree to assume the Options or to
substitute equivalent options therefor, unless the Administrator shall determine
otherwise, the Options will expire upon such event.
6.1.3 TIME OF OPTION EXERCISE. Subject to Section 5 and
Section 6.3.4, options granted under this Plan shall be exercisable (a)
immediately as of the effective date of the stock option agreement granting the
Option, or (b) in accordance with a schedule related to the date of the grant of
the option, the date of first employment, or such other date as may be set by
the Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option
3
<PAGE>
agreement relating to such Option; provided, however, that the right to
exercise an Option must vest at the rate of at least 20% per year over five
years from the date the Option was granted. In any case, no Option shall be
exercisable until a written stock option agreement in form satisfactory to
the Company is executed by the Company and the optionee.
6.1.4 OPTION GRANT DATE. Except in the case of advance
approvals described in Section 5(d), the date of grant of an option under this
Plan shall be the date as of which the Administrator approves the grant.
6.1.5 NONASSIGNABILITY OF OPTION RIGHTS. No Option granted
under this Plan shall be assignable or otherwise transferable by the optionee
except by will or by the laws of descent and distribution. During the life of
the optionee, an Option shall be exercisable only by the optionee.
6.1.6 PAYMENT. Except as provided below, payment in full,
in cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
(a) Acceptance of the Optionee's full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate specified under the Code at which no
additional interest would be imputed), which promissory note may be either
secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and
(b) Delivery by the optionee of Common Stock
already owned by the optionee for all or part of the Option price , provided the
value (determined as set forth in Section 6.1.11) of such Common Stock is equal
on the date of exercise to the Option price, or such portion thereof as the
optionee is authorized to pay by delivery of such stock; provided, however, that
if an optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
6.1.7 TERMINATION OF EMPLOYMENT.
(a) If for any reason other than death or
disability, an optionee ceases to be employed by the Company or any of its
Affiliates (such event being called a "Termination"), Options held at the date
of Termination (to the extent then exercisable) may be exercised in whole or in
part at any time within three months of the date of such Termination, or such
other period of not less than thirty days after the date of such Termination as
is specified in the option Agreement (but in no event after the Expiration
Date); PROVIDED, that if such exercise of the Option would result in liability
for the optionee under Section 16(b) of the Exchange Act, then such three-month
period automatically shall be extended until the tenth day following the
4
<PAGE>
last date upon which optionee has any liability under Section 16(b) (but in
no event after the Expiration Date).
(b) If an optionee dies while employed by the
Company or an Affiliate or within the period that the Option remains exercisable
after Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the Optionee's personal
representative, or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death of the optionee, or such other period of not less than six months from the
date of Termination as is specified in the Option Agreement (but in no event
after the Expiration Date).
(c) If an optionee ceases to be employed by the
Company as a result of his or her disability, the optionee may, but only within
six (6) months from the date of Termination (and in no event after the
Expiration Date), exercise the Option to the extent otherwise entitled to
exercise it at the date of Termination; provided, however, that if such
disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code, in the case of an ISO such ISO shall automatically convert to an NQO
on the day three months and one day following such Termination. To the extent
that the optionee was not entitled to exercise the Option at the date of
Termination or if the optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate and the
Shares covered by such Option shall revert to the Plan.
(d) For purposes of this Section, 6.1.7,
"employment" includes service as a director or as a consultant. For purposes of
this Section 6.1.7, an optionee's employment shall not be deemed to terminate by
reason of sick leave, military leave, or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
6.1.8 REPURCHASE OF STOCK. At the option of the
Administrator, the stock to be delivered pursuant to the exercise of any Option
granted to an employee, director or consultant under this Plan may be subject to
a right of repurchase in favor of the Company with respect to any employee, or
director or consultant whose employment, or director or consulting relationship
with the Company is terminated. Such right of repurchase either:
(a) shall be at the Option exercise price and (i)
shall lapse at the rate of at least 20% per year over five years from the date
the Option is granted (without regard to the date it becomes exercisable), and
must be exercised for cash or cancellation of purchase money indebtedness within
90 days of such termination and (ii) if the right is assignable by the Company,
the assignee must pay the Company upon assignment of the right (unless the
assignee is a 100% owned subsidiary of the Company or is an Affiliate) cash
equal to the difference between the Option exercise price and the value
(determined as set forth in Section 6.1.11) of the stock to be purchased if the
Option exercise price is less than such value; or
(b) shall be at the higher of the Option exercise
price or the value (determined as set forth in Section 6.1.11) of the stock
being purchased on the date of termination, and must be exercised for cash or
cancellation of purchase money indebtedness
5
<PAGE>
within 90 days of termination of employment, and such right shall terminate
when the Company's securities become publicly traded.
Determination of the number of shares subject to any such right of
repurchase shall be made as of the date the employee's employment by, director's
director relationship with, or consultant's consulting relationship with, the
Company terminates, not as of the date that any Option granted to such employee,
director or consultant is thereafter exercised.
6.1.9 WITHHOLDING AND EMPLOYMENT TAXES. At the time of
exercise of an Option or at such other time as the amount of such obligations
becomes determinable (the "Tax Date"), the optionee shall remit to the Company
in cash all applicable federal and state withholding and employment taxes. If
authorized by the Administrator in its sole discretion after considering any tax
or accounting consequences, an optionee may elect to (i) deliver a promissory
note on such terms as the Administrator deems appropriate, (ii) tender to the
Company previously owned shares of Stock or other securities of the Company, or
(iii) have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option,
subject to the following limitations:
(a) Any election pursuant to clause (iii) above by
an optionee subject to Section 16 of the Exchange Act shall either (x) be made
at least six months before the Tax Date and shall be irrevocable; or (y) shall
be made in (or made earlier to take effect in) any ten-day period beginning on
the third business day following the date of release for publication of the
Company's quarterly or annual summary statements of earnings and shall be
subject to approval by the Administrator, which approval may be given at any
time after such election has been made. In addition, in the case of (y), the
Option shall be held at least six months prior to the Tax Date.
(b) Any election pursuant to clause (ii) above,
where the optionee is tendering Common Stock issued pursuant to the exercise of
an Option, shall require that such shares be held at least six months prior to
the Tax Date.
Any of the foregoing limitations may be waived (or additional
limitations may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3,
or any successor rule thereto. In addition, any of the foregoing limitations
may be waived by the Administrator, in its sole discretion, if the Administrator
determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.
Any securities tendered or withheld in accordance with this Section
6.1.9 shall be valued by the Company as of the Tax Date.
6.1.10 OTHER PROVISIONS. Each Option granted under this
Plan may contain such other terms, provisions, and conditions not inconsistent
with this Plan as may be determined by the Administrator, and each ISO granted
under this Plan shall include such
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<PAGE>
provisions and conditions as are necessary to qualify the Option as an
"incentive stock option" within the meaning of Section 422 of the Code. If
Options provide for a right of first refusal in favor of the Company with
respect to stock acquired by employees, directors or consultants, such
Options shall provide that the right of first refusal shall terminate upon
the earlier of (i) the closing of the Company's initial registered public
offering to the public generally. or (ii) the date ten years after the grant
date as set forth in Section 6.1.4.
6.1.11 DETERMINATION OF VALUE. For purposes of the Plan,
the value of Common Stock or other securities of the Company shall be determined
as follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System, its fair market value shall be the
closing sales price for such stock or the closing bid if no sales were reported,
as quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
WALL STREET JOURNAL or similar publication.
(b) If the stock of the Company is regularly
quoted by a recognized securities dealer but selling prices are not reported,
its fair market value shall be the mean between the high bid and low asked
prices for the stock on the date the value is to be determined (or if there are
no quoted prices for the date of grant, then for the last preceding business day
on which there were quoted prices).
(c) In the absence of an established market for
the stock, the fair market value thereof shall be determined in good faith by
the Administrator, with reference to the Company's net worth, prospective
earning power, dividend-paying capacity, and other relevant factors, including
the goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
6.1.12 OPTION TERM. Subject to Section 6.3.5, no Option
shall be exercisable more than ten years after the date of grant, or such lesser
period of time as is set forth in the stock option agreement (the end of the
maximum exercise period stated in the stock option agreement is referred to in
this Plan as the "Expiration Date").
6.1.13 EXERCISE PRICE. The exercise price of any Option
granted to any person who owns, directly or by attribution under the Code
currently Section 424(d), stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any Affiliate
(a "Ten Percent Stockholder") shall in no event be less than 110% of the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the option is granted.
6 2 TERMS AND CONDITIONS TO WHICH ONLY NQOS ARE SUBJECT. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
7
<PAGE>
6.2.1. EXERCISE PRICE. Except as set forth in Section
6.1.13, the exercise price of a NQO shall be not less than 85% of the fair
market value (determined in accordance with Section 6.1.11) of the stock subject
to the Option on the date of grant.
6.3 TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE SUBJECT. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 EXERCISE PRICE. Except as set forth in Section
6.1.13, the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted.
6.3.2 DISQUALIFYING DISPOSITIONS. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.
6.3.3 GRANT DATE. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for options granted on that date.
6.3.4 VESTING. Notwithstanding any other provision of this
Plan, ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured an the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an option "vests" when it first becomes exercisable. If, by
their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring the exercisability of
those ISOs or portions of ISOs which have the highest per share exercise prices;
but in no event shall more than $100,000 in fair market value of stock (measured
an the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs
whose exercisability is so deferred shall become exercisable an the first day of
the first subsequent calendar year during which they may be exercised, as
determined by applying these same principles and all other provisions of this
Plan including those relating to the and expiration and termination of ISOs. In
no event, however, will the operation of this Section 6.3.4 cause an ISO to vest
before its terms or, having vested, cease to be vested.
6.3.5 TERM. Notwithstanding Section 6.1.12, no ISO granted
to any Ten Percent Stockholder shall be exercisable more than five years after
the date of grant.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in
8
<PAGE>
Section 6.1.6. The date the Company receives written notice of an exercise
hereunder accompanied by payment of the exercise price will be considered as
the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a shareholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted thereunder shall
interfere with or limit in any way the right of the Company or of any of its
Affiliates to terminate any optionee's employment or consulting at any time, nor
confer upon any optionee any right to continue in the employ of, or consult
with, the Company or any of its Affiliates.
9. FINANCIAL INFORMATION
The Company shall provide to each optionee during the period such
optionee holds an outstanding Option, and to each holder of Common Stock
acquired upon exercise of Options granted under the Plan for so long as such
person is a holder of such Common Stock, annual financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall include, at a
minimum, a balance sheet and an income statement, and shall be delivered as soon
as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock shall
not be issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended (the "Securities Act").
11. NONEXCLUSIVITY OF THE PLAN. The adoption of the Plan shall not be
construed as creating any limitations on the power of the Company to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, granting of stock options other than under the Plan.
12. MARKET STANDOFF. Each Optionee, if so requested by the Company or
any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the Securities Act shall not
sell or otherwise transfer any shares of Common Stock acquired upon exercise of
Options during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall apply only to the first two registration statements of
the Company to become effective under the Securities Act which includes
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the Securities
9
<PAGE>
Act. The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restriction until the end of such 180-day
period.
13. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue this
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding Options except to conform
this Plan and ISOs granted under this Plan to the requirements of federal or
other tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require shareholder approval unless (a)
shareholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
shareholder approval is advisable.
14. EFEECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board
provided, however, that no Option shall be exercisable unless and until written
consent of the shareholders of the Company, or approval of shareholders of the
Company voting at a validly called shareholders' meeting, is obtained within 12
months after adoption by the Board. If such shareholder approval is not
obtained within such time, Options granted hereunder shall terminate and be of
no force and effect from and after expiration of such 12-month period. Options
may be granted and exercised under this Plan only after there has been
compliance with all applicable federal and state securities laws.
Plan adopted by the Board of Directors on _________________________.
Plan approved by Shareholders on _____________________________.
10
<PAGE>
EXHIBIT 5.1 OF THE INCENTIVE
STOCK OPTION AGREEMENT
The ISO shall be exercisable with respect to twenty-five percent (25%) of
the total number of ISO Shares one year after the Vesting Base Date and,
thereafter, with respect to an additional 1/48 of such shares at the end of each
month after the first anniversary of the Vesting Base Date, so that all of the
ISO Shares may be purchased on and after the fourth anniversary of the Vesting
Base Date.
Initialed by: Keynote Systems Incorporated
By:
---------------------------------------
Title:
-------------------------------------
Optionee:
----------------------------------
<PAGE>
Exhibit 5.3
Keynote Systems Incorporated
STOCK OPTION PLAN
STOCK PURCHASE AGREEMENT
(A) Name of Purchaser:
(B) Number of Plan Shares:
(C) Exercise Price:
(D) Purchase Price:
(E) Date of Option Agreement:
(F) Effective Date:
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of the date set forth in Item F above (the "Effective Date") between Keynote
Systems Incorporated, a California corporation (the "Company"), and the person
named in Item A above (the "Purchaser").
THE PARTIES AGREE AS FOLLOWS:
1. PURCHASE OF SHARES. Pursuant to the Company's Stock Option Plan
(the "Plan") and to a stock option agreement ("Option Agreement") between the
parties dated the date set forth in Item E above, the Company hereby sells to
Purchaser, and Purchaser hereby buys from the Company, that number of shares
(the "Plan Shares") of the Company's Common Stock (as defined in the Plan) set
forth in Item B above on the terms and conditions set forth herein and in the
Plan and the Option Agreement, the terms and conditions of the Plan and the
Option Agreement being hereby incorporated into this Agreement by reference.
2. PURCHASE PRICE. Purchaser shall purchase the Plan Shares from the
Company, and the Company shall sell the Plan Shares to Purchaser, at a price per
share as set forth in Item C above (the "Exercise Price"), for a total purchase
price as set forth in Item D above (the "Purchase Price").
3. MANNER OF PAYMENT. Purchaser shall pay the Purchase Price of the
Plan Shares by delivery of cash. check, previously owned shares of Common Stock
(provided that delivery of previously owned shares may not be made more than
once in any six-month period), or a full recourse promissory note equal to up to
90% of the Purchase Price and payable over no more than five years (or in the
manner set forth in Exhibit 5.4 to the Option Agreement evidencing the option,
the absence of any Exhibit 5.4 indicating that no such exhibit was intended).
4. COMPANY'S RIGHT OF REPURCHASE UPON TERMINATION OF EMPLOYMENT. The
Plan Shares are subject to a right of repurchase in favor of the Company (the
"Right of Repurchase") to the extent set forth on Exhibit 7 of the Option
Agreement (the absence of Exhibit 7 in the Option Agreement indicating that no
such exhibit was intended). If the Purchaser's employment, consulting or
service as a director with the Company terminates before the Right of Repurchase
<PAGE>
lapses in accordance with Exhibit 7 of the Option Agreement, the Company may
purchase stock subject to the Right of Repurchase (either by payment of cash
or by cancellation of purchase money indebtedness) for an amount equal to the
price the Optionee paid for such Plan Shares (exclusive of any taxes paid
upon acquisition of the stock) by giving notice at any time within the later
of (a) 30 days after the acquisition of the Plan Shares upon option exercise,
or (b) 90 days after such termination of employment that the Company is
exercising its right of repurchase. The Company shall include with such
notice payment in full in cash or by evidence of cancellation of purchase
money indebtedness. The Purchaser may not dispose of or transfer Plan Shares
while such shares are subject to the Right of Repurchase and any such
attempted transfer shall be null and void.
5. COMPANY'S RIGHT OF FIRST REFUSAL RESPECTING PLAN SHARES.
5.1 RIGHT OF FIRST REFUSAL. In the event that Purchaser
proposes to sell, pledge or otherwise transfer any Plan Shares or any
interest in such shares to a bona-fide third party offeror, the Company shall
have a right of first refusal (the "Right of First Refusal") with respect to
such Plan Shares. If Purchaser desires to transfer Plan Shares, Purchaser
shall give a written notice (the "Transfer Notice") to the Company describing
fully the proposed transfer, including the number of Plan Shares proposed to
be transferred, the proposed transfer price and the name and address of the
bona-fide third party offeror. The Transfer Notice shall be signed both by
Purchaser and by the bona-fide third parry offeror and must constitute a
binding commitment of both such parties for the transfer of such Plan Shares.
The Company may elect to purchase the Plan Shares subject to the Transfer
Notice by delivery of a notice of exercise of the Company's Right of First
Refusal within 30 days after the date the Transfer Notice is delivered to the
Company. The purchase price paid by the Company shall be the price per share
equal to the proposed per share transfer price, and shall be paid to the
Purchaser within 60 days after the date the Transfer Notice is received by
the Company, unless a longer period for payment was offered by the bona-fide
third party offeror, in which case the Company shall pay the purchase price
within such longer period. The Company's rights under this Section 5.1 shall
be freely assignable, in whole or in part. Notwithstanding the foregoing, the
Right of First Refusal does not apply to a transfer of Plan Shares by gift or
devise to the Purchaser's immediate family (i.e., parents, spouse or children
or to a trust for the benefit of the Purchaser or any of the Purchaser's
immediate family members), but does apply to any subsequent transfer of such
Plan Shares by such immediate family members.
5.2 TRANSFER OF PLAN SHARES. If the Company fails to exercise
the Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, Purchaser may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the Plan
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by Purchaser, shall again be subject to the Company's Right of First
Refusal and shall require compliance by Purchaser with the procedure described
in Section 5. 1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of Plan Shares on the terms,
other than price, as applicable under Section 5.1, set forth in the Transfer
Notice, subject; provided, however, in the event the Transfer Notice provides
for payment for the Plan Shares other than in cash, the Company shall have the
option of paying for the Plan Shares by paying in
2
<PAGE>
cash the present value of the consideration described in the Transfer Notice;
and further provided that if the value of noncash consideration is to be
paid, and the Optionee disagrees with the value determined by the Company,
the Optionce may request an independent appraisal by an appraiser acceptable
to the Optionee and the Company, the costs of such appraisal to be borne
equally by the Optionee and the Company. If, at the time of exercise of the
right of first refusal, any notes are outstanding which represent any portion
of the Purchase Price of the Plan Shares, the repurchase price shall be paid
first by cancellation of any obligation for accrued but unpaid interest under
such notes, next by cancellation of principal under such notes, and finally
by payment of cash.
5.3 BINDING EFFECT OF RIGHT OF FIRST REFUSAL. The Company's
Right of First Refusal shall inure to the benefit of the successors and assigns
of the Company and shall be binding upon any transferee of Plan Shares other
than a transferee acquiring Plan Shares in a transaction where the Company
failed to exercise the Right of First Refusal (a "Free Transferee") or a
transferee of a Free Transferee.
5.4 TERMINATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
Notwithstanding anything in this Section 5, the Company shall have no Right of
First Refusal, and Purchaser shall have no obligation to comply with the
procedures in Sections 5.1 through 5.3, after the earlier of (a) the closing of
the Company's initial registered public offering to the public generally, or (b)
the date ten (10) years after the Effective Date of the Option Agreement.
6. STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock certificates
evidencing Plan Shares may bear such restrictive legends as the Company and the
Company's counsel deem necessary or advisable under applicable law or pursuant
to this Agreement.
7. REPRESENTATIONS, COVENANTS AND ACKNOWLEDGMENTS OF PURCHASER.
Purchaser hereby represents, warrants, covenants. acknowledges and agrees that:
7.1 INVESTMENT. Purchaser is acquiring the Plan Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the Plan Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
7.2 BUSINESS EXPERIENCE. Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company evidenced by the
purchase of the Plan Shares.
7.3 RELATION OF COMPANY. Purchaser is presently an officer,
director or employee of, or consultant to, the Company and in such capacity has
become personally familiar with the business, affairs, financial condition and
results of operations of the Company.
7.4 ACCESS TO INFORMATION. Purchaser has had the opportunity to
ask questions of, and to receive answers from, appropriate executive officers of
the Company with respect to the terms and conditions of the transactions
contemplated hereby and with respect to the business affairs, financial
condition and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the Plan Shares,
3
<PAGE>
and has had the opportunity to obtain any additional information necessary to
verify any of such information to which Purchaser has had access. Purchaser
acknowledges that all financial information concerning the Company that has
been or will be provided to Purchaser is Confidential Information within the
meaning of the Employee Confidential Information and Inventions Agreement
between Purchaser and the Company and is subject to the obligation of
confidentiality and other restrictions and limitations set forth therein.
7.5 SPECULATIVE INVESTMENT. Purchaser's investment in the
Company represented by the Plan Shares is highly speculative in nature and is
subject to a high degree of risk of loss in whole or in part. The amount of
such investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize the
personal financial needs of Purchaser or Purchaser's family in the event such
investment were lost in whole or in part.
7.6 REGISTRATION. Purchaser may bear the economic risk of
investment for an indefinite period of time because the sale to Purchaser of the
Plan Shares has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and the Plan Shares cannot be transferred by Purchaser
unless such transfer is registered under the Securities Act or an exemption from
such registration is available. The Company has made no agreements, covenants
or undertakings whatsoever to register the transfer of any of the Shares under
the Securities Act. The Company has made no representations, warranties or
covenants whatsoever as to whether any exemption from the Securities Act,
including without limitation any exemption for limited sales in routine brokers'
transactions pursuant to Rule 144, will be available; if the exemption under
Rule 144 is available at all, it will not be available until at least two years
after payment of cash for the Plan Shares and not then unless: (a) a public
trading market then exists in the Company's common stock; (b) adequate
information as to the Company's financial and other affairs and operations is
then available to the public; and (c) all other terms and conditions of Rule 144
have been satisfied. Purchaser understands that the resale provisions of Rule
701 will not apply until 90 days after the Company becomes subject to the
reporting obligations of the Securities Exchange Act of 1934 (typically upon the
effective date of an initial public offering).
7.7 PUBLIC TRADING. None of the Company's securities is
presently publicly traded, and the Company has made no representation, covenant
or agreement as to whether there will be a public market for any of its
securities.
7.8 TAX ADVICE. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by this Agreement and Purchaser is in no manner
relying on the Company or its representatives for an assessment of such tax
consequences. Purchaser shall execute and deliver to the Company a copy of the
Acknowledgment and Statement of Decision Regarding Election Pursuant to Section
83(b) of the Internal Revenue Code (the "Acknowledgment") attached hereto as
Exhibit 7A and a copy of the Election Pursuant to Section 83(b) of the Code,
attached hereto as Exhibit 7B, if Purchaser has indicated in the Acknowledgment
his or her decision to make such an election. Purchaser will consult with his
or her tax advisor to determine if there is a comparable election to file in the
state of his or her residence and whether such filing is desirable under the
circumstances.
4
<PAGE>
8. BINDING EFFECT. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors and
assigns of the parties hereto.
9. DAMAGES. Purchaser shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of Plan Shares which is not in conformity with the provisions of
this Agreement.
10. DISQUALIFYING DISPOSITIONS OF ISO STOCK. If stock acquired by
exercise of an ISO (as defined in Section 1 of the Plan) is disposed of within
two years after the Effective Date (as defined in the Option Agreement) or
within one year after such exercise, Purchaser immediately prior to the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
11. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California excluding those laws
that direct the application of the laws of another jurisdiction.
12. NOTICES. All notices and other communications under this Agreement
shall be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communication and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
Keynote Systems Incorporated
Two West Fifth Avenue
San Mateo, CA 94402
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for Purchaser and related to this
Agreement, if not delivered by hand, shall be mailed to Purchaser's last known
address as shown on the Company's books. Notices and communications shall be
mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
Keynote Systems Incorporated
By:
--------------------------------
Title:
-----------------------------
Purchaser hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
- -----------------------------------
Purchaser
Purchaser's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Plan Shares hereby purchased.
- -----------------------------------
Purchaser's Spouse
EXHIBITS
Exhibit 7A Acknowledgment Regarding Election Pursuant to Section 83(b)
Exhibit 7B Section 83(b) Election
6
<PAGE>
ACKNOWLEDGEMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned (which term includes the undersigned's spouse), a
purchaser of _______ shares of Common Stock of Keynote Systems Incorporated (the
"Company") pursuant to an option granted under the Company's Stock Option Plan
(the "Plan"), hereby states as follows:
1. The undersigned acknowledges receipt of a copy of a Stock Purchase
Agreement by and between the undersigned and the Company (the "Agreement")
effecting the purchase of shares, which the undersigned has carefully reviewed.
2. The undersigned either [check as applicable]:
____ (a) has consulted, and has been fully advised by, the
undersigned's own tax advisor, ________________________,
whose business address is _______________________, regarding
the income tax consequences of purchasing shares under the
Agreement, and particularly regarding the advisability of
making an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and pursuant
to the corresponding provisions, if any, of applicable state
laws (including without limitation Section 17122.7(b) of the
California Revenue and Taxation Code, as amended (the "Rev. &
Tax. Code") if applicable); or
____ (b) has knowingly chosen not to consult a tax advisor.
3. The undersigned hereby avers that, with respect to the purchase of
shares, the undersigned [check as applicable]:
____ (a) will make an election under Section 83(b) solely for purposes
of Section 56(b)(3) of the Code (and analogous state law, if
any) relating to the Alternative Minimum Tax, and a
"protective" election under Section 83(b) (and analogous
state law, if any) for all other income tax purposes;
____ (b) will not make an election under Section 83(b) of the Code
(and analogous state law, if any) for any purpose.
4. With respect to any election under Section 83(b) of the Code,
"protective" or otherwise, indicated in paragraph (3), above, the undersigned
herewith submits an executed copy of the appropriate form of election and
acknowledges that copies thereof have been duly and timely filed with the
appropriate offices of the Internal Revenue Service and applicable state taxing
authorities and that the undersigned will attach a copy of the form of election
to the undersigned's federal income tax return for the year of the purchase and,
if required, to the undersigned's state income tax return(s) for the same
period.
<PAGE>
5. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the
Agreement or of the making or failure to make an election pursuant to Section
83(b) of the Code or the corresponding provisions, if any, of applicable state
law.
Date: Purchaser:
---------------------- -------------------------------
Date: Spouse:
---------------------- ----------------------------------
2
<PAGE>
ELECTION PURSUANT TO SECTION 83(B) OF THE
INTERNAL REVENUE CODE WITH RESPECT TO PROPERTY
TRANSFERRED IN CONNECTION WITH THE PERFORMANCE OF SERVICES
The undersigned hereby makes the election, modified to the extent
described in Paragraph 9 below, authorized by Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder,
with respect to shares of Common Stock of Keynote Systems Incorporated (the
"Company") described below acquired by the undersigned on the date shown below.
To the extent permitted, this election shall also serve as an election under
analogous state law. As required by the Treasury Regulations under Section
83(b), the undersigned supplies herewith the following information:
1. The undersigned's name and address are:
Name: David Talovic
Address: _________________________
_________________________
2. The undersigned has taxpayer identification number ###-##-####.
3. The property with respect to which this protective election is made
consists of 57,000 shares of Common Stock of the Company.
4. The date on which the above-described property was transferred to
the undersigned was _____________, 19__.
5. As of the date of transfer, the property was subject to the
following substantial risk of forfeiture:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
6. The fair market value of the property at the time of transfer
(determined without regard to any restrictions other than
restrictions which by their terms will never lapse) was $0.025 per
share.
7. The amount paid for the property by the undersigned was $0.025 per
share.
8. A copy of this election has been furnished to the Company, and a
copy of this election will be attached to the undersigned's federal
income tax return for the year to which this election relates.
9. If the property was acquired by the exercise of an Incentive Stock
Option within the meaning of Section 422 of the Code then, except
in the event of a
<PAGE>
"disqualifying disposition" of the property, this election is
protective only and does not constitute an agreement to report or
include as income subject to federal income tax amounts which,
but for this election, are not so reportable or includible.
Date: Purchaser:
---------------------- -------------------------------
Date: Spouse:
---------------------- ----------------------------------
2
<PAGE>
Attachment A
EXHIBIT 7 OF INCENTIVE STCK OPTION AGREEMENT
All of the ISO Shares are subject to the Right of Repurchase. The
Right of Repurchase shall expire with respect to twenty-five percent (25%) of
the total number of ISO Shares on the twelve month anniversary of the Vesting
Base Date and, thereafter, with respect to an additional 1/48 of the ISO
Shares at the end of each month after the twelve month anniversary of the
Vesting Base Date, so that the Right of Repurchase shall have expired with
respect to all of the ISO Shares on and after the fourth anniversary of the
Vesting Base Date. Notwithstanding the provisions of the preceding sentence
regarding expiration of the Right of Repurchase, in the event that upon or
after a Sale of the Company, Optionee's employment with the Company, or its
successor, is terminated without Cause, then immediately prior to the
effectiveness of such termination the Right of Repurchase will expire with
respect to all of the ISO Shares and the Company will have no right to
repurchase such Shares pursuant to the Right of Repurchase. For such
purposes, the term "Sale of the Company" means any sale or disposition of all
or substantially all of the assets of the Company, or any merger or
consolidation of the Company with or into any other corporation or
corporations or other entity, or any other corporate reorganization in which
more than 50% of the Company's voting power is transferred. The term "Cause"
means (i) willfully engaging in gross misconduct that is materially and
demonstrably injurious to the Company; (ii) willful and continued failure to
substantially perform Optionee's duties with the Company (other than
incapacity due to physical or mental illness); provided that the action or
conduct described in clause (ii) above will constitute "Cause" only if such
failure continues after the Board of Directors has provided Optionee with a
written demand for substantial performance setting forth in detail the
specific respects in which it believes Optionee has willfully and not
substantially performed his duties thereof and a reasonable opportunity (to
be not less than 30 days) to cure the same. For the above purposes, a
termination by the Company without ause includes a termination of employment
by Optionee within 30 days following any of the following events: (x) the
assignment of any duties to Optionee inconsistent with, or reflecting a
materially adverse change in, Optionee's position, duties, responsibilities
or status with the Company, or the removal of Optionee from any of such
positions; or (y) the relocation of the Company's principal executive
offices, or relocating Optionee's principal place of business, in excess of
fifty (50) miles from the Company's current executive offices located in San
Mateo, California.
<PAGE>
KEYNOTE SYSTEMS INCORPORATED
1999 STOCK OPTION PLAN
AS ADOPTED ON FEBRUARY 26, 1999
AND AMENDED MARCH 31, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options. Capitalized terms not defined in
the text are defined in Section 21. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 16, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 2,275,182 Shares or such lesser number of Shares as permitted
under Section 260.140.45 of Title 10 of the California Code of Regulations.
Subject to Sections 2.2, 5.10 and 16, Shares subject to Options previously
granted will again be available for grant and issuance in connection with future
Options under this Plan to the extent such Shares: (i) cease to be subject to
issuance upon exercise of an Option, other than due to the exercise of such
Option; or (ii) are issued upon exercise of an Option but are forfeited or
repurchased by the Company at the original exercise price. At all times the
Company will reserve and keep available a sufficient number of Shares as will be
required to satisfy the requirements of all Options granted and outstanding
under this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (i) the number of Shares reserved for issuance under
this Plan and (ii) the Exercise Prices of and number of Shares subject to
outstanding Options will be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share will
not be issued but will either be paid in cash at the Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. NQSO's (as defined in
Section 5 hereof) may be granted to employees, officers, directors and
consultants of the Company or any Parent or Subsidiary of the Company; provided
such consultants render bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction. A person may be granted
more than one Option under this Plan.
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4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be administered by the
Committee or the Board if no Committee is created by the Board. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Stock Option Agreement
(as defined in Section 5 hereof) and any other agreement or
document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan;
(c) approve persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration
subject to Options;
(f) determine whether Options will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Options under this Plan or options
under any other incentive or compensation plan of the
Company or any Parent or Subsidiary of the Company;
(g) grant waivers of any conditions of this Plan or any Option;
(h) determine the terms of vesting and exercisability of
Options;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Option, any Stock Option
Agreement or any Exercise Agreement (as defined in Section 5
hereof);
(j) determine whether an Option has been earned;
(k) make all other determinations necessary or advisable for the
administration of this Plan; and
(l) extend the vesting period beyond a Participant's Termination
Date.
4.2 COMMITTEE DISCRETION. Unless in contravention of any express
terms of this Plan or Option, any determination made by the Committee with
respect to any Option will be made in its sole discretion either (i) at the time
of grant of the Option, or (ii) subject to Section 5.9 hereof, at any later
time. Any such determination will be final and binding on the Company and on
all persons having an interest in any Option under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant Options
under this Plan, provided such officer or officers are members of the Board.
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5. OPTIONS. The Committee may grant Options to eligible persons
described in Section 3 hereof and will determine whether such Options will be
Incentive Stock Options within the meaning of the Code (the "ISOs") or
Nonqualified Stock Options (the "NQSOs"), the number of Shares subject to the
Option, the Exercise Price of the Option, the period during which the Option may
be exercised, and all other terms and conditions of the Option, subject to the
following:
5.1 FORM OF OPTION GRANT. Each Option granted under this Plan will
be evidenced by an Agreement which will expressly identify the Option as an ISO
or an NQSO (the "STOCK OPTION AGREEMENT"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 DATE OF GRANT. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless a
later date is otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD. Options may be exercisable immediately but
subject to repurchase pursuant to Section 10 hereof or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company (the "TEN PERCENT SHAREHOLDER") will be exercisable
after the expiration of five (5) years from the date the ISO is granted. The
Committee also may provide for Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines. Subject to earlier termination of the
Option as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
5.4 EXERCISE PRICE. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 6 hereof.
5.5 METHOD OF EXERCISE. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same
for each Participant). The Exercise Agreement will state (i) the number of
Shares being purchased, (ii) the restrictions imposed on the Shares purchased
under such Exercise Agreement, if any, and (iii) such representations and
agreements regarding Participant's investment intent and access to
information and other matters,
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if any, as may be required or desirable by the Company to comply with
applicable securities laws. Participant shall execute and deliver to the
Company the Exercise Agreement together with payment in full of the Exercise
Price, and any applicable taxes, for the number of Shares being purchased.
5.6 TERMINATION. Subject to earlier termination pursuant to Sections
16 or 17 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date or as
otherwise determined by the Committee. Such Options must be
exercised by the Participant, if at all, as to all or some
of the Vested Shares calculated as of the Termination Date
or such other date determined by the Committee, within three
(3) months after the Termination Date (or within such
shorter time period, not less than thirty (30) days, or
within such longer time period, not exceeding five (5) years
after the Termination Date as may be determined by the
Committee, with any exercise beyond three (3) months after
the Termination Date deemed to be an NQSO) but in any event,
no later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Participant's Termination other than for
Cause), then Participant's Options may be exercised, only to
the extent that such Options are exercisable by Participant
on the Termination Date or as otherwise determined by the
Committee. Such Options must be exercised by Participant
(or Participant's legal representative or authorized
assignee), if at all, as to all or some of the Vested Shares
calculated as of the Termination Date or such other date
determined by the Committee, within twelve (12) months after
the Termination Date (or within such shorter time period,
not less than six (6) months, or within such longer time
period not exceeding five (5) years after the Termination
Date as may be determined by the Committee, with any
exercise beyond (i) three (3) months after the Termination
Date when the Termination is for any reason other than the
Participant's death or disability, within the meaning of
Section 22(e)(3) of the Code, or (ii) twelve (12) months
after the Termination Date when the Termination is for
Participant's disability, within the meaning of Section
22(e)(3) of the Code, deemed to be an NQSO) but in any event
no later than the expiration date of the Options.
(c) If the Participant is terminated for Cause, then
Participant's Options shall expire on such Participant's
Termination Date, or at
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such later time and on such conditions as are determined by
the Committee.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 LIMITATIONS ON ISOs. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed One Hundred Thousand Dollars
($100,000). If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the
Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of One Hundred Thousand Dollars ($100,000) that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date (as
defined in Section 17 hereof) to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISOs, then such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 hereof for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant, to disqualify any Participant's ISO
under Section 422 of the Code. In no event shall the total number of Shares
issued (counting each reissuance of a Share that was previously issued and then
forfeited or repurchased by the Company as a separate issuance) under the Plan
upon exercise of ISOs exceed 5,000,000 Shares (adjusted in proportion to any
adjustments under Section 2.2. hereof) over the term of the Plan.
6. PAYMENT FOR SHARE PURCHASES.
6.1 PAYMENT. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
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(a) by cancellation of indebtedness of the Company owed to the
Participant;
(b) by surrender of shares that: (i) either (A) have been owned
by Participant for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares) or (B) were obtained by Participant in the
public market and (ii) are clear of all liens, claims,
encumbrances or security interests;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
from the Company for services rendered;
(e) provided that a public market for the Company's stock
exists:
(i) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased sufficient to pay the total Exercise
Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the total
Exercise Price directly to the Company; or
(ii) through a "margin" commitment from the Participant and
an NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the total Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares
to forward the total Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
6.2 LOAN GUARANTEES. The Committee may, in its sole discretion,
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.
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7. WITHHOLDING TAXES.
7.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Options granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Options are to be made in cash by the Company, such
payment will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
7.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Option that is subject to tax withholding and the Participant is obligated
to pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 VOTING AND DIVIDENDS. No Participant will have any of the rights
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that the
Participant will have no right to retain such stock dividends or stock
distributions with respect to Unvested Shares that are repurchased pursuant to
Section 10 hereof. The Company will comply with Section 260.140.1 of Title 10
of the California Code of Regulations with respect to the voting rights of
Common Stock.
8.2 FINANCIAL STATEMENTS. The Company will provide financial
statements to each Participant annually during the period such Participant has
Options outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations. Notwithstanding the foregoing, the
Company will not be required to provide such financial statements to
Participants when issuance is limited to key employees whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution and may not be made subject to
execution, attachment or similar process. During the lifetime of the
Participant an Option will be exercisable only by the Participant or
Participant's legal representative and any elections with respect to an Option
may be made only by the Participant or Participant's legal representative.
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10. RESTRICTIONS ON SHARES.
10.1 RIGHT OF FIRST REFUSAL. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right of first refusal to purchase all Shares that a Participant (or
a subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.
10.2 RIGHT OF REPURCHASE. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right to repurchase Unvested Shares held by a Participant for cash
and/or cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after Participant's Termination Date and the date
Participant purchases Shares upon exercise of an Option at the Participant's
Exercise Price, provided, that to the extent the Participant is not an officer,
director or consultant of the Company or of a Parent or Subsidiary of the
Company, such right of repurchase lapses at the rate of no less than twenty
percent (20%) per year over five (5) years from the date of grant of the Option.
11. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares set forth in Section 10 hereof, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated.
The Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note; provided,
however, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any
time buy from a Participant an Option previously granted with payment in
cash, shares of Common Stock of the Company or other
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consideration, based on such terms and conditions as the Committee and the
Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
to comply with Section 25102(o) of the California Corporations Code. Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Option will not be
effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to
(i) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (ii) compliance with any
exemption, completion of any registration or other qualification of such Shares
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
exemption, registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.
16. CORPORATE TRANSACTIONS.
16.1 ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR OR ACQUIRING
COMPANY. In the event of (i) a dissolution or liquidation of the Company,
(ii) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders
of the Company or their relative stock holdings and the Options granted under
this Plan are assumed, converted or replaced by the successor or acquiring
corporation, which assumption, conversion or replacement will be binding on
all Participants), (iii) a merger in which the Company is the surviving
corporation but after which the shareholders of the Company immediately prior
to such merger (other than any shareholder which merges with the Company in
such merger, or which owns or controls another corporation which merges with
the Company in such merger) cease to own their shares or other equity
interests in the Company, or (iv) the sale of all or substantially all of the
assets of the Company, any or all outstanding Options may be assumed,
converted or replaced by the successor or acquiring corporation (if any),
which assumption, conversion or replacement will be binding on all
Participants. In the alternative, the successor or acquiring corporation may
substitute equivalent Options or provide substantially similar consideration
to Participants as was provided to shareholders (after taking into account
the existing provisions of the Options). The successor or acquiring
corporation may also substitute by issuing, in place of
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outstanding Shares of the Company held by the Participant, substantially
similar shares or other property subject to repurchase restrictions and other
provisions no less favorable to the Participant than those which applied to
such outstanding Shares immediately prior to such transaction described in
this Section 16.1. In the event such successor or acquiring corporation (if
any) does not assume, convert, replace or substitute Options, as provided
above, pursuant to a transaction described in this Section 16.1, then
notwithstanding any other provision in this Plan to the contrary, the vesting
of such Options will accelerate and the ptions will become exercisable in
full prior to the consummation of such event at such times and on such
conditions as the Committee determines, and if such Options are not exercised
prior to the consummation of the corporate transaction, they shall terminate
in accordance with the provisions of this Plan.
16.2 OTHER TREATMENT OF OPTIONS. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 16
hereof, in the event of the occurrence of any transaction described in Section
16.1 hereof, any outstanding Options will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation
or sale of assets.
16.3 ASSUMPTION OF OPTIONS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Option under this Plan in substitution of
such other company's option, or (ii) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (EXCEPT that the exercise price and the number and nature
of shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant
Options pursuant to this Plan; provided, however, that: (i) no Option may be
exercised prior to initial shareholder approval of this Plan; (ii) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; (iii) in the event that initial shareholder
approval is not obtained within the time period provided herein, all Options
granted hereunder shall be canceled, any Shares issued pursuant to any exercised
Option shall be canceled and rescinded; and (iv) Options granted pursuant to an
increase in the number of Shares approved by the Board which increase is not
timely approved by shareholders shall be canceled.
18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or,
if earlier, the date of
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shareholder approval. This Plan and all agreements hereunder shall be
governed by and construed in accordance with the laws of the State of
California.
19. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Stock Option Agreement or instrument
to be executed pursuant to this Plan; provided, however, that the Board will
not, without the approval of the shareholders of the Company, amend this Plan in
any manner that requires such shareholder approval pursuant to Section 25102(o)
of the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
21. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or a Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, officer, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company
and the Participant, (iv) Participant's disregard of the policies of the Company
or any Parent or Subsidiary of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee created and appointed by the Board to
administer this Plan, or if no committee is created and appointed, the Board.
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"COMPANY" means Keynote Systems Incorporated or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in THE WALL STREET
JOURNAL;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in THE WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as
reported by THE WALL STREET JOURNAL (or, if not so reported,
as otherwise reported by any newspaper or other source as
the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock representing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Option under this Plan.
"PLAN" means this 1999 Keynote Systems Incorporated 1999 Stock Option
Plan, as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 16 hereof, and
any successor security.
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"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
representing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company's Board and issued and promulgated in writing. In the case of any
Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of
absence, the Committee may make such provisions respecting suspension of vesting
of the Option while on leave from the Company or a Parent or Subsidiary of the
Company as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Stock
Option Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Stock Option
Agreement.
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KEYNOTE SYSTEMS INCORPORATED
1999 EQUITY INCENTIVE PLAN
As Adopted June __, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be ___________ Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the Keynote Systems Incorporated ___________________ Plan (the
"PRIOR PLAN") on the Effective Date (as defined below) and any shares issued
under the Prior Plan that are forfeited or repurchased by the Company or that
are issuable upon exercise of options granted pursuant to the Prior Plan that
expire or become unexercisable for any reason without having been exercised in
full, will no longer be available for grant and issuance under the Prior Plan,
but will be available for grant and issuance under this Plan. In addition, on
December 31, 1999 and each anniversary thereafter, the aggregate number of
Shares reserved and available for grant and issuance pursuant to this Plan will
be increased automatically by a number of Shares equal to [5%] of the total
outstanding shares of the Company as of the immediately preceding December 31,
provided that no more than ______ shares shall qualify as ISOs (as defined in
Section 5 below). At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; PROVIDED, HOWEVER, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; PROVIDED
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than __________ Shares
in any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of __________ Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
<PAGE>
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other
agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to this
Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination with,
in tandem with, in replacement of, or as alternatives to, other Awards
under this Plan or any other incentive or compensation plan of the
Company or any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any inconsistency
in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 COMMITTEE DISCRETION. Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required
by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
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5.2 DATE OF GRANT. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 EXERCISE PERIOD. Options may be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; PROVIDED, HOWEVER, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and PROVIDED FURTHER that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 EXERCISE PRICE. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after a
Termination other than for Cause or because of Participant's
Disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any such exercise
beyond (a) three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's death or
Disability, or (b) twelve (12) months after the Termination Date
when the Termination is for Participant's death or
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Disability, deemed to be an NQSO), but in any event no later
than the expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to any
Shares whatsoever, after termination of service, whether or not
after termination of service the Participant may receive payment
from the Company or Subsidiary for vacation pay, for services
rendered prior to termination, for services rendered for the day on
which termination occurs, for salary in lieu of notice, or for any
other benefits. In making such determination, the Board shall give
the Participant an opportunity to present to the Board evidence on
his behalf. For the purpose of this paragraph, termination of
service shall be deemed to occur on the date when the Company
dispatches notice or advice to the Participant that his service is
terminated.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 LIMITATIONS ON ISO. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
PROVIDED, HOWEVER, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
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approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 TERMS OF RESTRICTED STOCK AWARDS. Restricted Stock Awards shall
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment
of any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap
and Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 TERMS OF STOCK BONUSES. The Committee will determine the number
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant.
Prior to the payment of any Stock Bonus, the Committee shall determine the
extent to which such Stock Bonuses have been earned. Performance Periods may
overlap and Participants may participate simultaneously with respect to Stock
Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and
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criteria as may be determined by the Committee. The Committee may adjust the
performance goals applicable to the Stock Bonuses to take into account
changes in law and accounting or tax rules and to make such adjustments as
the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 FORM OF PAYMENT. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; PROVIDED, HOWEVER, that Participants who are not
employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD DEALER") whereby the
Participant irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company;
or
(f) by any combination of the foregoing.
8.2 LOAN GUARANTEES. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
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9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
9.1 TYPES OF OPTIONS AND SHARES. Options granted under this Plan and
subject to this Section 9 shall be NQSOs.
9.2 ELIGIBILITY. Options subject to this Section 9 shall be granted
only to Outside Directors.
9.3 ANNUAL GRANTS. Each Outside Director who was a member of the
Board before the Effective Date will automatically be granted an Option for
10,000 Shares on the Effective Date, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who first
becomes a member of the Board on or after the Effective Date will automatically
be granted an Option for 10,000 Shares on the date such Outside Director first
becomes a member of the Board. Immediately following each annual meeting of
stockholders, all Outside Directors will automatically be granted an Option for
10,000 Shares, provided the Outside Director is a member of the Board on such
date and has served continuously as a member of the Board for a period of at
least one year since the date when such Outside Director first became a member
of the Board (the "ANNUAL GRANT").
9.4 VESTING. Each Annual Grant shall be 100% vested and immediately
exercisable as of the date of grant.
9.5 EXERCISE PRICE. The exercise price of an Annual Grant shall be
the Fair Market Value of the Shares, at the time that the Option is granted.
10. WITHHOLDING TAXES.
10.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
11. TRANSFERABILITY.
11.1 Except as otherwise provided in this Section 11, no Award and no
interest therein may be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will and by the laws of descent and
distribution and no Award may be made subject to execution, attachment or
similar process:
11.2 ALL AWARDS OTHER THAN NQSO'S. All Awards other than NQSO's shall
be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees; and
11.3 NQSOS. Unless otherwise restricted by the Committee, an NQSO
Option shall be exercisable: (i) during the Participant's lifetime only by (A)
the Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the Option by
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Permitted Transfer; and (ii) after Participant's death, by the legal
representative of the Participant's heirs or legatees.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
12.1 VOTING AND DIVIDENDS. No Participant will have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; PROVIDED, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; PROVIDED, FURTHER, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 FINANCIAL STATEMENTS. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; PROVIDED, HOWEVER, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; PROVIDED, HOWEVER, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy
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from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described
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in Section 18.1, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution,
liquidation, or sale of assets.
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(EXCEPT that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
the date on which the registration statement filed by the Company with the SEC
under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon
the Effective Date, the Committee may grant Awards pursuant to this Plan;
PROVIDED, HOWEVER, that: (a) no Option may be exercised prior to initial
stockholder approval of this Plan; (b) no Option granted pursuant to an increase
in the number of Shares subject to this Plan approved by the Board will be
exercised prior to the time such increase has been approved by the stockholders
of the Company; (c) in the event that initial stockholder approval is not
obtained within the time period provided herein, all Awards granted hereunder
shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled
and any purchase of Shares issued hereunder shall be rescinded; and (d) in the
event that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
PROVIDED, HOWEVER, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
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"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Keynote Systems Incorporated or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market, its
closing price on the Nasdaq National Market on the date of
determination as reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on which
the Common Stock is listed or admitted to trading as reported in THE
WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices
on the date of determination as reported in THE WALL STREET JOURNAL;
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in the
initial public offering of the Company's Common Stock pursuant to a
registration statement filed with the SEC under the Securities Act;
or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the
Participant, including any such person with such relationship to the
Participant by adoption;
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(b) any person (other than a tenant or employee) sharing the Participant's
household;
(c) a trust in which the persons in (a) and (b) have more than fifty
percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the Participant
control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"OUTSIDE DIRECTOR" means a member of the Board who is not an employee
of the Company or any Parent, Subsidiary or Affiliate of the Company.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee from
among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before
income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
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"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Keynote Systems Incorporated 1999 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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KEYNOTE SYSTEMS INCORPORATED
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted June __, 1999
1. ESTABLISHMENT OF PLAN. Keynote Systems Incorporated (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to
eligible employees of the Company and its Participating Subsidiaries (as
hereinafter defined) pursuant to this Employee Stock Purchase Plan (this
"PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall
have the same meanings as "parent corporation" and "subsidiary corporation" in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations
or Subsidiaries that the Board of Directors of the Company (the "BOARD")
designates from time to time as corporations that shall participate in this
Plan. The Company intends this Plan to qualify as an "employee stock purchase
plan" under Section 423 of the Code (including any amendments to or replacements
of such Section), and this Plan shall be so construed. Any term not expressly
defined in this Plan but defined for purposes of Section 423 of the Code shall
have the same definition herein. A total of ________________ shares of the
Company's Common Stock is reserved for issuance under this Plan. In addition,
on each January 1, the aggregate number of shares of the Company's Common Stock
reserved for issuance under the Plan shall be increased automatically by a
number of shares equal to [1%] of the total number of outstanding shares of the
Company Common Stock on the immediately preceding December 31; PROVIDED that the
aggregate number of shares issued over the term of this Plan shall not exceed
_______________ shares. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
<PAGE>
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason EXCEPT FOR federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
PROVIDED, HOWEVER, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on [JANUARY 31, 2002.] Except for the
first Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the
power to change the duration of Offering Periods with respect to offerings
without stockholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Offering Period to be
affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "TREASURY DEPARTMENT") not
later than five (5) days before such Offering Date. Notwithstanding the
foregoing, the Committee may set a later time for filing the subscription
agreement authorizing payroll deductions for all eligible employees with respect
to a given Offering Period. An eligible employee who does not deliver a
subscription agreement to the Treasury Department by such date after becoming
eligible to participate in such Offering Period shall not participate in that
Offering Period or any subsequent Offering Period unless such employee enrolls
in this Plan by filing a subscription agreement with the Treasury Department not
later than five (5) days preceding a subsequent Offering Date. Once an employee
becomes a participant in an Offering Period, such employee will automatically
participate in the Offering Period commencing immediately following the last day
of the prior Offering Period unless the employee withdraws or is deemed to
withdraw from this Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. Such participant is not required to
file any additional subscription agreement in order to continue participation in
this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of
(i) eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the Offering Date (but in no event less than the par
value of a share of the Company's Common Stock), or (ii) eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock on the
Purchase Date (but in no event less than the par value of a share of the
Company's Common Stock), PROVIDED, HOWEVER, that the number of shares of the
Company's Common Stock subject to any option granted pursuant to this Plan
shall not exceed the lesser of (x) the maximum number of shares set by the
Committee pursuant to Section 10(c) below with respect to the applicable
Purchase Date, or (y) the maximum number of shares which may be purchased
pursuant to Section 10(b) below with respect to the applicable Purchase Date.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 8 below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
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For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in THE WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in THE WALL
STREET JOURNAL; or
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the
price per share at which shares of the Company's Common Stock
are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, PROVIDED, HOWEVER, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Purchase Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing with
the Treasury Department a new authorization for payroll deductions not later
than fifteen (15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Treasury Department a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
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(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Committee may, in its sole discretion, set a maximum number of shares which may
be purchased by any employee at any single Purchase Date (hereinafter the
"MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there
shall be no Maximum Share Amount. In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The Maximum Share
Amount shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Com-
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mittee shall determine to be equitable. In such event, the Company shall
give written notice of such reduction of the number of shares to be purchased
under a participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
PROVIDED that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; PROVIDED, HOWEVER, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
5
<PAGE>
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company,
(iii) the sale of all or substantially all of the assets of the Company or (iv)
the acquisition, sale, or transfer of more than 50% of the outstanding shares of
the Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless otherwise provided
by the Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
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<PAGE>
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to the
Plan as the Board determines to be advisable, if the continuation of the Plan or
any Offering Period would result in financial accounting treatment
7
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for the Plan that is different from the financial accounting treatment in
effect on the date this Plan is adopted by the Board.
8
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- ------------------------------------------------------------------------------
Summary Plan Description
----------------------------
----------------------------
Prepared for
Keynote Systems, Inc.
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INTRODUCTION
Effective 01-01-1997, Keynote Systems, Inc. has adopted the Keynote Systems,
Inc. 401(k) Plan designed to help you meet your financial needs during your
retirement years. The plan sequence number, which identifies the number of
qualified plans Keynote Systems, Inc. currently maintains or has previously
maintained, is 001.
To become a Participant in the Plan, you must meet the Plan's eligibility
requirements. Once you become a Participant, Keynote Systems, Inc. will
maintain an Individual Account for you. Each Plan Year your account will be
adjusted to reflect contributions, gains, losses, etc. The percentage of your
account to which you will be entitled when you terminate employment depends on
the Plan's vesting schedule. These features are explained further in the
following pages.
The actual Plan is a complex legal document that has been written in the manner
required by the Internal Revenue Service (IRS) and is referred to as the Basic
Plan Document. This document is called a Summary Plan Description (SPD) and
explains and summarizes the important features of the Basic Plan Document.
Keynote Systems, Inc. may make contributions to this Plan. In addition, you may
be able to elect to reduce your annual taxable income by deferring a portion of
your Compensation into the Plan as Employee 401(k) Contributions. You should
consult the Basic Plan Document for technical and detailed Plan provisions. The
legal operation of the Plan is controlled by the Basic Plan Document and not
this SPD.
If at any time you have specific questions about the Plan as it applies to you,
please bring them to the attention of the Plan Administrator whose address and
telephone number appear in Section One of this SPD. You may also examine the
Basic Plan Document itself at a reasonable time by making arrangements with the
Plan Administrator.
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Contents of the Summary Plan Description
SECTION ONE DEFINITIONS
SECTION TWO ELIGIBILITY AND PARTICIPATION
INFORMATION IN THIS SECTION INCLUDES:
ELIGIBLE CLASSES OF EMPLOYEES
AGE AND SERVICE REQUIREMENTS
HOW HOURS OF SERVICE ARE COUNTED
WHEN YOU CAN PARTICIPATE IN THE PLAN
SECTION THREE FUNDING AND ADMINISTRATION OF THE PLAN
INFORMATION IN THIS SECTION INCLUDES:
PLAN CONTRIBUTION SOURCES, ALLOCATIONS AND LIMITATIONS
COMPENSATION
PLAN ADMINISTRATION AND MANAGEMENT
SELF DIRECTION OF INVESTMENTS
SECTION FOUR DISTRIBUTION OF BENEFITS AND VESTING
INFORMATION IN THIS SECTION INCLUDES:
BENEFIT ELIGIBILITY
DISTRIBUTION OF BENEFITS
HOW YOUR VESTED AMOUNT IS DETERMINED
RESTRICTIONS OR PENALTIES ON DISTRIBUTIONS
PAYOUTS TO YOUR BENEFICIARIES
SECTION FIVE CLAIMS PROCEDURE
INFORMATION IN THIS SECTION INCLUDES:
WHAT TO DO TO RECEIVE BENEFITS
HOW TO FILE A CLAIM
SECTION SIX MISCELLANEOUS
INFORMATION IN THIS SECTION INCLUDES:
BORROWING FROM THE PLAN
BREAK IN SERVICE SITUATIONS
PLAN TERMINATION
SECTION SEVEN RIGHTS UNDER ERISA
INFORMATION IN THIS SECTION INCLUDES:
THE RIGHTS AND PROTECTIONS A PLAN PARTICIPANT IS
ENTITLED TO UNDER THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT
Page 3
<PAGE>
SECTION ONE: DEFINITIONS
The following definitions are used in the text of this SPD. These words and
phrases are capitalized throughout the SPD for ease of reference.
COMPENSATION - means the earnings paid to you by Keynote Systems, Inc.
EMPLOYEE - means any person employed by Keynote Systems, Inc.
EMPLOYEE 401(k) CONTRIBUTIONS - means the dollars you put into the Plan through
before-tax payroll deductions.
EMPLOYER - means Keynote Systems, Inc., the corporation maintaining this Plan.
EMPLOYER CONTRIBUTION - means the amount contributed to the Plan on your behalf
by Keynote Systems, Inc.
INDIVIDUAL ACCOUNT - means the contribution account established and maintained
for you which is made up of all contributions made by you or on your behalf.
MATCHING CONTRIBUTION - means a contribution made by Keynote Systems, Inc. to
the 401(k) Plan on your behalf based upon your Employee 401(k) Contributions
and/or your Nondeductible Employee Contributions.
PARTICIPANT - means an Employee who has met the eligibility requirements, has
entered the Plan, and has become eligible to make or receive a contribution to
his or her Individual Account.
PAYROLL DEDUCTION FORM - means the agreement you sign to authorize Keynote
Systems, Inc. to deduct your Employee 401(k) Contributions from your
Compensation and put them into the 401(k) Plan.
PLAN - means the specific retirement Plan Keynote Systems, Inc. has set up. The
Plan is governed by a legal document containing various technical and detailed
provisions. The Plan Administrator has a copy of the Plan document.
PLAN ADMINISTRATOR - The Plan Administrator is responsible for directly
administering the Plan. Keynote Systems, Inc. is the Plan Administrator of this
Plan and is therefore responsible for the day-to-day administration and
management of the Plan. To insure efficient and sound operation and management
of the Plan, Keynote Systems, Inc. has the discretionary authority to appoint
other persons as may be necessary to act on its behalf or assist in performing
these responsibilities. The address and phone number of Keynote Systems, Inc.
are listed below.
Keynote Systems, Inc.
Two West Fifth Avenue
San Mateo, CA 94402
415-524-3012
PLAN YEAR - means the calendar year.
SECTION TWO: ELIGIBILITY AND PARTICIPATION
ELIGIBLE CLASSES OF EMPLOYEES
You will generally be eligible to become a Participant in the Plan after having
satisfied the age and service requirements. Even if you satisfy the eligibility
criteria, however, you are not eligible to participate if you are covered by a
collective bargaining agreement (e.g., union agreement) unless the agreement
requires you to be eligible. In addition, you are ineligible if you are a
nonresident alien and receive no earned income from Keynote Systems, Inc. within
the United States.
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AGE AND SERVICE REQUIREMENTS
EMPLOYEE 401(k) AND MATCHING CONTRIBUTIONS
You will become eligible to enter the Plan, make Employee 401(k) Contributions
and receive Matching Contributions when you attain age 21. You need not perform
a minimum amount of service to become eligible to participate.
PROFIT SHARING CONTRIBUTIONS
You will become eligible to enter the Plan and receive profit sharing
contributions when you attain age 21. You need not perform a minimum amount of
service to become eligible to participate.
You will be credited with a year of service for eligibility purposes if you work
1000 or more hours during the year.
HOW HOURS OF SERVICE ARE COUNTED
Your hours of service are generally counted on the basis of the actual number of
hours you work or for which you are entitled to Compensation. Instead of
counting hours of service for purposes of determining your number of Years of
Eligibility Service, however, you will receive credit for the period of time
during which you are paid or entitled to pay from Keynote Systems, Inc. for each
type of contribution for which you are required to perform a fractional Year of
Eligibility Service.
WHEN YOU CAN PARTICIPATE IN THE PLAN
After you have met the eligibility requirements, you will become a Participant
in the Plan on the applicable entry date(s). During each Plan Year there are
generally at least two entry dates. Keynote Systems, Inc. has designated the
first day of the Plan Year and the first day of the seventh month of the Plan
Year as entry dates for this Plan. You will continue to participate in the Plan
as long as you do not incur a break in service. A break in service is a 12
consecutive month period during which you fail to work in excess of 500 hours.
However, no break in service will occur if the reason you did not work more than
the required number of hours was because of certain absences due to birth,
pregnancy or adoption of children, military service or other service during a
national emergency during which your re-employment under a federal or state law
is protected and you do, in fact, return to work within the time required by
law.
SECTION THREE: PLAN FUNDING AND ADMINISTRATION
PLAN CONTRIBUTION SOURCES, ALLOCATIONS AND LIMITATIONS
EMPLOYEE 401(k) CONTRIBUTIONS
Effective 01-01-1997 (or the date you begin participating in the Plan, if
later), you may make before-tax contributions to the Plan through payroll
deduction. Such contributions are called Employee 401(k) Contributions.
To begin making Employee 401(k) Contributions, you must complete and sign a
Payroll Deduction Form. Once you become eligible to participate in the Plan,
Keynote Systems, Inc. will provide you with such form.
For example, assume your compensation is $15,000. For Plan Year 1996, you wish
to make an Employee 401(k) Contribution to the Plan and sign a Payroll Deduction
Form authorizing an Employee 401(k) Contribution of 5% of your Compensation. As
a result, Keynote Systems, Inc. will pay you $14,250 as gross taxable income and
will deposit your 5% Employee 401(k) Contribution (i.e., $750) into the Plan for
you.
LIMITS ON EMPLOYEE 401(k) CONTRIBUTIONS
Federal tax laws and plan documents govern the amount of Employee 401(k)
Contributions which you may make. Specifically, federal law places two annual
limits on the amount you may defer into a 401(k) plan -an individual limit and
an average limit.
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Individual Limit
Federal tax law limits the amount you can put into the Plan during each of your
tax years (generally, a calendar year). For 1996 and 1997, the limit is $9,500.
This amount is indexed periodically for changes in the cost-of-living index.
This limit applies to all Employee 401(k) Contributions you make during your tax
year to any 401(k) plans maintained by your present or former employers.
If you defer more than you are allowed, you must submit in writing for the
return of the excess to Keynote Systems, Inc. no later than March 1.
The excess amount and any earnings you may have received on the excess must be
taken out of the Plan by April 15 of the year following the year the money went
into the Plan. The excess amounts will appear on your Form W-2 and will be
taxable income for the year in which you put the excess into the Plan. If the
excess is not removed from the Plan by April 15, you will have to pay additional
income tax.
EXAMPLE: You deferred $100 more than the law allows in 1996 and you had earnings
of $10 on the excess. You removed your $100 excess and the $10 earnings by
April 15, 1997. The excess will be reported on your 1996 Form W-2 and you will
pay income tax on that amount.
Average Limits
Tax law defines a group of an employer's employees known as highly compensated
employees. Highly compensated employees making Employee 401(k) Contributions
are limited in the percent of their compensation which they defer based on the
average percent of compensation deferred by the non-highly compensated group of
employees during the Plan Year. If these limits apply to you, Keynote Systems,
Inc. can give you additional information about them.
Plan Specific Limitations
Upon completion of a Payroll Deduction Form, your compensation will be reduced
each pay period by the percent you specify. Keynote Systems, Inc. permits you to
defer a percentage of your Compensation from 1% to 15% in increments of 1% each
Plan Year.
To change the amount of your Employee 401(k) Contributions, you must complete
and sign a revised Payroll Deduction Form and return it to Keynote Systems, Inc.
at least 30 days before the change will take effect or a lesser number of days
if Keynote Systems, Inc. permits. Keynote Systems, Inc. will establish uniform
and nondiscriminatory rules regarding when you may change your Payroll Deduction
form.
To discontinue making Employee 401(k) Contributions, you must complete and sign
a revised Payroll Deduction Form. Keynote Systems, Inc. will establish uniform
and nondiscriminatory rules regarding when you may resume making deferrals if
you stop.
MATCHING CONTRIBUTIONS
Individual Limits
Matching Contributions are Employer Contributions which are contributed to the
Plan based on your Employee 401(k) Contributions. Effective 01-01-1997 or the
date you begin participating in the Plan, if later), Keynote Systems, Inc. may
make Matching Contributions to the Plan equal to a percentage of your Employee
401(k) Contributions which Keynote Systems, Inc. will determine each year.
There is no minimum hours of service required if you are employed on the last
day of the Plan Year. However, you must work at least 500 hours of service
during the Plan Year in order to receive a Matching Contribution if you separate
from service before the end of the Plan Year. The hour of service requirement
will be waived, however, if you die, or if you separate from service after
attaining normal retirement age or after becoming disabled.
Page 6
<PAGE>
Average Limits.
Tax law defines a group of an employer's employees known as highly
compensated employees. Highly compensated employees receiving Matching
Contributions are limited in the amount of Matching Contributions which
they may receive based on the average Matching Contribution (as a percent
of compensation) received by the non-highly compensated group of employees
during the Plan Year. If these limits apply to you, Keynote Systems, Inc.
can give you additional information about them.
PROFIT SHARING CONTRIBUTIONS
Each year, the managing body of Keynote Systems, Inc. will determine the amount,
if any, which it will contribute to the Plan. Employer Contributions to a profit
sharing plan in general can range from 0% to 15% of participants' compensation
each year.
There is no minimum hours of service required for contribution purposes if you
are employed on the last day of the Plan Year. However, you must work at least
500 hours of service during the Plan Year in order to receive a profit sharing
contribution if you separate from service before the end of the Plan Year. The
hour of service requirement will be waived, however, if you die, or if you
separate from service after attaining normal retirement age or after becoming
disabled.
If you satisfy the requirements and are entitled to a profit sharing
contribution, you will receive a pro rata allocation based on your Compensation
in relation to the Compensation of all Participants entitled to profit sharing
contributions.
For example, assume you are one of 10 Participants in the Plan and your
Compensation is $10,000. Assume further the Compensation of all Participants
when added together equals $100,000. The ratio of your Compensation ($10,000)
to that of all Participants ($100,000) is 1/10. Therefore, 1/10 of the
contribution made by your Employer to the Plan will be allocated to your
account.
ROLLOVER CONTRIBUTIONS
Keynote Systems, Inc. allows you to make rollover contributions, regardless of
whether you have become a Participant in the Plan. You are 100% vested in your
rollover contributions at all times and may withdraw them from the Plan at any
time.
ANNUAL ADDITIONS LIMITATION
In spite of the contribution/allocation formulas described earlier, federal law
limits the annual amount which may be allocated to your account to the lesser of
$30,000 or 25% of your Compensation.
COMPENSATION
The definition of compensation for plan purposes can vary for many reasons. For
example, federal tax law may require use of one definition of compensation for
nondiscrimination testing and another definition for contribution allocation
purposes. In addition, federal tax law permits employers such as Keynote
Systems, Inc. to choose the definition of compensation which will be used for
other purposes. Regardless of the various definitions of compensation which may
be required or allowed, however, in the event your Compensation exceeds $150,000
per year, only the first $150,000 will be counted as Compensation under the
Plan. This $150,000 cap will be adjusted periodically by the Internal Revenue
Service for increases in the cost-of-living. (For Plan Years beginning on or
after January 1, 1997, the $150,000 cap is increased to $160,000.)
Also, if you satisfy the eligibility requirements and enter the Plan on a date
other than the first day of the year over which your Compensation is to be
determined, the Compensation earned during the year, but prior to your entry
into the Plan will be included.
Keynote Systems, Inc. has elected to use your W-2 compensation. determined over
the calendar year ending with or within the Plan Year, for purposes of this
Plan. Your Compensation, however, will be adjusted as described below.
For purposes of determining your Compensation, elective deferrals you make to a
Keynote Systems, Inc. cafeteria, 401(k), salary deferral SEP or tax sheltered
annuity plan will be included.
Page 7
<PAGE>
PLAN ADMINISTRATION AND MANAGEMENT
All contributions made to the Plan on your behalf will be placed in a trust fund
established to hold dollars for the benefit of all Participants. Keynote
Systems, Inc. will establish and maintain an Individual Account for you and all
Participants. Your Individual Account will be used to track your share in the
total trust fund.
This Plan allows you to direct the investment of the assets in your Individual
Account. Keynote Systems, Inc. will establish uniform and nondiscriminatory
policies describing how and when you may provide investment directions. You
will be responsible for any expenses and losses resulting from your choice of
investments.
SECTION FOUR: DISTRIBUTION OF BENEFITS AND VESTING
BENEFIT ELIGIBILITY
Certain events must occur before you can withdraw money from the Plan. In
general, benefits may be withdrawn upon termination of employment after
attaining normal retirement age or upon Plan termination. Normal retirement age
under this Plan is age 65.
You may withdraw all or a portion of the vested Employer Contributions if you:
- terminate employment before attaining normal retirement age
- become disabled
- attain normal retirement age but continue to work
- qualify for in-service distributions on account of financial hardship
In addition, you may withdraw your Employee 401(k) Contributions if you:
- attain age 59 1/2 but continue to work
- incur a financial hardship
Under your Plan, the only financial needs which are considered to meet the
financial hardship requirements are the following items: deductible medical
expenses for you or your immediate family, purchase of your principal residence,
payment of tuition for the next quarter or semester for you or your immediate
family, or to prevent eviction from your home or foreclosure upon your principal
residence. A hardship distribution cannot exceed the amount of your immediate
and heavy financial need and you must have obtained all distributions and all
nontaxable loans from all Plans maintained by Keynote Systems, Inc. prior to
qualifying for a hardship distribution. Hardship distributions are subject to a
10% penalty tax if received before you reach age 59 1/2.
DISTRIBUTION OF BENEFITS
FORM OF PAYMENT
Payments from the Plan that are eligible rollover distributions can be taken in
two ways. You may have all or any portion of your eligible rollover
distribution either (1) paid in a direct rollover to an IRA or another employer
plan or (2) paid to you. If you choose to have your Plan benefits paid to you,
you will receive only 80% of the payment, because Keynote Systems, Inc. is
required to withhold 20% of the payment and send it to the IRS as income tax
withholding to be credited against your taxes.
Keynote Systems, Inc. will give you more information about your options around
the time you request your payout from the Plan. That information will, among
other things, define what an eligible rollover distribution is.
If your vested Individual Account (i.e., the amount of money in the Plan you are
entitled to) is no more than $3,500, your benefits will be paid, either directly
to you or as a direct rollover to an IRA or another plan, in a single lump sum
payment.
If your vested Individual Account balance is more than $3,500, your payouts will
be in the form of an annuity, unless the annuity option is waived. An annuity
will provide you with a series of periodic payments, usually monthly. The
annuity
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<PAGE>
must be purchased from an insurance company. The size of the payments you
receive from the annuity will depend upon many factors including the value or
your vested Individual Account balance.
If you are married, the annuity will provide monthly payments for as long as you
or your spouse live. This type of annuity is called a joint and survivor
annuity. If you die before your spouse, the monthly payments to your spouse
will be a percentage of the payments you had been receiving before your death.
The survivor annuity is equal to 50%.
If you are not married, the type of annuity you will receive will provide you
with monthly payments for as long as you live.
If you do not want an annuity payout, you may choose other types of payments.
To waive the annuity option, you must fill out and sign a waiver form. If you
are married, your spouse must consent to and sign the waiver form in the
presence of a notary public. You and your spouse may sign the waiver form any
time within 90 days of the start of your payments.
EXAMPLE: Bill wants to start receiving money on March 31, 1996. He and his
spouse can sign the waiver form any time from January 1 through March 31, 1996.
Bill can now take his money in another form, such as a single lump sum payment.
Contributions made to the Plan by you or on your behalf may be used to purchase
units in various investment funds. The value of these funds can change daily.
Because the value of your units can change daily, the value shown on your
statement(s) may be different than the actual amount you receive for a payout.
TIMING OF BENEFIT PAYMENTS
If the value of your Individual Account is no more than $3,500, Keynote Systems,
Inc. may direct that your benefits be paid within 90 days after the end of the
Plan Year in which you become eligible to receive them.
If your account is more than $3,500, your funds may be left in the Plan until
you submit a written request to Keynote Systems, Inc. for payment. However, you
must begin taking required minimum distributions at age 70 1/2 if you are a five
percent or more owner of your Employer. If you are not a five percent or more
owner, you must begin taking required minimum distributions from the Plan by
April 1 of the year after the year in which you turn age 70 1/2 or, if later,
April 1 of the year after the year in which you separate from service. Keynote
Systems, Inc. can provide you with the proper request forms. Once you have
returned the completed request to Keynote Systems, Inc., payment will be made no
later than 90 days after the close of the Plan Year in which Keynote Systems,
Inc. received your request.
REQUIRED MINIMUM DISTRIBUTIONS
The tax laws and regulations require you to start taking minimum distributions
from the Plan by April 1 of the year after the year in which you turn 70 1/2
years of age if you are a five percent or more owner of your Employer. If you
are not a five percent or more owner, you must begin taking required minimum
distributions from the Plan by April 1 of the year after the year in which you
turn age 70 1/2 or, if later, April 1 of the year after the year in which you
separate from service. Minimum distributions must continue every year
thereafter and must be taken by December 31. In general, the amount of the
annual minimum distribution is determined by dividing the balance in your
Individual Account by your life expectancy or the joint life expectancy of you
and your Plan beneficiary.
DETERMINING YOUR VESTED AMOUNT
AMOUNT OF BENEFIT
Whether you receive the full value of your account(s) depends on the reason you
are receiving the distribution and your vested percentage in your contributions.
Your distribution will be the full value of your Individual Account (that is,
you will be 100% vested) if you reach normal retirement age, Keynote Systems,
Inc. terminates this Plan, there is a complete discontinuance of contributions
to the Plan, you die, become disabled or you satisfy the early retirement age
provisions.
However, if you terminate employment and thus become eligible for a distribution
from the Plan, your distribution will be only the vested amount in your
Individual Account. Loss, denial or reduction of anticipated benefits may occur
if you terminate employment before becoming, fully vested, or if all or a
portion of your benefit is set aside for an alternate
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<PAGE>
payee under a qualified domestic relations order (QDRO). You may also lose
your benefit if you cannot be located when a benefit becomes payable to you.
However, the vested amount of your Individual Account will depend upon the types
of contributions made to your account. You will be fully vested at all times in
all Employee 401(k) Contributions.
Your vested amount is determined by multiplying a percentage from a vesting
schedule by the total value of your Individual Account. The vesting schedule
determines how rapidly your Individual Account balance becomes nonforfeitable
based on years of service.
EXAMPLE: Assume you have $10,000 in your Individual Account and you terminate
employment when you are 40% vested. Your vested amount would be $4,000
(.40 x $10,000).
You will generally be vested in your Individual Account derived from profit
sharing contributions and forfeitures according to the following schedule.
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE VESTED PERCENTAGE
- ------------------------ -----------------
<S> <C>
1 25%
2 50%
3 75%
4 100%
</TABLE>
You will generally be vested in your Individual Account derived from Matching
Contributions and forfeitures according to the following schedule.
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE VESTED PERCENTAGE
- ------------------------ -----------------
<S> <C>
1 25%
2 50%
3 75%
4 100%
</TABLE>
VESTING SCHEDULE FOR TOP-HEAVY PLANS
A top-heavy plan is one in which more than 60% of the value of the plan assets
is credited to the accounts of certain officers, shareholders and highly paid
Participants. These individuals are called key employees.
The top-heavy vesting schedule will not apply if the vesting schedule selected
by your Employer provides for faster vesting. For example, if Keynote Systems,
Inc. has selected the 100% vesting schedule (under which all Participants are
100% vested at all times) and the Plan becomes top-heavy, that vesting schedule
selected by Keynote Systems, Inc. will remain in effect because it provides for
more rapid vesting.
YEARS OF VESTING SERVICE
You must provide a minimum of 1000 hours of service to complete a year of
vesting service. In addition, you must exceed 500 Hours of service to avoid a
break in vesting service.
All of your years of service with Keynote Systems, Inc. are counted for the
purpose of determining your vested percentage.
PROFIT SHARING CONTRIBUTION FORFEITURES
If you are not 100% vested and receive a distribution of your profit sharing
contributions, the dollars left in the Plan are called forfeitures. In your
Plan, forfeitures are allocated to the remaining Plan Participants. If you
return to work for Keynote Systems, Inc. before incurring five consecutive one
year breaks in service, you may recapture the forfeited benefit. Generally,
your forfeited benefit will be restored immediately by Keynote Systems, Inc. if
you have not incurred five consecutive one year breaks in service, and if you
pay back to the Plan the distribution which you received.
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<PAGE>
MATCHING, CONTRIBUTION FORFEITURES
If you are not 100% vested and receive a distribution of your Matching
Contributions, the dollars left in the Plan are called forfeitures. In your
Plan, forfeitures are allocated to the remaining Plan Participants. If you
return to work for Keynote Systems, Inc. before incurring five consecutive one
year breaks in service, you may recapture the forfeited benefit. Generally,
your forfeited benefit will be restored immediately by Keynote Systems, Inc. if
you have not incurred five consecutive one year breaks in service, and if you
pay back to the Plan the distribution which you received.
RESTRICTIONS OR PENALTIES ON DISTRIBUTIONS
If you receive a distribution before reaching age 59 1/2, you must pay an
additional 10% penalty tax on dollars included in income. There are, however,
exceptions to the 10% early distribution penalty. Your tax advisor can assist
you in determining if one of the exceptions applies to your distribution.
PAYOUTS TO YOUR BENEFICIARIES
Your beneficiary will receive the total value of your Individual Account when
you die. If you are married, your spouse will automatically be your
beneficiary. To choose another beneficiary, you must sign a written form
listing a nonspouse beneficiary. Your spouse must give written consent to this
in the presence of a notary public. Contact Keynote Systems, Inc. if you wish
to choose a nonspouse beneficiary. If the vested value of your Individual
Account is no more than $3,500, your beneficiary will receive a lump sum payment
of the entire amount.
If the value of your Individual Account is greater than $3,500, your beneficiary
will get the money in periodic payments from an insurance company unless a
special form is signed. These periodic payments will usually be made on a
monthly basis for as long as your beneficiary lives.
If you want to give your beneficiary a choice as to how he or she wants to
receive the money. you must sign a special form. This form must also be signed
by your spouse in the presence of a notary public. If you are under age 35 when
you sign this form, you must sign a new form once you reach age 35.
EXAMPLE: Clarence, Age 38, signs the waiver form. Mildred, his wife, signs the
waiver form in the presence of a notary public. Clarence dies two years later.
Mildred now has a choice of payments. She can, for example, take all the money
in a single lump sum payment and put it into her IRA.
NOTE: Contact Keynote Systems, Inc. if you wish to preserve the option of
taking payouts in a form other than an annuity.
SECTION FIVE: CLAIMS PROCEDURE
WHAT TO DO TO RECEIVE BENEFITS
You or your beneficiary must file a written request with the Plan Administrator
in order to start receiving benefits when you become eligible for them or when
you die.
HOW TO FILE A CLAIM
A claim should be filed with Keynote Systems, Inc. You may claim a benefit to
which you think you are entitled by filing a written request with Keynote
Systems, Inc. The claim must set forth the reasons you believe you are eligible
to receive benefits and authorize Keynote Systems, Inc. to conduct such
examinations and take such steps as may be necessary to evaluate the claim.
If your claim is turned down, Keynote Systems, Inc. will provide you or your
beneficiary with a written notice of the denial within 60 days of the date your
claim was filed. This notice will give you the specific reasons for the denial,
the specific provisions of the Plan upon which the denial is based, and an
explanation of the procedures for appeal. You or your beneficiary will have 60
days from receipt of the notice of denial in which to make written application
for review by Keynote Systems, Inc. You may request that the review be in the
nature of a hearing. You may be represented by an
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<PAGE>
attorney if you so desire. Keynote Systems, Inc. will issue a written
decision on this review within 60 days after receipt of the application for
review.
SECTION SIX: MISCELLANEOUS
BORROWING FROM THE PLAN
EFFECTIVE DATE
As a Participant in this Plan, you may be able to borrow a portion of your
vested account balance. The loan program adopted by Keynote Systems, Inc. is
effective 01-01-1997 and is available on a uniform basis to ail parties in
interest to the Plan who meet loan qualification requirements.
LOAN PROGRAM ADMINISTRATOR
If you have questions regarding the loan program you should contact James G.
Barrick, Jr., the person responsible for administering your loan program. James
G. Barrick, Jr. may be reached at (415) 524-3000.
LOAN APPLICATION PROCEDURE
To apply for a loan under this Plan, you must complete and return to James C.
Barrick, Jr. a Loan Application Form, furnishing all information requested and
pay any required loan application processing fees.
COLLATERAL PLEDGE
A percentage of your vested account balance equal to the amount borrowed divided
by your vested account balance is pledged as security for repayment of loans
under this program.
LIMITATIONS ON LOAN TYPES
Loans from this Plan may be used for any purpose.
LOAN APPROVAL STANDARDS
Decisions approving or denying loans from this Plan will be based on the value
of your vested individual account balance.
LOAN PRINCIPAL LIMITATIONS
The minimum amount you may borrow from this Plan is $500.00. The maximum amount
you may borrow from this Plan is one-half of your vested account balance or
$50,000.
INTEREST CALCULATIONS
Interest on Loans from this Plan will be equal to Prime Rate as of the first day
of each month plus 2%.
DEFAULT PROVISIONS
You will be deemed to have defaulted on your loan if you fail to remit payment
in a timely manner as required under the Loan Agreement, breach any of your
obligations or duties under the Loan Agreement, or terminate employment.
Upon default, James G. Barrick, Jr. is entitled to foreclose its security
interest in your vested account balance pledged for repayment upon the
occurrence of an event which triggers a distribution of your benefits. In
addition, James G. Barrick, Jr. will report as taxable any amounts which are
deemed distributed as a result of failing to make loan payments.
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<PAGE>
PLAN TERMINATION
Keynote Systems, Inc. expects to continue the Plan indefinitely. However, in
the unlikely event Keynote Systems, Inc. must terminate the Plan, you will
become 100% vested in the aggregate value of your Individual Account regardless
of whether your vesting years of service are sufficient to make you 100% vested
under the vesting schedule(s).
If the Plan terminates, benefits are not insured by the Pension Benefit Guaranty
Corporation (PBGC). Under the law, PBGC insurance does not cover the type of
plans called defined contribution plans. This Plan is a defined contribution
plan and, therefore, is not covered.
BREAK IN SERVICE SITUATIONS
If you quit your job, incur a break in service and then return to work, your
date of participation depends on whether you had a vested interest in
contributions (other than your Employee 401(k) Contributions) at the time you
quit and incurred a break in service.
If you had a vested interest, you will participate again upon your return to
employment. In addition, your vesting years of service accumulated prior to the
time you quit and incurred a break in service will be counted in figuring your
vested interest.
If you did not have a vested interest, any eligibility years of service
occurring before the break in service will be taken into account and you will
begin to participate again upon your return to service unless the number of
consecutive one year breaks in service equals or exceeds the greater of five
years, or the aggregate number of eligibility years of service preceding the
breaks in service. If your period of consecutive breaks in service exceeds your
period of prior service, you will be treated as a new employee and will
participate again when you satisfy the Plan's eligibility requirements. In
addition, any vesting years of service occurring before the break in service
will be taken into account in computing your vested interest under the Plan
unless the number of consecutive one year breaks in service equals or exceeds
the greater of Five years or the aggregate number of vesting years of service
preceding the breaks in service. For example, if you work for two years. quit
without being vested, and then return to employment after a break of two years
or more, the Plan will give you vesting credit for the initial two year period.
SECTION SEVEN: RIGHTS UNDER ERISA
THE RIGHTS AND PROTECTIONS A PLAN PARTICIPANT IS ENTITLED TO UNDER THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT
As a Participant in this Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA provides that all Plan Participants shall be entitled to do the following:
1. Examine, without charge, at the Plan Administrator's office and at other
specified locations, such as worksites and union halls, all Plan documents,
including insurance contracts, collective bargaining agreements and copies
of all documents filed by Keynote Systems, Inc. with the U.S. Department of
Labor, such as detailed annual reports and Plan descriptions.
2. Obtain copies of all Plan documents and other Plan information upon written
request to Keynote Systems, Inc Keynote Systems, Inc. may make a reasonable
charge for the copies.
3. Receive a summary of the Plan's annual financial report. Keynote Systems,
Inc. is required by law to furnish each participant with a copy of this
Summary Annual Report.
4. Obtain, once a year, a statement of the total pension benefits accrued and
the nonforfeitable (vested) pension benefits (if any) or the earliest date
on which benefits will become nonforfeitable (vested). The Plan may
require a written request for this statement, but it must provide the
statement free of charge.
In addition to creating rights for Plan Participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your Plan, called fiduciaries of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including Keynote
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<PAGE>
Systems, Inc., your union, or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a pension
benefit or exercising your rights under ERISA.
If your claim for a benefit is denied in whole or in part, you must receive a
written explanation of the reason for the denial. You have the right to have
Keynote Systems, Inc. review and reconsider your claim. Under ERISA, there are
steps you can take to enforce the above rights. For instance, if you request
materials from Keynote Systems, Inc. and do not receive them within 30 days, you
may file suit in a federal court. In such a case, the court may require Keynote
Systems, Inc. to provide the materials and pay you up to $100 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of Keynote Systems, Inc. If you have a claim for benefits
which is denied, or ignored, in whole or in part, you may file suit in a state
or federal court. If it should happen that Plan fiduciaries misuse the Plan's
money, or if you are discriminated against for asserting your rights, you may
seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay the
costs and fees. If you lose, the court may order you to pay these costs and
fees. For example, if the court finds your claim is frivolous, expenses may be
assessed against you.
If you have any questions about your Plan, you should contact Keynote Systems,
Inc. If you have any questions about this statement or about your rights under
ERISA, you should contact the nearest area office of the U.S. Labor-Management
Services Administration, Department of Labor.
Further, if this Plan is maintained by more than one employer, you can obtain,
in writing, information as to whether a particular employer is participating in
this Plan and, if so, the participating Employer's address. In addition, you
may request, in writing, a complete list of Employers participating in this
Plan. You may obtain such information by making a written request to Keynote
Systems, Inc. Keynote Systems, Inc. is the most significant (parent) employer
of the group of employers maintaining, this Plan.
EMPLOYER INFORMATION
Name: Keynote Systems, Inc.
Address: Two West Fifth Avenue
San Mateo, CA 94402
Business Telephone: 415-524-3012
Employer Identification Number: 94-1322648
Employer's Income Tax Year End: 12-31
AGENT FOR SERVICE OF LEGAL PROCESS
The Agent for Service of Legal Process is the person upon whom any legal papers
can be served. Service of legal process may be made upon a Plan Trustee, the
Employer or the Plan Administrator.
Name: James G. Barrick, Jr
Title: President & CEO
Address: Two West Fifth Avenue
San Mateo, CA 94402
TRUSTEE(S)
Name: James G. Barrick, Jr.
Title: President & CEO
Business Address: Two West Fifth Avenue
San Mateo, CA 94402
Page 14
<PAGE>
<PAGE>
Flexible Standardized 401(k) Profit Sharing Plan
ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
- --------------------------------------------------------------------------------
Name of Employer KEYNOTE SYSTEMS, INC.
---------------------------------------------------------------
Address TWO WEST FIFTH AVENUE
------------------------------------------------------------------------
City SAN MATEO State CA Zip 94402
------------------------------------- -------------- ------------
Telephone 415-524-3012 Employer's Federal Tax Identification Number 94-1322648
-------------- ----------
Type of Business (CHECK ONLY ONE) / / Sole Proprietorship / / Partnership
/X/ C Corporation / / S Corporation
/ / Other (SPECIFY)
------------------------------------------------------------
/ / Check here if Related Employers may participate in this Plan and attach a
Related Employer Participation Agreement for each Related Employer who will
participate in this Plan.
Business Code
------------------------------------------------------------------
Name of Plan KEYNOTE SYSTEMS, INC. 401(k) PLAN
-------------------------------------------------------------------
Name of Trust (IF DIFFERENT FROM PLAN NAME)
------------------------------------
Plan Sequence Number 001 (ENTER 001 IF THIS IS THE FIRST QUALIFIED PLAN THE
----- EMPLOYER HAS EVER MAINTAINED, ENTER 002 IF IT IS
THE SECOND, ETC.)
Trust Identification
Number (IF APPLICABLE) Account Number (OPTIONAL)
------------------- -----------
- --------------------------------------------------------------------------------
SECTION 2. EFFECTIVE DATES
COMPLETE PARTS A AND B
- --------------------------------------------------------------------------------
PART A. GENERAL EFFECTIVE DATES (CHECK AND COMPLETE OPTION 1 OR 2):
OPTION 1: /X/ This is the initial adoption of a profit sharing plan
by the Employer.
The Effective Date of this Plan is 01-01-1997
--------------------
NOTE: THE EFFECTIVE DATE IS USUALLY THE FIRST DAY OF
THE PLAN YEAR IN WHICH THIS ADOPTION AGREEMENT IS
SIGNED.
OPTION 2: / / This is an amendment and restatement of an existing
profit sharing plan (a Prior Plan). The Prior Plan was
initially effective on The Effective Date of this
amendment and restatement is
NOTE: THE EFFECTIVE DATE IS USUALLY THE FIRST DAY OF
THE PLAN YEAR IN WHICH THIS ADOPTION AGREEMENT IS
SIGNED.
PART B. COMMENCEMENT OF ELECTIVE DEFERRALS:
Elective Deferrals may commence on 01-01-1997
---------------------
NOTE: THIS DATE MAY BE NO EARLIER THAN THE DATE THIS ADOPTION AGREEMENT
IS SIGNED BECAUSE ELECTIVE DEFERRALS CANNOT BE MADE RETROACTIVELY.
- --------------------------------------------------------------------------------
SECTION 3. RELEVANT TIME PERIODS
COMPLETE PARTS A THROUGH C
- --------------------------------------------------------------------------------
PART A. EMPLOYER'S FISCAL YEAR:
The Employer's fiscal year ends (SPECIFY MONTH AND DATE) 12-31
-------------
PART B. PLAN YEAR MEANS:
OPTION 1: / / The 12-consecutive month period which coincides with
the Employer's fiscal year.
OPTION 2: /X/ The calendar year.
OPTION 3: / / Other 12-consecutive month period (SPECIFY)
-----------
NOTE: If NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
If the initial Plan Year is less than 12 months (a short Plan Year)
specify such Plan Year's beginning and ending dates
<PAGE>
PART C. LIMITATION YEAR MEANS:
OPTION 1: / / The Plan Year.
OPTION 2: /X/ The calendar year.
OPTION 3: / / Other 12-consecutive month period (SPECIFY)
-----------
NOTE: IF NO OPTION IS SELECTED, OPTION 1 will BE DEEMED TO BE
SELECTED.
- --------------------------------------------------------------------------------
SECTION 4. ELIGIBILITY REQUIREMENTS
COMPLETE PARTS A THROUGH F
- --------------------------------------------------------------------------------
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing Participant
in the Plan (and thus be eligible to make Elective Deferrals) and
receive Matching Contributions (including Qualified Matching
Contributions, if applicable) after completing 0 (ENTER 0, 1
OR ANY FRACTION LESS THAN 1) Years of Eligibility Service.
2. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 10 of the Adoption
Agreement after completing 0 (ENTER 0, 1, 2 OR ANY FRACTION
LESS THAN 2) Years of Eligibility Service.
NOTE: IF MORE THAN 1 YEAR IS SELECTED FOR ITEM 2, THE IMMEDIATE
100% VESTING SCHEDULE OF SECTION 12 WILL AUTOMATICALLY APPLY FOR
CONTRIBUTIONS DESCRIBED IN SUCH ITEM. IF EITHER ITEM IS LEFT BLANK,
THE YEARS OF ELIGIBILITY SERVICE REQUIRED FOR SUCH ITEM WILL BE
DEEMED TO BE 0. IF A FRACTION IS SELECTED, AN EMPLOYEE WILL NOT BE
REQUIRED TO COMPLETE ANY SPECIFIED NUMBER OF HOURS OF SERVICE TO
RECEIVE CREDIT FOR A FRACTIONAL YEAR. IF A SINGLE ENTRY DATE IS
SELECTED IN SECTION 4, PART F FOR AN ITEM, THE YEARS OF ELIGIBILITY
SERVICE REQUIRED FOR SUCH ITEM CANNOT EXCEED 1 1/2 (1/2 FOR ELECTIVE
DEFERRALS).
PART B. AGE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing Participant
(and thus be eligible to make Elective Deferrals) and receive
Matching Contributions (including Qualified Matching Contributions,
if applicable) after attaining age 21 (NO MORE THAN 21).
2. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 10 of the Adoption
Agreement after attaining age 21 (NO MORE THAN 21).
NOTE: IF EITHER OF THE ABOVE ITEMS IN THIS SECTION 4, PART B IS LEFT
BLANK, IT WILL BE DEEMED THERE IS NO AGE REQUIREMENT FOR SUCH ITEM.
IF A SINGLE ENTRY DATE IS SELECTED IN SECTION 4, PART F FOR AN ITEM,
NO AGE REQUIREMENT CAN EXCEED 20 1/2 FOR SUCH ITEM.
PART C. EMPLOYEES EMPLOYED AS OF EFFECTIVE DATE:
Will all Employees employed as of the Effective Date of this Plan
who have not otherwise met the requirements of Part A or Part B
above be considered to have met those requirements as of the
Effective Date? / / Yes /X/ No
NOTE: IF A BOX IS NOT CHECKED FOR ANY ITEM IN THIS SECTION 4,
PART C, "NO" WILL BE DEEMED TO BE SELECTED.
PART D. EXCLUSION OF CERTAIN CLASSES OF EMPLOYEES:
All Employees will be eligible to become Participants in the
Plan except:
a. /X/ Those Employees included in a unit of Employees covered
by a collective bargaining agreement between the Employer
and Employee representatives, if retirement benefits were
the subject of good faith bargaining and if two percent
or less of the Employees who are covered pursuant to that
agreement are professionals as defined in Section
1.410(b)-9 of the regulations. For this purpose, the
term "employee representatives" does not include any
organization more than half of whose members are
Employees who are owners, officers, or executives of the
Employer.
b. /X/ Those Employees who are non-resident aliens (within the
meaning of Section 7701(b)(1)(B) of the Code) and who
received no earned income (within the meaning of Section
911(d)(2) of the Code) from the Employer which
constitutes income from sources within the United States
(within the meaning of Section 861(a)(3) of the Code).
<PAGE>
PART E. HOURS REQUIRED FOR ELIGIBILITY PURPOSES:
1. 1000 Hours of Service (NO MORE THAN 1, 000) shall be required
to constitute a Year of Eligibility Service.
2. 500 Hours of Service (NO MORE THAN 500 BUT LESS THAN THE
NUMBER SPECIFIED IN SECTION 4, PART E, ITEM 1, ABOVE) must be
exceeded to avoid a Break in Eligibility Service.
3. For purposes of determining Years of Eligibility Service, Employees
shall be given credit for Hours of Service with the following
predecessor employer(s): (COMPLETE IF APPLICABLE)
-------------------------------------------------------------------
-------------------------------------------------------------------
PART F. ENTRY DATES:
The Entry Dates for participation shall be (CHOOSE ONE):
OPTION 1: /X/ The first day of the Plan Year and the first day of
the seventh month of the Plan Year.
OPTION 2: / / Other (SPECIFY)
--------------------------------------
NOTE: IF NO OPTION IS SELECTED, OPTION 1 will BE DEEMED TO BE
SELECTED. OPTION 2 CAN BE SELECTED FOR AN ITEM ONLY IF THE
ELIGIBILITY REQUIREMENTS AND ENTRY DATES ARE COORDINATED SUCH THAT
EACH EMPLOYEE will BECOME A PARTICIPANT IN THE PLAN NO LATER THAN
THE EARLIER OF: (1) THE FIRST DAY OF THE PLAN YEAR BEGINNING AFTER
THE DATE THE EMPLOYEE SATISFIES THE AGE AND SERVICE REQUIREMENTS OF
SECTION 410(a) OF THE CODE; OR (2) 6 MONTHS AFTER THE DATE THE
EMPLOYEE SATISFIES SUCH REQUIREMENTS.
- --------------------------------------------------------------------------------
SECTION 5. METHOD OF DETERMINING SERVICE
COMPLETE PART A OR B
- --------------------------------------------------------------------------------
PART A. HOURS OF SERVICE EQUIVALENCIES:
Service will be determined on the basis of the method selected below.
Only one method may be selected. The method selected will be applied
to all Employees covered under the Plan. (CHOOSE ONE):
OPTION 1: /X/ On the basis of actual hours for which an Employee is
paid or entitled to payment.
OPTION 2: / / On the basis of days worked. An Employee will be
credited with 10 Hours of Service if under Section 1.24
of the Plan such Employee would be credited with at
least I Hour of Service during the day.
OPTION 3: / / On the basis of weeks worked. An Employee will be
credited with 45 Hours of Service if under Section 1.24
of the Plan such Employee would be credited with at
least 1 Hour of Service during the week.
OPTION 4: / / On the basis of months worked. An Employee will be
credited with 190 Hours of Service if under Section
1.24 of the Plan such Employee would be credited with
at least 1 Hour of Service during the month.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED. THIS SECTION 5, PART A WILL NOT APPLY IF THE ELAPSED TIME
METHOD OF SECTION 5, PART B IS SELECTED.
PART B. ELAPSED TIME METHOD:
In lieu of tracking Hours of Service of Employees, will the elapsed
time method described in Section 2.07 of the Plan be used?
(CHOOSE ONE)
OPTION 1: / / No.
OPTION 2: / / Yes.
NOTE: If NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
- --------------------------------------------------------------------------------
SECTION 6. ELECTIVE DEFERRALS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF ELECTIVE DEFERRALS:
Will Elective Deferrals be permitted under this Plan? (CHOOSE ONE)
OPTION 1: /X/ Yes.
OPTION 2: / / No.
NOTE: If NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED. COMPLETE THE REMAINDER OF SECTION 6 ONLY IF OPTION 1 IS
SELECTED.
PART B. LIMITS ON ELECTIVE DEFERRALS:
If Elective Deferrals are permitted under the Plan, a Contributing
Participant may elect under a salary reduction agreement to have his
or her Compensation reduced by an amount as described below
(CHOOSE ONE):
OPTION 1: /X/ An amount equal to a percentage of the Contributing
Participant's Compensation from 1% to 15% in
increments of 1% .
OPTION 2: / / An amount of the Contributing Participant's
Compensation not less than ______ and not more ______
than.
The amount of such reduction shall be contributed to the Plan by
the Employer on behalf of the Contributing Participant. For any
taxable year, a Contributing Participant's Elective Deferrals shall
not exceed the limit contained in Section 402(g) of the Code in
effect at the beginning of such taxable year.
<PAGE>
PART C. ELECTIVE DEFERRALS BASED ON BONUSES:
Instead of or in addition to making Elective Deferrals through
payroll deduction, may a Contributing Participant elect to
contribute to the Plan, as an Elective Deferral, part or all of a
bonus rather than receive such bonus in cash? (CHOOSE ONE)
OPTION 1: / / Yes.
OPTION 2: /X/ No
NOTE: IF NO OPTION IS SELECTED, OPTION 2 will BE DEEMED TO BE
SELECTED.
PART D. RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE DEFERRALS:
A Participant who ceases Elective Deferrals by revoking a salary
reduction agreement may return as a Contributing Participant as of
such times established by the Plan Administrator in a uniform and
nondiscriminatory manner.
PART E. CHANGING ELECTIVE DEFERRAL AMOUNTS:
A Contributing Participant may modify a salary reduction agreement
to prospectively increase or decrease the amount of his or her
Elective Deferrals as of such times established by the Plan
Administrator in a uniform and nondiscriminatory manner.
PART F. CLAIMING EXCESS ELECTIVE DEFERRALS:
Participants who claim Excess Elective Deferrals for the preceding
calendar year must submit their claims in writing to the Plan
Administrator by (CHOOSE ONE):
OPTION 1: /X/ March 1.
OPTION 2: / / Other (SPECIFY A DATE
NOT LATER THAN APRIL 15)
-----------------------------
NOTE: If NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
- --------------------------------------------------------------------------------
SECTION 7. MATCHING CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF MATCHING CONTRIBUTIONS:
Will the Employer make Matching Contributions to the Plan on behalf
of Qualifying Contributing Participants? (CHOOSE ONE)
OPTION 1: /X/ Yes, but only with respect to a Contributing
Participant's Elective Deferrals.
OPTION 2: / / Yes, but only with respect to a Participant's
Nondeductible Employee Contributions.
OPTION 3: / / Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
OPTION 4: / / No.
NOTE: If NO OPTION IS SELECTED, OPTION 4 WILL BE DEEMED TO BE
SELECTED. COMPLETE THE REMAINDER OF SECTION 7 ONLY IF OPTION 1, 2
OR 3 IS SELECTED.
PART B. MATCHING CONTRIBUTION FORMULA:
If the Employer will make Matching Contributions, then the amount
of such Matching Contributions made on behalf of a Qualifying
Contributing Participant each Plan Year shall be (CHOOSE ONE):
OPTION 1: / / An amount equal to _______% of such Contributing
Participant's Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable).
OPTION 2: / / An amount equal to the sum of _______% of the portion
of such Contributing Participant's Elective Deferral
(and/or Nondeductible Employee Contribution, if
applicable) which does not exceed _______% of the
Contributing Participant's Compensation plus _______%
of the portion of such Contributing Participant's
Elective Deferral (and/or Nondeductible Employee
Contribution, if applicable) which exceeds ______%
of the Contributing Participant's Compensation.
OPTION 3: /X/ Such amount, if any, equal to that percentage of each
Contributing Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if applicable)
which the Employer, in its sole discretion, determines
from year to year.
OPTION 4: / / Other Formula. (SPECIFY)
------------------------------
------------------------------
NOTE: If OPTION 4 IS SELECTED, THE FORMULA SPECIFIED CAN ONLY ALLOW
MATCHING CONTRIBUTIONS TO BE MADE WITH RESPECT TO A CONTRIBUTING
PARTICIPANT'S ELECTIVE DEFERRALS (AND/OR NONDEDUCTIBLE EMPLOYEE
CONTRIBUTION, IF APPLICABLE).
<PAGE>
PART C. LIMIT ON MATCHING CONTRIBUTIONS:
Notwithstanding the Matching Contribution formula specified above,
no Matching Contribution will be made with respect to a
Contributing Participant's Elective Deferrals (and/or Nondeductible
Employee Contributions, if applicable) in excess of ____________or
_________% of such Contributing Participant's Compensation.
PART D. QUALIFYING CONTRIBUTING PARTICIPANTS:
A Contributing Participant who satisfies the eligibility
requirements described in Section 4 will be a Qualifying
Contributing Participant and thus entitled to share in Matching
Contributions for any Plan Year only if the Participant is a
Contributing Participant and satisfies the following additional
conditions (CHECK ONE OR MORE OPTIONS):
OPTION 1: / / No Additional Conditions.
OPTION 2: /X/ Hours of Service Requirement. The Contributing
Participant completes at least 500 (NOT MORE
THAN 500) Hours of Service during the Plan Year.
However, this condition will be waived for the
following reasons
(CHECK AT LEAST ONE):
/X/ The Contributing Participant's Death.
/X/ The Contributing Participant's Termination
of Employment after having incurred a Disability.
/X/ The Contributing Participant's Termination of
Employment after having reached Normal Retirement
Age.
/ / This condition will not be waived.
NOTE: If NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
- --------------------------------------------------------------------------------
SECTION 8. QUALIFIED NONELECTIVE CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Will the Employer make Qualified Nonelective Contributions to the
Plan? (CHOOSE ONE)
OPTION 1: / / Yes.
OPTION 2: /X/ No.
If the Employer elects to make Qualified Nonelective Contributions,
then the amount, if any, of such contribution to the Plan for each
Plan Year shall be an amount determined by the Employer.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED. COMPLETE THE REMAINDER OF SECTION 8 ONLY IF OPTION 1
IS SELECTED.
PART B. PARTICIPANTS ENTITLED TO QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions shall be made to
the Individual Accounts of (CHOOSE ONE):
OPTION 1: / / Only Participants who are not Highly Compensated
Employees.
OPTION 2: / / All Participants.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
PART C. ALLOCATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions to Participants
entitled thereto shall be made (CHOOSE ONE):
OPTION 1: / / In the ratio which each Participant's Compensation
for the Plan Year bears to the total Compensation of
all Participants for such Plan Year.
OPTION 2: / / In the ratio which each Participant's Compensation
not in excess of ______ for the Plan Year bears to the
total Compensation of all Participants not in excess
of ______ for such Plan Year.
NOTE: IF NO OPTION IS SELECTED, OPTION I WILL BE DEEMED TO BE
SELECTED.
<PAGE>
- --------------------------------------------------------------------------------
SECTION 9. QUALIFIED MATCHING CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED MATCHING CONTRIBUTIONS:
Will the Employer make Qualified Matching Contributions to the Plan
on behalf of Qualifying Contributing Participants. (CHOOSE ONE)
OPTION 1: / / Yes, but only with respect to a Contributing
Participant's Elective Deferrals.
OPTION 2: / / Yes, but only with respect to a Participant's
Nondeductible Employee Contributions.
OPTION 3: / / Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
OPTION 4: /X/ No.
NOTE: IF NO OPTION IS SELECTED, OPTION 3 WILL BE DEEMED TO BE
SELECTED. COMPLETE THE REMAINDER OF SECTION 9 ON1Y IF OPTION 1, 2
OR 3 IS SELECTED.
Part B. Qualified Matching Contribution Formula:
If the Employer will make Qualified Matching Contributions, then
the amount of such Qualified Matching Contributions made on behalf
of a Qualifying Contributing Participant each Plan Year shall be
(CHOOSE ONE):
OPTION 1: / / An amount equal to _____% of such Contributing
Participant's Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable).
OPTION 2: / / An amount equal to the sum of ______% of the portion
of such Contributing Participant's Elective Deferral
(and/or Nondeductible Employee Contribution, if
applicable) which does not exceed _______% of the
Contributing Participant's Compensation plus ________%
of the portion of such Contributing Participant's
Elective Deferral (and/or Nondeductible Employee
Contribution, if applicable) which exceeds _______% of
the Contributing Participant's Compensation.
OPTION 3: / / Such amount, if any, as determined by the Employer in
its sole discretion, equal to that percentage of the
Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable) of each Contributing
Participant entitled thereto which would be sufficient
to cause the Plan to satisfy the Actual Contribution
Percentage tests (described in Section 11.402 of the
Plan) for the Plan Year.
OPTION 4: / / Other Formula. (SPECIFY)
------------------------------
------------------------------
NOTE: IF NO OPTION IS SELECTED, OPTION 3 WILL BE DEEMED TO BE
SELECTED.
PART C. PARTICIPANTS ENTITLED TO QUALIFIED MATCHING CONTRIBUTIONS:
Qualified Matching Contributions, if made to the Plan, will be made
on behalf of (CHOOSE ONE):
OPTION 1: / / Only Contributing Participants who make Elective
Deferrals who are not Highly Compensated Employees.
OPTION 2: / / All Contributing Participants who make Elective
Deferrals.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
PART D. LIMIT ON QUALIFIED MATCHING CONTRIBUTIONS:
Notwithstanding the Qualified Matching Contribution formula
specified above, the Employer will not match a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable) in excess of _______________ or
_______% of such Contributing Participant's Compensation.
- --------------------------------------------------------------------------------
SECTION 10. EMPLOYER PROFIT SHARING CONTRIBUTIONS
COMPLETE PARTS A, B AND C
- --------------------------------------------------------------------------------
Part A. Contribution Formula:
For each Plan Year the Employer will contribute an Amount to be
determined from year to year.
<PAGE>
PART B. ALLOCATION FORMULA (CHOOSE ONE):
OPTION 1: /X/ Pro Rata Formula. Employer Profit Sharing
Contributions shall be allocated to the Individual
Accounts of Qualifying Participants in the ratio that
each Qualifying Participant's Compensation for the
Plan Year bears to the total Compensation of all
Qualifying Participants for the Plan Year.
OPTION 2: / / Integrated Formula. Employer Profit Sharing
Contributions shall be allocated as follows (START
WITH STEP 3 IF THIS PLAN IS NOT A TOP-HEAVY PLAN):
Step 1. Employer Profit Sharing Contributions
shall first be allocated pro rata to
Qualifying Participants in the manner
described in Section 10, Part B, Option 1.
The percent so allocated shall not exceed
3% of each Qualifying Participant's
Compensation.
Step 2. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 1
shall be allocated to each Qualifying
Participant's Individual Account in the
ratio that each Qualifying Participant's
Compensation for the Plan Year in excess
of the integration level bears to all
Qualifying Participants' Compensation in
excess of the integration level, but not
in excess of 3%.
Step 3. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 2
shall be allocated to each Qualifying
Participant's Individual Account in the
ratio that the sum of each Qualifying
Participant's total Compensation and
Compensation in excess of the integration
level bears to the sum of all Qualifying
Participants' total Compensation and
Compensation in excess of the integration
level, but not in excess of the profit
sharing maximum disparity rate as
described in Section 3.01(B)(3) of the
Plan.
Step 4. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 3
shall be allocated pro rata to Qualifying
Participants in the manner described in
Section 10, Part B, Option 1.
The integration level shall be (CHOOSE ONE):
SUBOPTION (a): / / The Taxable Wage Base.
SUBOPTION (b): / / ___________ (A DOLLAR AMOUNT LESS
THAN THE TAXABLE WAGE BASE).
SUBOPTION (c): / / _______% (not MORE THAN 100%) OF
the Taxable Wage Base.
NOTE: If NO OPTION IS SELECTED, SUBOPTION (a) WILL BE
DEEMED TO BE SELECTED.
NOTE: If NO OPTION IS SELECTED, OPTION I will BE DEEMED TO BE
SELECTED.
PART C. QUALIFYING PARTICIPANTS:
A Participant will be a Qualifying Participant and thus entitled to
share in the Employer Profit Sharing Contribution for any Plan Year
only if the Participant is a Participant on at least one day of
such Plan Year and satisfies the following additional conditions
(CHECK ONE OR MORE OPTIONS):
OPTION 1: / / No Additional Conditions.
OPTION 2: /X/ Hours of Service Requirement. The Participant
completes at least 500 (NOT MORE THAN 500)
Hours of Service during the Plan Year. However,
this condition will be waived for the following
reasons (CHECK AT LEAST ONE):
/X/ The Participant's Death.
/X/ The Participant's Termination OF Employment after
having incurred a Disability.
/X/ The Participant's Termination OF Employment after
having reached Normal Retirement Age.
/ / This condition will not be waived.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
- --------------------------------------------------------------------------------
SECTION 11. COMPENSATION
COMPLETE PARTS A THROUGH D
- --------------------------------------------------------------------------------
PART A. BASIC DEFINITION:
Compensation will mean all OF each Participant's (CHOOSE ONE):
OPTION 1: /X/ W-2 wages.
OPTION 2: / / Section 3401(a) wages.
OPTION 3: / / 415 safe-harbor compensation.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
<PAGE>
PART B. MEASURING PERIOD FOR COMPENSATION:
Compensation shall be determined over the following applicable
period (CHOOSE ONE):
OPTION 1: / / The Plan Year.
OPTION 2: /X/ The calendar year ending with or within the Plan Year.
NOTE: IF NO OPTION IS SELECTED, OPTION I WILL BE DEEMED TO BE
SELECTED.
PART C. INCLUSION OF ELECTIVE DEFERRALS:
Does Compensation include Employer Contributions made pursuant to
a salary reduction agreement which are not includible in the gross
income of the Employee under Sections 125, 402(e)(3), 402(h)(1)(B)
and 403(b) of the Code"?
/X/ Yes / / No
NOTE: IF NEITHER BOX IS CHECKED, "YES " WILL BE DEEMED TO BE
SELECTED.
PART D. PRE-ENTRY DATE COMPENSATION:
For the Plan Year in which an Employee enters the Plan, the
Employee's Compensation which shall be taken into account for
purposes of the Plan shall be (CHOOSE ONE):
OPTION 1: / / The Employee's Compensation only from the time the
Employee became a Participant in the Plan.
OPTION 2: /X/ The Employee's Compensation for the whole of such
Plan Year.
NOTE: IF NO OPTION IS SELECTED, OPTION I WILL BE DEEMED TO BE
SELECTED.
- --------------------------------------------------------------------------------
SECTION 12. VESTING AND FORFEITURES
COMPLETE PARTS A THROUGH G
- --------------------------------------------------------------------------------
PART A. VESTING SCHEDULE FOR EMPLOYER PROFIT SHARING CONTRIBUTIONS. A
Participant shall become Vested in his or her Individual Account
derived from Profit Sharing Contributions made pursuant to Section
10 of the Adoption Agreement as follows (CHOOSE ONE):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 / / Option 2 / / Option 3 / / Option 4 / / Option 5 / / (COMPLETE IF CHOSEN)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 25 %
2 0% 20% 100% 0% 50 %
3 0% 40% 100% 20% 75 % (not less than 20%)
4 0% 60% 100% 40% 100 % (not less than 40%)
5 100% 80% 100% 60% 100 % (not less than 60%)
6 100% 100% 100% 80% 100 % (not less than 80%)
7 100% 100% 100% 100% 100 % (not less than 100%)
NOTE: IF NO OPTION IS SELECTED, OPTION 3 WILL BE DEEMED TO BE SELECTED.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PART B. VESTING SCHEDULE FOR MATCHING CONTRIBUTIONS. A Participant shall
become Vested in his or her Individual Account derived from
Matching Contributions made pursuant to Section 7 of the Adoption
Agreement as follows (CHOOSE ONE):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 / / Option 2 / / Option 3 / / Option 4 / / Option 5 / / (COMPLETE IF CHOSEN)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 25 %
2 0% 20% 100% 0% 50 %
3 0% 40% 100% 20% 75 % (not less than 20%)
4 0% 60% 100% 40% 100 % (not less than 40%)
5 100% 80% 100% 60% 100 % (not less than 60%)
6 100% 100% 100% 80% 100 % (not less than 80%)
7 100% 100% 100% 100% 100 % (not less than 100%)
NOTE: IF NO OPTION IS SELECTED, OPTION 3 WILL BE DEEMED TO BE SELECTED.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART C. HOURS REQUIRED FOR VESTING PURPOSES:
1. 1000 Hours of Service (NO MORE THAN 1,000) shall be
required to constitute a Year of Vesting Service.
2. 500 Hours of Service (NO MORE THAN 500 BUT LESS THAN THE
NUMBER SPECIFIED IN SECTION 12, PART C, ITEM 1. ABOVE) must
be exceeded to avoid a Break in Vesting Service.
3. For purposes of determining Years of Vesting Service, Employees
shall be given credit for Hours of Service with the following
predecessor employer(s): (COMPLETE IF APPLICABLE)
----------------------------------------------------------------
----------------------------------------------------------------
PART D. EXCLUSION OF CERTAIN YEARS OF VESTING SERVICE:
All of an Employee's Years of Vesting Service with the Employer are
counted to determine the vesting percentage in the Participant's
Individual Account except (CHECK ANY THAT APPLY):
/ / Years of Vesting Service before the Employee reaches age 18.
/ / Years of Vesting Service before the Employer maintained this
Plan or a predecessor plan.
PART E. ALLOCATION OF FORFEITURES OF EMPLOYER PROFIT SHARING CONTRIBUTIONS:
Forfeitures of Employer Profit Sharing Contributions shall be
(CHOOSE ONE):
OPTION 1: /X/ Allocated to the Individual Accounts of the
Participants specified below in the manner as
described in Section 10, Part B (for Employer
Profit Sharing Contributions).
The Participants entitled to receive allocations of
such Forfeitures shall be (CHOOSE ONE):
SUBOPTION (a): /X/ Only Qualifying Participants.
SUBOPTION (b): / / All Participants.
OPTION 2: / / Applied to reduce Employer Profit Sharing
Contributions (CHOOSE ONE):
SUBOPTION (a): / / For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): / / For any Plan Year subsequent to
the Plan Year for which the Forfeiture arises.
OPTION 3: / / Applied first to the payment of the Plan's
administrative expenses and any excess applied to
reduce Employer Profit Sharing Contributions (CHOOSE
ONE):
SUBOPTION (a): / / For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): / / For any Plan Year subsequent to
the Plan Year for which the Forfeiture arises.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 AND SUBOPTION (a) WILL BE
DEEMED TO BE SELECTED.
PART F. ALLOCATION OF FORFEITURES OF MATCHING CONTRIBUTIONS:
Forfeitures of Matching Contributions shall be (CHOOSE ONE):
OPTION 1: /X/ Allocated, after all other Forfeitures under the
Plan, to each Participant's Individual Account in the
ratio which each Participant's Compensation for the
Plan Year bears to the total Compensation of all
Participants for such Plan Year.
The Participants entitled to receive allocations of
such Forfeitures shall be (CHOOSE ONE):
SUBOPTION (a): /X/ Only Qualifying Contributing
Participants.
SUBOPTION (b): / / Only Qualifying Participants.
SUBOPTION (c): / / All Participants.
OPTION 2: / / Applied to reduce Matching Contributions (CHOOSE ONE):
SUBOPTION (a): / / For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): / / For any Plan Year subsequent to
the Plan Year for which the Forfeiture arises.
OPTION 3: / / Applied first to the payment of the Plan's
administrative expenses and any excess applied to
reduce Matching Contributions (CHOOSE ONE):
SUBOPTION (a): / / For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): / / For any Plan Year subsequent to
the Plan Year for which the Forfeiture arises.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 AND SUBOPTION (a) WILL BE
DEEMED TO BE SELECTED.
<PAGE>
Part G. Allocation of Forfeitures of Excess Aggregate Contributions:
Forfeitures of Matching Contributions shall be (CHOOSE ONE):
OPTION 1: /X/ Allocated, after all other Forfeitures under the
Plan, to each Contributing Participant's Matching
Contribution account in the ratio which each
Contributing Participant's Compensation for the Plan
Year bears to the total Compensation of all
Contributing Participants for such Plan Year. Such
Forfeitures will not be allocated to the account of
any Highly Compensated Employee.
OPTION 2: / / Applied to reduce Matching Contributions (CHOOSE ONE):
SUBOPTION (a): / / For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): / / For any Plan Year subsequent to
the Plan Year for which the Forfeiture arises.
OPTION 3: / / Applied first to the payment of the Plan's
administrative expenses and any excess applied to
reduce Matching Contributions (CHOOSE ONE):
SUBOPTION (a): / / For the Plan Year for which the
Forfeiture arises.
SUBOPTION (b): / / For any Plan Year subsequent to
the Plan Year for which the Forfeiture arises.
NOTE: IF NO OPTION IS SELECTED, OPTION 2 AND SUBOPTION (a) WILL BE
DEEMED TO BE SELECTED.
- -------------------------------------------------------------------------------
SECTION 13. NORMAL RETIREMENT AGE AND EARLY RETIREMENT AGE
- -------------------------------------------------------------------------------
Part A. The Normal Retirement Age under the Plan shall be (CHECK AND
COMPLETE ONE OPTION):
OPTION 1: /X/ Age 65.
OPTION 2: / / Age _______ (NOT TO EXCEED 65).
OPTION 3: / / The later of age ______ (not TO EXCEED 65) or the
______ (NOT TO EXCEED 5TH) anniversary of the first day of the
first Plan Year in which the Participant commenced participation in
the Plan.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE SELECTED.
Part B. Early Retirement Age (CHOOSE ONE OPTION):
OPTION 1: /X/ An Early Retirement Age is not applicable under the
Plan.
OPTION 2: / / Age _______ (NOT LESS THAN 55 NOR MORE THAN 65).
OPTION 3: / / A Participant satisfies the Plan's Early Retirement
Age conditions by attaining age ______ (NOT LESS THAN
55) and completing _______ Years of Vesting Service.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
- -------------------------------------------------------------------------------
SECTION 14. DISTRIBUTIONS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Distributable Events. ANSWER EACH OF THE FOLLOWING ITEMS.
A. Termination of Employment Before Normal Retirement Age. May a Participant who has not reached
Normal Retirement Age request a distribution from the Plan upon Termination of Employment? /X/ Yes / / No
B. Disability. May a Participant who has incurred a Disability request a distribution from the Plan? /X/ Yes / / No
C. Attainment of Normal Retirement Age. May a Participant who has attained Normal Retirement
Age but has not incurred a Termination of Employment request a distribution from the Plan? /X/ Yes / / No
D. Attainment of Age 59 1/2. Will Participants who have attained age 59 1/2 be permitted to
withdraw Elective Deferrals while still employed by the Employer? /X/ Yes / / No
E. Hardship Withdrawals of Elective Deferrals. Will Participants be permitted to withdraw Elective
Deferrals on account of hardship pursuant to Section 11.503 of the Plan? /X/ Yes / / No
F. In-Service Withdrawals. Will Participants be permitted to request a distribution during service
pursuant to Section 6.01(A)(3) of the Plan? /X/ Yes / / No
G. Hardship Withdrawals. Will Participants be permitted to make hardship withdrawals pursuant to
Section 6.01(A)(4) of the Plan? / / Yes /X/ No
H. Withdrawals of Rollover or Transfer Contributions. Will Employees be permitted to withdraw
their Rollover or Transfer Contributions at any time? /X/ Yes / / No
</TABLE>
NOTE: IF A BOX IS NOT CHECKED FOR AN ITEM, "YES" WILL BE DEEMED TO BE
SELECTED FOR THAT ITEM. SECTION 411(d)(6) OF THE CODE PROHIBITS THE
ELIMINATION OF PROTECTED BENEFITS. IN GENERAL, PROTECTED BENEFITS INCLUDE
THE FORMS AND TIMING OF PAYOUT OPTIONS. IF THE PLAN IS BEING ADOPTED TO
AMEND AND REPLACE A PRIOR PLAN THAT PERMITTED A DISTRIBUTION OPTION DESCRIBED
ABOVE, YOU MUST ANSWER "YES" TO THAT ITEM.
<PAGE>
- -------------------------------------------------------------------------------
SECTION 15. JOINT AND SURVIVOR ANNUITY
- -------------------------------------------------------------------------------
PART A. RETIREMENT EQUITY ACT SAFE HARBOR:
Will the safe harbor provisions of Section 6.05(F) of the Plan
apply? (CHOOSE ONLY ONE OPTION)
OPTION 1: /X/ Yes.
OPTION 2: / / No..5
NOTE: YOU MUST SELECT "NO" IF YOU ARE ADOPTING THIS PLAN AS AN
AMENDMENT AND RESTATEMENT OF A PRIOR PLAN THAT WAS SUBJECT TO THE
JOINT AND SURVIVOR ANNUITY REQUIREMENTS.
PART B SURVIVOR ANNUITY PERCENTAGE: (COMPLETE ONLY IF YOUR ANSWER IN
SECTION 15, PART A IS "NO."
The survivor annuity portion of the Joint and Survivor Annuity
shall be a percentage equal to 50% (at LEAST 50% BUT NO
MORE THAN 100%) of the amount paid to the Participant prior to his
or her death.
- -------------------------------------------------------------------------------
SECTION 16. OTHER OPTIONS
ANSWER "YES " OR "NO" TO EACH OF THE FOLLOWING
QUESTIONS BY CHECKING THE APPROPRIATE BOX.
IF A BOX IS NOT CHECKED FOR A QUESTION, THE ANSWER WILL BE DEEMED TO BE "NO."
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
A. Loans: Will loans to Participants pursuant to Section 6.08 of the Plan be permitted? /X/ Yes / / No
B. Insurance: Will the Plan allow for the investment in insurance policies pursuant to Section
5.13 of the Plan? /X/ Yes / / No
C. Employer Securities: Will the Plan allow for the investment in qualifying Employer securities
or qualifying Employer real property? / / Yes /X/ No
D. Rollover Contributions: Will Employees be permitted to make rollover contributions to the
Plan pursuant to Section 3.03 of the Plan? /X/ Yes / / No
/ / Yes, but only after
becoming a Participant.
E. Transfer Contributions: Will Employees be permitted to make transfer contributions to the
Plan pursuant to Section 3.04 of the Plan? / / Yes /X/ No
/ / Yes, but only after
becoming a Participant.
F. Nondeductible Employee Contributions: Will Employees be permitted to make Nondeductible
Employee Contributions pursuant to Section 11.305 of the Plan? / / Yes /X/ No
Check here if such contributions will be mandatory. / /
G. Will Participants be permitted to direct the investment of their Plan assets pursuant to Section
5.14 of the Plan? /X/ Yes / / No
</TABLE>
- -------------------------------------------------------------------------------
SECTION 17. LIMITATION ON ALLOCATIONS
MORE THAN ONE PLAN
- -------------------------------------------------------------------------------
If you maintain or ever maintained another qualified plan (other than a
paired standardized money purchase pension plan using the same Basic Plan
Document as this Plan) in which any Participant in this Plan is (or was) a
Participant or could become a Participant, you must complete this section.
You must also complete this section if you maintain a welfare benefit fund,
as defined in Section 419(e) of the Code, or an individual medical account,
as defined in Section 415(l)(2) of the Code, under which amounts are treated
as annual additions with respect to any Participant in this Plan.
PART A. INDIVIDUALLY DESIGNED DEFINED CONTRIBUTION PLAN:
If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
1. /X/ The provisions of Section 3.05(B)(1) through 3.05(B)(6)
of the Plan will apply as if the other plan were a master
or prototype plan.
2. / / Other method. (PROVIDE THE METHOD UNDER WHICH THE PLANS
WILL LIMIT TOTAL ANNUAL ADDITIONS TO THE MAXIMUM PERMISSIBLE
AMOUNT, AND WILL PROPERLY REDUCE ANY EXCESS AMOUNTS, IN A
MANNER THAT PRECLUDES EMPLOYER DISCRETION.)
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
PART B. DEFINED BENEFIT PLAN:
If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of Section
415(e) of the Code.
<PAGE>
1. /X/ If the projected annual addition to this Plan to the account of a
Participant for any limitation year would cause the 1.0 limitation of
Section 415(e) of the Code to be exceeded, the annual benefit of the
defined benefit plan for such limitation year shall be reduced so that
the 1.0 limitation shall be satisfied.
If it is not possible to reduce the annual benefit of the defined
benefit plan and the projected annual addition to this Plan to the
account of a Participant for a limitation year would cause the 1.0
limitation to be exceeded, the Employer shall reduce the Employer
Contribution which is to be allocated to this Plan on behalf of such
Participant so that the- 1.0 limitation will be satisfied. (The
provisions of Section 415(e) of the Code are incorporated herein by
reference under the authority of Section 1106(h) of the Tax Reform Act
of 1986.)
2. / / Other method. (PROVIDE LANGUAGE DESCRIBING ANOTHER METHOD. SUCH
LANGUAGE MUST PRECLUDE EMPLOYER DISCRETION.)
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
- -------------------------------------------------------------------------------
SECTION 18. TOP-HEAVY MINIMUM
COMPLETE PARTS A AND B
- -------------------------------------------------------------------------------
PART A. MINIMUM ALLOCATION OR BENEFIT:
For any Plan Year with respect to which this Plan is a Top-Heavy
Plan, any minimum allocation required pursuant to Section 3.01(E) of
the Plan shall be made (CHOOSE ONE):
OPTION 1: /X/ To this Plan.
OPTION 2: / / To the following other plan maintained by the
Employer (SPECIFY NAME AND PLAN NUMBER OF PLAN)
------------------------------------------------------
------------------------------------------------------
OPTION 3: / / In accordance with the method described on an
attachment to this Adoption Agreement. (ATTACH LANGUAGE
DESCRIBING THE METHOD THAT WILL BE USED TO SATISFY
SECTION 416 OF THE CODE. SUCH METHOD MUST PRECLUDE
EMPLOYER DISCRETION.)
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
PART B. TOP-HEAVY VESTING SCHEDULE:
Pursuant to Section 6.01(C) of the Plan, the vesting schedule that
will apply when this Plan is a Top-Heavy Plan (unless the Plan's
regular vesting schedule provides for more rapid vesting) shall be
(CHOOSE ONE):
OPTION 1: /X/ 6 Year Graded.
OPTION 2: / / 3 Year Cliff.
NOTE: IF NO OPTION IS SELECTED, OPTION 1 WILL BE DEEMED TO BE
SELECTED.
- -------------------------------------------------------------------------------
SECTION 19. PROTOTYPE SPONSOR
- -------------------------------------------------------------------------------
Name of Prototype Sponsor TRAVELERS INSURANCE COMPANY
- -------------------------------------------------------------------------------
Address ONE TOWER SQUARE HARTFORD, CT 06183
- -------------------------------------------------------------------------------
Telephone Number 888-822-4710
- -------------------------------------------------------------------------------
PERMISSIBLE INVESTMENTS
The assets of the Plan shall be invested only in those investments described
below (To BE COMPLETED BY THE PROTOTYPE SPONSOR):
Variable Annuity Contract
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SECTION 20. TRUSTEE OR CUSTODIAN
- -------------------------------------------------------------------------------
OPTION A: / / Financial Organization as Trustee or Custodian
CHECK ONE: / / Custodian, / / Trustee without full trust powers, or
/ / Trustee with full trust powers
Financial Organization
---------------------------------------------------------
Signature
----------------------------------------------------------------------
Type Name
----------------------------------------------------------------------
COLLECTIVE OR COMMINGLED FUNDS
List any collective or commingled funds maintained by the financial organization
Trustee in which assets of the Plan may be invested (COMPLETE IF APPLICABLE).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OPTION B: /X/ Individual Trustee(s)
Signature --------------------------- Signature ---------------------------
Type Name --------------------------- Type Name ---------------------------
Signature --------------------------- Signature ---------------------------
Type Name --------------------------- Type Name ---------------------------
- -------------------------------------------------------------------------------
SECTION 21. RELIANCE
- -------------------------------------------------------------------------------
An Employer who has ever maintained or who later adopts any plan (including a
welfare benefit fund, as defined in Section 419(e) of the Code, which
provides post-retirement medical benefits allocated to separate accounts for
key employees, as defined in Section 419A(d)(3) of the Code, or an individual
medical account, as defined in Section 415(l)(2) of the Code) in addition to
this Plan (other an a paired standardized money purchase pension plan using
the same Basic Plan Document as this Plan) may not rely on the opinion letter
issued by the National Office of the Internal Revenue Service as evidence
that this Plan is qualified under Section 401 of the Internal Revenue Code.
If the Employer who adopts or maintains multiple plans wishes to obtain
reliance that his or her plan(s) are qualified, application for a
determination letter should be made to the appropriate Key District Director
of Internal Revenue.
The Employer may not rely on the opinion letter issued by the National Office
of the Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Code unless the terms of the Plan, as herein adopted or
amended, that pertain to the requirements of Sections 401(a)(4), 401(a)(17),
401(l), 401(a)(5), 410(b) and 414(s) of the Code, as amended by the Tax
Reform Act of 1986, or later laws, (a) are made effective retroactively to
the first day of the first Plan Year beginning after December 31, 1988 (or
such later date on which these requirements first become effective with
respect to this Plan); or (b) are made effective no later than the first day
on which the Employer is no longer entitled, under regulations, to rely on a
reasonable, good faith interpretation of these requirements, and the prior
provisions of the Plan constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with Basic Plan
Document No. 04.
- -------------------------------------------------------------------------------
SECTION 22. EMPLOYER SIGNATURE
IMPORTANT: PLEASE READ BEFORE SIGNING
- -------------------------------------------------------------------------------
I am an authorized representative of the Employer named above and I state the
following:
1. I acknowledge that I have relied upon my own advisors regarding the
completion of this Adoption Agreement and the legal tax implications of
adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments
made to the Plan and will notify me should it discontinue or abandon the
Plan.
I have received a copy of this Adoption Agreement and the corresponding Basic
Plan Document.
<PAGE>
Signature for Employer Date Signed
--------------------------- -------------------
Type Name Title
------------------------------ ----------------------------------
<PAGE>
BOARD RESOLUTION
A meeting of the Board of Directors of
KEYNOTE SYSTEMS, INC.
- -------------------------------------------------------------------------------
herein referred to as "Corporation," was held on the _____ day
of_________________, _____, in accordance with the Corporation's bylaws. The
Directors approved the establishment of the
KEYNOTE SYSTEMS, INC. 401(k) PLAN
- -------------------------------------------------------------------------------
for the benefit of the Corporation's employees.
The following resolutions were offered, seconded and unanimously adopted.
BE IT RESOLVED that the Corporation established the
KEYNOTE SYSTEMS, INC. 401(k) PLAN
- -------------------------------------------------------------------------------
(the "Plan") to cover the employee to be effective 01-01-1997. Employees may
commence elective deferrals into the Plan on or about 01-01-1997.
BE IT FURTHER RESOLVED, that the officers of the Corporation be authorized
and directed to execute any and all documents and do any and all acts which
may be necessary in connection with the adoption, maintenance and ongoing
funding of the Plan.
BE IT FURTHER RESOLVED, that the trustee(s) under the Plan are the following:
JAMES G. BARRICK, JR.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BE IT FURTHER RESOLVED, that the officers of the Corporation be authorized and
directed to retain any service providers they believe necessary or desirable in
connection with the Plan.
CERTIFICATION
I, the undersigned, Secretary of the Corporation do certify that the
foregoing is a true, exact, and correct copy of a resolution adopted at
lawfully held meeting of the Corporation's Board of Directors on the _____
day of ________, _____.
(Signed)
----------------------------------
Secretary
<PAGE>
- -------------------------------------------------------------------------------
QUALIFIED RETIREMENT PLAN/403(b)
LOAN DISCLOSURE
As a participant in the qualified retirement plan/403(b) adopted by your
employer, you may be able to borrow a portion of your vested account balance.
The loan program adopted by your employer is available on a uniform basis to
all parties in interest to the plan who meet loan qualification requirements.
For additional information about the loan program available under your
employer's plan, contact the loan program administrator listed below.
NOTE: THIS LOAN DISCLOSURE CONSTITUTES PART OF THE SUMMARY PLAN DESCRIPTION
(SPD) OF YOUR QUALIFIED RETIREMENT PLAN AND SHOULD BE KEPT WITH YOUR OTHER
SPD DOCUMENTS.
- -------------------------------------------------------------------------------
PLAN LOAN INFORMATION
- -------------------------------------------------------------------------------
Plan Name KEYNOTE SYSTEMS, INC. 401(k) PLAN
---------------------------------------------------------------------
Plan Number 001 Plan Year-End 12-31
------------- ----------------------------------------
- -------------------------------------------------------------------------------
EFFECTIVE DATE
- -------------------------------------------------------------------------------
The effective date of the plan loan program is 01-01-1997
---------------------------------
- -------------------------------------------------------------------------------
LOAN PROGRAM ADMINISTRATOR
- -------------------------------------------------------------------------------
The person responsible for administering your loan program is
JAMES G. BARRICK, JR.
- -------------------------------------------------------------------------------
Your loan program administrator may be reached at the following address
and/or telephone number:
(415) 524-3000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN APPLICATION PROCEDURE
- -------------------------------------------------------------------------------
To apply for a loan under this plan, you must complete and return to the loan
program administrator a Loan Application Form, furnishing all information
requested and pay any required loan application processing fees. In
addition, you must follow the procedures described below. (SPECIFY)
- -------------------------------------------------------------------------------
LIMITATIONS ON TYPES OF LOANS
- -------------------------------------------------------------------------------
Loans from this plan may be used for the following purposes:
/X/ all
/ / purchase of your principal residence
/ / post-secondary tuition for you or your immediate family
/ / medical expenses for you or your immediate family
/ / rent or mortgage payments to prevent eviction or foreclosure from your
principal residence
/ / other (SPECIFY)
-----------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN APPROVAL STANDARDS
- -------------------------------------------------------------------------------
Decisions approving or denying loans from this Plan will be based on the
following criteria:
/X/ the value of your vested individual account balance
/ / other (SPECIFY)
NOTE: LOAN APPROVAL BASIS SELECTED MUST NOT CAUSE LOANS TO BE MADE AVAILABLE
ON A DISCRIMINATORY BASIS.
<PAGE>
Exhibit 10.08
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is entered into as of
December 9, 1997 (the "EFFECTIVE DATE") between Keynote Systems Incorporated, a
California corporation with its principal offices located at Two West Fifth
Avenue, San Mateo, California (the "COMPANY"), and Umang Gupta, a resident of
California ("EMPLOYEE").
R E C I T A L S
A. Company is preparing to commence seeking significant equity
funding in order to secure additional capital to finance its operations and
believes that its ability to achieve its financing and operational objectives
will be enhanced by adding an experienced chief executive officer to its
management team.
B. Employee has substantial experience as the chief executive officer of
early stage technology companies and is willing to serve as the Company's Chief
Executive Officer on the terms and conditions set forth herein.
NOW THEREFORE, IN CONSIDERATION OF THE PROMISES AND THE TERMS AND
CONDITIONS SET FORTH IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS:
1. POSITION. During the Term (as defined in Section 4) of this
Agreement, Company will employ Employee, and Employee will serve Company in the
capacity of Chairman, President and Chief Executive Officer. Employee will
report directly to the Company's Board of Directors.
2. DUTIES. During the Term, Employee will have full responsibility
for managing the Company, including responsibility for firing and hiring
employees of the Company.
3. DEDICATION OF TIME AND EFFORT. Employee will devote to the
business and affairs of the Company such portion of his working time and efforts
as is reasonably necessary to manage the Company's business and affairs, but not
less than 75% of his working time and efforts during the Term. Employee may
devote up to 25% of his working time and efforts to other business activities
that are not competitive with the present or contemplated business of
the Company.
4. TERM OF EMPLOYMENT. The Term of this Agreement shall commence on
the Effective Date and expire as provided in Section 7. The Company agrees to
continue Employee's employment as President and Chief Executive Officer, and
Employee agrees to remain in the employ of the Company as President and Chief
Executive Officer, during the Term unless Employee's employment is earlier
terminated pursuant to the provisions of this Agreement.
<PAGE>
5. COMPENSATION AND BENEFITS.
5.1 BASE SALARY. The Company agrees to pay Employee an annual
salary of Two Hundred Thousand Dollars ($200,000.00), or in the event of any
portion of a year, a pro rata amount of such annual salary; provided, however,
that Employee's salary shall be at an annualized rate of One Hundred Fifty
Thousand Dollars ($150,000.00) for so long as Employee is devoting not less than
75% of his time to managing the Company's business and affairs, subject to a
good faith adjustment by the Board of Directors in the event the aggregate
amount of time devoted by Employee to managing the Company's business and
affairs exceeds, or is reasonably likely to exceed, 75% of his working time.
Employee's salary will be payable as earned in accordance with Company's
customary payroll practice.
5.2 BONUS. Employee will be eligible to receive an annual
bonus, commensurate with industry standards for persons in similar or
equivalent positions, in the discretion of the Board of Directors.
5.3 ADDITIONAL BENEFITS. Employee will be eligible to
participate in Company's employee benefit plans of general application, in
accordance with the rules established for individual participation in any
such plan. Employee shall be entitled each year to similar vacation benefits
as are generally made available to other employees. Employee shall also be
entitled to reasonable holidays and illness days with full pay in accordance
with the Company's policy from time to time in effect.
5.4 STOCK OPTION.
(a) Effective December 9, 1997, Employee shall be
granted, under the Company's Stock Option Plan, an incentive stock
option (the "OPTION") to purchase Three Million Five Hundred
Thousand (3,500,000) shares of Common Stock (the "Option Shares")
at an exercise price of $0.10 per share, the fair market value as
determined by the Company's Board of Directors on such date.
Employee may acquire the Option Shares through the payment of cash
and, for an amount not to exceed 80% of the exercise price, by
delivery of a full recourse promissory note (with a term of five
years and interest at the minimum rate necessary to avoid the
imputation of interest under applicable Internal Revenue Service
regulations). The Option shall be immediately exercisable subject
to a right in favor of the Company to repurchase the Option Shares
at cost upon termination of Employee's employment as President and
Chief Executive Officer (the "RIGHT OF REPURCHASE"). Option
Shares as to which the Right of Repurchase has expired are "Vested
Shares"; Option Shares as to which the Right of Repurchase has
not expired are "Unvested Shares." In the event Employee acquires
Option Shares by delivery of a full recourse promissory note and
Company does not exercise its Repurchase Option, Employee may
require the Company to repurchase such shares at cost plus
interest accrued from the date of purchase.
<PAGE>
(b) The Right of Repurchase shall expire with respect to
1/48 of the total number of Option Shares each month during the
Term. In the event of any
<PAGE>
sale or other disposition of all or substantially all of the
assets of the Company, or any merger or consolidation of the
Company with or into any other corporation or corporations or
other entity, or any other corporate reorganization in which more
than 50% of the Company's voting power is transferred (a "Sale of
the Company") during the Term, the Right of Repurchase shall
expire with respect to ALL of the then Unvested Shares if (i)
Employee is not the Chief Executive Officer of the resulting
combined entity, AND (ii) Employee does not terminate employment
in a Voluntary Termination during the three (3) months following
consummation of the Sale of the Company.
5.5 WARRANT.
(a) WARRANT. The Company agrees to grant to Employee a
warrant (with a "net issue exercise" feature that becomes
effective one year after the Effective Date) to purchase Five
Hundred Thousand (500,000) shares of the Company's Series C
Preferred Stock (the "WARRANT SHARES") at the price per share at
which such shares are issued in the Company's next round of
preferred stock financing (the "WARRANT"). The Company agrees to
include the Warrant Shares as Registrable Securities under its
Information and Registration Rights Agreement.
(b) EXPIRATION. The Warrant shall be exercisable until
the earlier to occur of (i) the closing of an initial public
offering of the Company's Common Stock, and (ii) three (3) years
after the Effective Date; provided, however, that upon the earlier
termination of Employee's status as Chairman in a Voluntary
Termination or a Termination For Cause (including a Voluntary
Termination as Chief Executive Officer during the Initial Term
prior to the closing of a Qualifying Equity Financing), the
Warrant shall expire thirty (30) days thereafter. For purposes of
this Agreement, a "Qualifying Equity Financing" shall be a
preferred stock investment in the Company by (i) a venture capital
firm generally recognized as being of national standing, or (ii) a
corporation, or similar business entity, determined by the Board
of Directors to be a "strategic" investor, in either case in an
amount sufficient under the circumstances to put the Company on a
sound financial footing.
(c) WARRANT ADJUSTMENTS. The Warrant shall contain
equivalent anti-dilution protection, and conditions to such
protection (e.g. "pay to play"), as are provided to the Series C
Investors, provided, however, that any "pay to play" or other
conditions based on shareholdings shall be based only on
employee's holdings of Series B Preferred Stock. Notwithstanding
the foregoing, no such adjustment shall be provided if Employee's
employment as Chief Executive Officer terminates in a Voluntary
Termination prior to the closing of a Qualifying Equity Financing.
5.6 EXPENSES. The Company will reimburse Employee for all
reasonable and necessary expenses incurred by Employee in connection with the
Company's business provided
<PAGE>
that such expenses are in accordance with applicable policy set by the Board
from time to time and are properly documented and accounted for in accordance
with the policy of the Company.
6. PROPRIETARY RIGHTS. Employee hereby agrees to execute an Employee
Invention Assignment and Confidentiality Agreement with the Company in
substantially the form attached hereto as EXHIBIT B.
7. TERMINATION.
7.1 EVENTS OF TERMINATION. Employee's employment with the
Company shall terminate upon any one of the following:
(a) Upon the effective date of a written notice
sent to Employee stating the Company's determination made
in good faith that it is terminating Employee for "Cause"
as defined under Section 7.2 below
("TERMINATION FOR CAUSE"), PROVIDED, that if the "Cause"
for termination is defined in Section 7.2(c), then the
Company will give Employee written notice of such failure
(a "CAUSE NOTICE"), and if Employee fails to cure such
failure to the reasonable satisfaction of the Board of
Directors within thirty (30) days after the Company gives
the Cause Notice, then the Company may immediately
terminate Employee's employment, and such termination will
be deemed to be for "Cause" hereunder; or
(b) thirty (30) days after the effective date of
a written notice sent to Employee stating the Company's
determination made in good faith that, due to a mental or
physical incapacity, Employee has been unable to perform
his duties under this Agreement for a period of not less
than six (6) consecutive months
("TERMINATION FOR DISABILITY"); or
(c) Employee's death ("TERMINATION UPON DEATH");
or
(d) the effective date of a written notice sent
to the Company from Employee stating Employee's
determination made in good faith of "Constructive
Termination" by the Company, as defined under Section 7.3
below ("CONSTRUCTIVE TERMINATION"); or
(e) the effective date of a notice sent to
Employee from the Company stating that the Company is
terminating his employment, without cause, which notice can
be given by the Company at any time for any reason or for
no reason ("TERMINATION WITHOUT CAUSE"); or
(f) the effective date of a notice sent to the
Company from Employee stating that Employee is electing to
terminate his employment with the Company
("VOLUNTARY TERMINATION").
<PAGE>
7.2 "CAUSE" DEFINED. For purposes of this Agreement, "Cause"
for Employee's termination will exist at any time after the happening of one or
more of the following events:
(a) any willful act or acts of dishonesty
undertaken by Employee and intended to result in
substantial gain or personal enrichment of Employee at the
expense of the Company;
(b) any willful act of gross misconduct which is
materially and demonstrably injurious to the Company; or
(c) the willful and continued failure to
substantially perform Employee's duties with the Company
(other than incapacity due to physical or mental illness).
No act, or failure to act, by Employee shall be considered
"willful" if done, or omitted to be done, by him in good faith and in the
reasonable belief that his act or omission was in the best interest of the
Company and/or required by applicable law.
7.3 "CONSTRUCTIVE TERMINATION" DEFINED. "Constructive
Termination" shall mean:
(a) a material reduction in Employee's salary or
benefits not agreed to by Employee;
(b) a material change in Employee's
responsibilities not agreed to by Employee; or
(c) a Sale of the Company.
7.4 NATURAL TRANSITION. Company and Employee also wish to
provide for their respective rights and obligations should they mutually agree
in connection with a Voluntary Termination or a Termination Without Cause
occurring after completion of a Qualifying Equity Financing to engage Employee
in the process of recruiting a successor Chief Executive Officer and assisting
in that person's transition into his or her responsibilities as the Company's
CEO (a "Natural Transition"). Employee's responsibilities in any Natural
Transition would include (i) assisting in the identification, selection, and
recruitment of a successor CEO, (ii) working with the Board of Directors and
successor CEO to design and implement a transition process that is optimal for
the Company, and (iii) during such period of up to twelve (12) months after
termination of employment as may be mutually agreed by the Company and Employee
(the "Transition Period") making himself available on a mutually acceptable
schedule for, and providing, such assistance and guidance, strategic and
otherwise, as the Company or the successor CEO may request (but not to exceed
25% of his working time during such period considered in the aggregate and
exclusive of Employee's duties and responsibilities as Chairman) in such areas
as operations, marketing, competition, sales, investor relations, and the like.
<PAGE>
Notwithstanding anything to the contrary suggested by the preceding sentences of
this Section 7.4, neither Employee nor Company shall have any obligation to
engage in a Natural Transition.
<PAGE>
8. EFFECT OF TERMINATION.
8.1 TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the
event of any termination of Employee's employment pursuant to Section 7.1(a), or
Section 7.1(f) including a Voluntary Termination that is a Natural Transition,
the Company shall pay to Employee the compensation and benefits otherwise
payable to Employee under Sections 5.1, 5.3, and 5.6 through the date of
termination, and after the date of termination the Company shall continue to pay
to Employee benefits payable under Section 5.6 but, except as provided in the
following sentence of this Section 8.1, shall have no further obligations to
Employee under Sections 5.1 and 5.3. Employee's rights under the Company's
benefit plans of general application shall be determined under the provisions of
those plans.
8.2 TERMINATION FOR DISABILITY. In the event of termination of
employment pursuant to Section 7.1(b),
(a) the Company shall pay to Employee the compensation
and benefits otherwise payable to Employee under Sections 5.1,
5.3, and 5.6 through the date of termination, and
(b) for three (3) months after the termination of
Employee's employment, the Company shall continue to pay
Employee his salary under Section 5.1 above at Employee's
then-current salary, less applicable withholding taxes,
payable on the Company's normal payroll dates during that
period, and (B) shall continue his benefits under Sections
5.3 and 5.6 above.
(c) Employee shall receive other severance and
disability payments as provided in the Company's standard
benefit plans.
8.3 TERMINATION UPON DEATH. In the event of termination of
employment pursuant to Section 7.1(c), all obligations of the Company and
Employee shall cease, except (a) the Company shall pay to Employee (or to
Employee's estate) the compensation and benefits otherwise payable to Employee
under Sections 5.1, 5.3, and 5.6 through the date of termination, and (b) the
Company shall provide to Employee's estate the benefits described in Section
8.4(b).
8.4 CONSTRUCTIVE TERMINATION OR TERMINATION WITHOUT CAUSE. In
the event of any termination of this Agreement pursuant to Section 7.1(d) or
Section 7.1(e) including a Termination Without Cause that is a Natural
Transition,
(a) the Company shall pay to Employee the
compensation and benefits otherwise payable to Employee
under Sections 5.1, 5.3, and 5.6 through the date of
termination, and
(b) for the longer of (i) six (6) months after
the termination of Employee's employment, or (ii) twelve
(12) months after the Effective Date, the Company (A) shall
continue to pay Employee his salary under Section 5.1 above
at Employee's then-current salary (as adjusted to include
<PAGE>
a ratable portion of any bonus paid to Employee with respect
to the preceding year), less applicable withholding taxes,
payable on the
<PAGE>
Company's normal payroll dates during that period, and (B) shall
continue his benefits under Section 5.3 above.
8.5 EFFECT OF TERMINATION UPON STOCK RIGHTS. In the event of
any termination of this Agreement, Employee and Company shall have the following
rights and obligations with respect to the Option Shares:
(a) In the event of any termination of employment
pursuant to Section 7.1(a) or (b) the Company shall have a
Right of Repurchase with respect to all of the Option
Shares that are Unvested Shares;
(b) In the event of any termination of employment
pursuant to Section 7.1(f) that is not a Natural
Transition, the Company shall have a Right of Repurchase
with respect to all of the Option Shares that are Unvested
Shares and, if such Voluntary Termination occurs prior to
the closing of a Qualifying Equity Financing, the Company
shall have the right to repurchase all Option Shares that
are Vested Shares at the then fair market value of the
Company's Common Stock as determined in good faith by the
Board of Directors;
(c) In the event of any termination of employment
pursuant to Section 7.1 (c), (d), or (e) that is not a
Natural Transition, the Company's Right of Repurchase with
respect to the Option Shares shall continue to expire
during the applicable period set forth in Section 8.4(b)
and the Company shall have a Right of Repurchase with
respect to all Option Shares that are Unvested Shares after
the expiration of such period; and
(d) In the event of a Voluntary Termination or
Termination Without Cause that is a Natural Transition, the
Company's Right of Repurchase with respect to the Option
Shares shall continue to expire for twelve (12) months
after the termination of Employee's employment.
10. MISCELLANEOUS.
10.1 ARBITRATION. Employee and the Company shall submit to
mandatory binding arbitration in any controversy or claim arising out of, or
relating to, this Agreement or any breach hereof. Such arbitration shall be
conducted in accordance with the commercial arbitration rules of the American
Arbitration Association in effect at that time, and judgment upon the
determination or award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator is hereby authorized to award to
the prevailing party the costs (including reasonable attorneys' fees and
expenses) of any such arbitration.
10.2 SEVERABILITY. If any provision of this Agreement shall be
found by any arbitrator or court of competent jurisdiction to be invalid or
unenforceable, then the parties hereby waive such provision to the extent that
it is found to be invalid or unenforceable and to the extent that to do so would
not deprive one of the parties of the substantial benefit of its bargain. Such
provision shall, to the extent allowable by law and the preceding sentence, be
<PAGE>
modified by such arbitrator or court so that it becomes enforceable and, as
modified, shall be enforced as any other provision hereof, all the other
provisions continuing in full force and effect.
10.3 NO WAIVER. The failure by either party at any time to
require performance or compliance by the other of any of its obligations or
agreements shall in no way affect the right to require such performance or
compliance at any time thereafter. The waiver by either party of a breach of
any provision hereof shall not be taken or held to be a waiver of any preceding
or succeeding breach of such provision or as a waiver of the provision itself.
No waiver of any kind shall be effective or binding, unless it is in writing and
is signed by the party against whom such waiver is sought to be enforced.
10.4 ASSIGNMENT. This Agreement and all rights hereunder are
personal to Employee and may not be transferred or assigned by Employee at any
time. The Company may assign its rights, together with its obligations
hereunder, to any parent, subsidiary, affiliate or successor, or in connection
with any sale, transfer or other disposition of all or substantially all of its
business and assets, provided, however, that any such assignee assumes the
Company's obligations hereunder.
10.5 WITHHOLDING. All sums payable to Employee hereunder shall
be reduced by all federal, state, local and other withholding and similar taxes
and payments required by applicable law.
10.6 ENTIRE AGREEMENT. This Agreement constitutes the entire
and only agreement between the parties relating to employment of Employee with
the Company, and this Agreement supersedes and cancels any and all previous
contracts, arrangements or understandings with respect thereto. The parties
contemplate that Section 5.4, and certain provisions of Section 8.5, of this
Agreement will be superseded by an Incentive Stock Option Agreement.
10.7 AMENDMENT. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended only by an agreement in writing
executed by both parties hereto.
10.8 NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing and hand delivered, sent by
telecopier, sent by registered first class mail, postage pre-paid, or sent by
nationally recognized express courier service. Such notices and other
communications shall be effective upon receipt if hand delivered or sent by
telecopier, five (5) days after mailing if sent by mail, and one (l) day after
dispatch if sent by express courier, to the following addresses, or such other
addresses as any party shall notify the other parties:
If to the Company: Keynote Systems Incorporated
Two West Fifth Avenue
San Mateo, CA 94402
Telecopier: (650) 524-3099
Attention: Chief Financial Officer
<PAGE>
If to Employee: Umang Gupta
523 Harvard Road
San Mateo, CA 94402
Telecopier: (650) 344-2705
10.9 BINDING NATURE. This Agreement shall be binding upon, and
inure to the benefit of, the successors and personal representatives of the
respective parties hereto.
10.10 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall in no way affect the meaning or interpretation
of this Agreement. In this Agreement, the singular includes the plural, the
plural included the singular, the masculine gender includes both male and female
referents, and the word "or" is used in the inclusive sense.
10.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which,
taken together, constitute one and the same agreement.
10.12 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereto shall be construed in accordance with the laws
of the State of California, without giving effect to the principles of conflict
of laws.
10.13 ATTORNEYS' FEES. In the event of any claim, demand or suit
arising out of or with respect to this Agreement, the prevailing party shall be
entitled to reasonable costs and attorneys' fees, including any such costs and
fees upon appeal.
10.14 MARKET STANDOFF. In consideration of the stock rights
granted pursuant to this Agreement, Employee agrees to the imposition of market
standoff restrictions on the shares of Common Stock he now holds, in form and
substance similar to the market standoff restrictions applicable to the shares
of Series B Preferred Stock owned by Employee.
IN WITNESS WHEREOF, the Company and Employee have executed this
Employment Agreement as of the date first above written.
KEYNOTE SYSTEMS INCORPORATED EMPLOYEE
By:
----------------------------- -----------------------------
Umang Gupta
Title:
-------------------------
<PAGE>
Exhibit 10.10
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as from time to time amended,
supplemented, restated, or otherwise modified, this "AGREEMENT") is entered into
effective January __, 1999 (the "EFFECTIVE DATE") by and among Keynote Systems
Incorporated, a California corporation (the "LENDER") and Lloyd Taylor, an
individual and Dana Taylor, his spouse (COLLECTIVELY REFERRED TO AS the
"BORROWER"). This Agreement, the Note, as defined in SECTION 1.2, the Stock
Pledge Agreement, as defined in SECTION 1.3 and any other documents entered into
pursuant to this Agreement or in connection with this Loan, as defined in
SECTION 1.1, are hereinafter sometimes collectively referred to as the "LOAN
DOCUMENTS."
WHEREAS, Lender desires to loan a certain sum to Borrower and Borrower
wishes to borrow a certain sum from Lender in order that Borrower may purchase a
primary residence in northern California (the "PROPERTY");
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties and covenants set forth in this Agreement, Lender and Borrower hereby
agree as follows:
1. AMOUNT AND TERMS OF LOAN.
1.1 LOAN. Subject to the terms and conditions of this Agreement, and
in reliance on the representations, warranties and covenants of Borrower in this
Agreement, Lender shall loan Borrower the principal amount of One Hundred Fifty
Thousand Dollars ($150,000.00) (the "LOAN") for the purchase of the Property.
1.2 NOTE; INTEREST. Borrower's indebtedness to Lender under the Loan
Documents will be evidenced by a Secured Full Recourse Promissory Note executed
by Borrower substantially in the form attached as EXHIBIT A (the "NOTE"). The
Note will provide that annually compounded interest on the unpaid principal of
this Loan will accrue at a rate equal to nine percent (9%) per annum, which rate
is not less than the minimum rate established pursuant to Section 1274(d) of the
Internal Revenue Code of 1986, as amended, on the earliest date on which there
was a binding contract in writing for the Loan; PROVIDED, HOWEVER, that the rate
at which interest will accrue on unpaid principal under this Note will not
exceed the highest rate permitted by applicable law. All payments hereunder
shall be made in lawful tender of the United States. Interest will be payable
at maturity and will continue to accrue until the date on which all amounts
owing under the Loan Documents have been repaid in full.
1.3 SECURITY. Borrower's indebtedness to Lender under the Loan
Documents will be secured by (a) Borrower's pledge of certain shares of Lender's
Common Stock (the "PLEDGED SHARES") in accordance with the terms of a stock
pledge agreement, dated January __, 1999, substantially in the form attached as
EXHIBIT B (the "STOCK PLEDGE AGREEMENT"), and (b) such other assets of Borrower,
excluding any real property of Borrower, as to which Lender reasonably requests
security. Borrower shall immediately submit to Lender upon issuance all
1
<PAGE>
Lender equity securities that Borrower acquires pursuant to: (i) Borrower's
exercise of options to purchase Lender equity securities under Lender's 1996
Stock Option Plan or any subsequent or similar stock option plan or equity
incentive program of Lender, or (ii) any employee stock purchase agreement or
other similar plan of Lender.
1.4 MATURITY OF LOAN. The unpaid principal amount of this Loan and
all unpaid interest accrued thereon, together with any other related fees,
expenses or costs, will be immediately due and payable to Lender in full on the
date (the "MATURITY DATE") that is the earlier to occur of: (i) three (3) years
after the date of the Note, (ii) the date on which the unpaid principal amount
and interest due under this Loan becomes due and payable in full under SECTION
4.1, (iii) ninety (90) days after notice of demand for payment by Lender; and
(iv) thirty (30) days after expiration of the lockup period following
consummation of an underwritten initial public offering of Lender's Common
Stock.
1.5 PREPAYMENT. Borrower may prepay the unpaid principal and
interest due under this Loan at any time, without penalty, in whole or in part
in amounts of at least Ten Thousand Dollars ($10,000). Each prepayment will be
applied as follows: (i) first to the payment of accrued interest, and (ii)
second, to the extent that the amount of such prepayment exceeds the amount of
all such accrued interest, to the payment of principal on this Loan. Borrower
also agrees that, until this Loan is paid in full, Borrower shall, within not
more than thirty (30) days after any sale of any Pledged Shares, apply: (i) if
no default event has occurred under the Loan Documents and is continuing, fifty
percent (50%) of the net before tax proceeds from any sale by Borrower of the
Pledged Shares, or (ii) if a default event has occurred and is continuing, one
hundred percent (100%) of the net before tax proceeds from any sale by Borrower
of the Pledged Shares, to pay down this Loan in accordance with this Agreement.
1.6 AT WILL EMPLOYMENT. Borrower is an "at will" employee of Lender,
and nothing in this Agreement or any exhibit shall be construed as a promise of
continued employment.
2. COVENANTS OF BORROWER.
2.1 USE OF LOAN PROCEEDS. Borrower shall apply substantially all of
the Loan proceeds to the purchase of the Property.
2.2 FURTHER ASSURANCES. In addition to the obligations and documents
that this Agreement expressly requires Borrower to execute, deliver and perform,
Borrower will execute, deliver and perform any and all further acts or documents
which Lender may reasonably require in order to carry out the purposes of this
Agreement or any of the other Loan Documents.
3. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDER. The obligation of
Lender to make this Loan is subject to the satisfaction (or written waiver by
Lender) of each and all of the following conditions precedent:
3.1 NOTE AND STOCK PLEDGE AGREEMENT. Lender will have received from
Borrower the Note and the Stock Pledge Agreement, each duly executed by
Borrower.
3.2 LOAN EFFECTIVE DATE. The Effective Date of this Loan must be
earlier than January 31, 1999.
2
<PAGE>
4. DEFAULT BY BORROWER.
4.1 ACCELERATION. The unpaid principal and interest due under this
Loan will become immediately due and payable, without the need for any further
action on the part of Lender or any other holder of the Note: (i) upon
Borrower's sale, gift, assignment or other transfer of the Property, except for
transfers which, by law, cannot be restricted by a due-on-sale clause, (ii)
ninety (90) days after termination of Borrower's employment with Lender for any
reason, or (iii) upon Borrower's failure to apply the appropriate proceeds of
any sale of Pledged Shares to pay down this Loan in accordance with SECTION 1.5.
4.2 DEFAULT. Borrower will be deemed to be in default of this Loan
if: (i) Borrower fails to pay Lender (or, in the event another party holds the
Note, such holder) the full amount of unpaid principal and interest due under
this Loan on or before the Maturity Date, and (ii) Borrower does not cure this
failure to pay within five (5) calendar days after Lender gives Borrower written
notice of such failure to pay.
4.3 REMEDIES UPON DEFAULT. Upon Borrower's default of this Loan,
Lender may pursue its rights under the Note, the Stock Pledge Agreement, and any
other security agreements that the parties may enter into after the Effective
Date, and will have full recourse against any real, personal, tangible, and
intangible assets of Borrower. The rights and remedies of Lender herein
provided will be cumulative and not exclusive of any other rights or remedies
provided by law or otherwise.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS; ASSIGNMENT. Except as otherwise provided
in this Agreement, this Agreement, and the rights and obligations of the parties
hereunder, will be binding upon and inure to the benefit of their respective
successors, assigns, heirs, executors, administrators and legal representatives.
Lender may assign any of its rights and obligations under this Agreement.
Borrower shall not assign, whether voluntarily or by operation of law, any of
its rights and obligations under this Agreement, except with the prior written
consent of Lender. An assignment by operation of law includes, without
limitation, (i) a merger, reorganization, consolidation or other transaction in
which the shareholders of such party before such merger, reorganization,
consolidation or other transaction own less than fifty percent (50%) of the
outstanding voting equity securities of the surviving corporation, (ii) a sale
or other transfer of all or substantially all of the assets of such party, or
(iii) a transfer of more than fifty percent (50%) of the outstanding voting
equity securities of such party in one transaction or a series of related
transactions.
5.2 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of California, without giving effect to
that body of laws pertaining to conflict of laws.
5.3 NOTICES. Any and all notices required or permitted to be given to
a party pursuant to the provisions of this Agreement will be in writing and will
be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) one (1) business day after deposit with
an express overnight courier for United States deliveries, or two (2) business
days after such deposit for deliveries outside of the United States, with proof
of delivery from the courier
3
<PAGE>
requested; or (iii) three (3) business days after deposit in the United
States mail by registered or certified mail (return receipt requested) for
United States deliveries. All notices for delivery outside the United States
will be sent by express courier. All notices not delivered personally will
be sent with postage and/or other charges prepaid and properly addressed to
the party to be notified at the address of Lender's principal executive
offices, or at such other address as such other party may designate by ten
(10) days advance written notice to the other parties hereto. Notices to
Lender will be marked "Attention: President."
5.4 FURTHER ASSURANCES. The parties agree to execute such further
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
5.5 TITLES AND HEADINGS. The titles, captions and headings of this
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically
stated, all references herein to "sections" and "exhibits" will mean "sections"
and "exhibits" to this Agreement.
5.6 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein, and including, but not limited to, the Loan Documents constitute the
entire agreement and understanding of the parties with respect to the subject
matter of this Agreement, and supersede all prior understandings and agreements,
whether oral or written, between or among the parties hereto with respect to the
specific subject matter hereof.
5.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
5.8 SEVERABILITY. If any provision of this Agreement is determined
by any court or arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to the maximum
extent possible given the intent of the parties hereto. If such clause or
provision cannot be so enforced, such provision shall be stricken from this
Agreement and the remainder of this Agreement shall be enforced as if such
invalid, illegal or unenforceable clause or provision had (to the extent not
enforceable) never been contained in this Agreement. Notwithstanding the
forgoing, if the value of this Agreement based upon the substantial benefit of
the bargain for any party is materially impaired, which determination as made by
the presiding court or arbitrator of competent jurisdiction shall be binding,
then this Agreement will not be enforceable against such affected party and both
parties agree to renegotiate such provision(s) in good faith.
5.9 FACSIMILE SIGNATURES. This Agreement may be executed and
delivered by facsimile and upon such delivery the facsimile signature will be
deemed to have the same effect as if the original signature had been delivered
to the other party.
5.10 AMENDMENT AND WAIVERS. This Agreement may be amended only by a
written agreement executed by each of the parties hereto. No amendment of or
waiver of, or modification of any obligation under this Agreement will be
enforceable unless set forth in a writing signed by the party against which
enforcement is sought. Any amendment effected in accordance with this section
will be binding upon all parties hereto and each of their respective successors
and assigns. No delay or failure to require performance of any provision of
this
4
<PAGE>
Agreement shall constitute a waiver of that provision as to that or any other
instance. No waiver granted under this Agreement as to any one provision
herein shall constitute a subsequent waiver of such provision or of any other
provision herein, nor shall it constitute the waiver of any performance other
than the actual performance specifically waived.
5.11 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
express or implied, is intended to confer upon any third party any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
5.12 JURISDICTION. The parties agree that any controversy or claim
arising out of or relating to this Agreement shall be tried and litigated
exclusively in a state or federal court with jurisdiction located in San Mateo
County in the State of California.
5.13 WAIVER OF JURY TRIAL. The parties waive any right they may have
to a trial by jury in respect of any litigation based on, or arising out of,
under or in connection with, this Agreement or any other Loan Document, or any
course of conduct, course of dealing, verbal or written statement or other
action of any loan party or any secured party.
5.14 ATTORNEYS' FEES. If either party hereto commences or maintains
any action at law or in equity (including counterclaims or cross-complaints)
against the other party hereto by reason of the breach or default or claimed
breach or default of any term or provision of this Agreement or any other Loan
Document, then the prevailing party in said action will be entitled to recover
its reasonable attorneys' fees and court costs incurred therein. This provision
does not limit Lender's ability to recover additional expenses under the Note.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Loan
and Security Agreement as of the Effective Date.
BORROWER: LENDER:
KEYNOTE SYSTEMS INCORPORATED
____________________________ _______________________________________
LLOYD TAYLOR UMANG GUPTA
President and Chief Executive Officer
____________________________
DANA TAYLOR
ATTACHMENTS:
Exhibit A - Secured Promissory Note
Exhibit B - Stock Pledge Agreement
5
<PAGE>
EXHIBIT A
SECURED FULL RECOURSE PROMISSORY NOTE
San Mateo, California
$150,000.00 January __, 1999
For value received, Lloyd Taylor, an individual, and Dana Taylor, his
spouse (collectively referred to as the "BORROWER") hereby promise to pay to the
order of Keynote Systems Incorporated, a California corporation (the "COMPANY")
on or before January __, 2002, at the Company's principal place of business at
Two West Fifth Avenue, San Mateo, CA 94402, or at such other place as the
Company may direct, the principal sum of One Hundred Fifty Thousand Dollars
($150,000.00), together with interest at the rate of nine percent (9%) per
annum compounded annually, which rate is not less than the minimum rate
established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as
amended, on the earliest date on which there was a binding contract in writing
for this Secured Full Recourse Promissory Note (as may be amended, restated,
supplemented or otherwise modified from time to time (the "NOTE"); PROVIDED,
HOWEVER, that the rate at which interest will accrue on unpaid principal under
this Note will not exceed the highest rate permitted by applicable law. All
payments of accrued interest will be payable on maturity of this Note. All
payments hereunder shall be made in lawful tender of the United States.
Interest will continue to accrue until the date on which all amounts owing on
this Note have been repaid in full.
This Note is issued pursuant to that certain Loan and Security Agreement
dated January __, 1999, between the Company and Borrower (the "LOAN AGREEMENT").
The following is a statement of the additional rights and obligations of the
holder of this Note and the terms and conditions to which this note is subject,
and to which the holder, by the acceptance of this Note, agrees:
1. SECURITY. Payment of this Note is secured by Borrower's pledge of
certain shares of Company equity securities (the "PLEDGED SHARES") in accordance
with the terms of a stock pledge agreement by and between the Company and
Borrower.
2. ACCELERATION. The unpaid principal and interest due under this Note
will become immediately due and payable, without the need for any further action
on the part of the Company or any other holder of this Note: (i) upon Borrower's
sale, gift, assignment or other transfer of the Property (as defined in the Loan
Agreement), except for transfers which, by law, cannot be restricted by a
due-on-sale clause, (ii) ninety (90) days after termination of Borrower's
employment with the Company for any reason, (iii) upon Borrower's failure to
apply the appropriate proceeds of any sale of Pledged Shares to pay down this
Note in accordance with SECTION 4, (iv) thirty (30) days after expiration of the
lockup period following consummation of an initial public offering of Company's
Common Stock, and (v) ninety (90) days after notice of demand for payment by
Company. Each of the events described in this SECTION 2 constitutes an
"ACCELERATION EVENT". In any case, this Note shall become due and payable in
full no later than three years after the date of this Note.
6
<PAGE>
3. DEFAULT. Borrower will be deemed to be in default under this Note if:
(a) Borrower fails to pay the holder of this Note the full amount of unpaid
principal and interest due under this Note on or before: (i) the date that is
three years after the date of this Note, or (ii) such earlier date as dictated
by the occurrence of an Acceleration Event; and (b) Borrower does not cure this
failure to pay within five (5) calendar days after the Company gives Borrower
written notice of such failure to pay. Upon any default under this Note,
Company will have full recourse against any real, personal, tangible, and
intangible assets of Borrower, and may pursue any and all contractual, legal,
and equitable remedies available to it.
4. PREPAYMENT. Borrower may prepay the unpaid principal and interest due
under this Note at any time, without penalty, in whole or in part, in amounts of
at least Ten Thousand Dollars ($10,000). Each prepayment will be applied as
follows: (a) first to the payment of accrued interest, and (b) second, to the
extent that the amount of such prepayment exceeds the amount of all such accrued
interest, to the payment of principal on this Note. Borrower also agrees that,
until this Note is paid in full, Borrower shall immediately apply: (a) if no
default event has occurred and is continuing, fifty percent (50%) of the net
before tax proceeds from any sale by Borrower of the Pledged Shares, or (b) if a
default event has occurred and is continuing, one hundred percent (100%) of the
net before tax proceeds from any sale by Borrower of the Pledged Shares, to pay
down this Note in accordance with this Note and the Loan Agreement.
5. ASSIGNMENT. This Note is freely transferable and assignable by the
Company and each subsequent holder. Any reference to the Company herein will be
deemed to refer to any subsequent transferee of this Note at such time as such
transferee holds this Note. Borrower may not assign or delegate this Note,
whether by voluntary assignment or transfer, operation of law or otherwise.
6. SUCCESSORS AND ASSIGNS; ASSIGNMENT. Except as otherwise provided in
this Agreement, this Agreement, and the rights and obligations of the parties
hereunder, will be binding upon and inure to the benefit of their respective
successors, assigns, heirs, executors, administrators and legal representatives.
7. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California, without giving effect to
that body of laws pertaining to conflict of laws.
8. NOTICES. Any and all notices required or permitted to be given to a
party pursuant to the provisions of this Agreement will be in writing and will
be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) one (1) business day after deposit with
an express overnight courier for United States deliveries, or two (2) business
days after such deposit for deliveries outside of the United States, with proof
of delivery from the courier requested; or (iii) three (3) business days after
deposit in the United States mail by registered or certified mail (return
receipt requested) for United States deliveries. All notices for delivery
outside the United States will be sent by express courier. All notices not
delivered personally will be sent with postage and/or other charges prepaid and
properly addressed to the party to be notified at the address of the Company's
principal executive office, or at such other address as such other party may
designate by ten (10) days advance written notice to the other parties hereto.
Notices to the Company will be marked "Attention: President."
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9. FURTHER ASSURANCES. The parties agree to execute such further
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
10. TITLES AND HEADINGS. The titles, captions and headings of this
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically
stated, all references herein to "sections" and "exhibits" will mean "sections"
and "exhibits" to this Agreement.
11. ENTIRE AGREEMENT. This Agreement and the documents referred to
herein, including but not limited to the Loan and Security Agreement, constitute
the entire agreement and understanding of the parties with respect to the
subject matter of this Agreement, and supersede all prior understandings and
agreements, whether oral or written, between or among the parties hereto with
respect to the specific subject matter hereof.
12. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which when so executed and delivered will be deemed an original, and all of
which together shall constitute one and the same agreement.
13. SEVERABILITY. If any provision of this Agreement is determined by any
court or arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to the maximum
extent possible given the intent of the parties hereto. If such clause or
provision cannot be so enforced, such provision shall be stricken from this
Agreement and the remainder of this Agreement shall be enforced as if such
invalid, illegal or unenforceable clause or provision had (to the extent not
enforceable) never been contained in this Agreement. Notwithstanding the
forgoing, if the value of this Agreement based upon the substantial benefit of
the bargain for any party is materially impaired, which determination as made by
the presiding court or arbitrator of competent jurisdiction shall be binding,
then this Agreement will not be enforceable against such affected party and both
parties agree to renegotiate such provision(s) in good faith.
14. AMENDMENT AND WAIVERS. This Agreement may be amended only by a
written agreement executed by Company and Borrower. No amendment of or waiver
of, or modification of any obligation under this Agreement will be enforceable
unless set forth in a writing signed by the party against which enforcement is
sought. Any amendment effected in accordance with this section will be binding
upon all parties hereto and each of their respective successors and assigns. No
delay or failure to require performance of any provision of this Agreement shall
constitute a waiver of that provision as to that or any other instance. No
waiver granted under this Agreement as to any one provision herein shall
constitute a subsequent waiver of such provision or of any other provision
herein, nor shall it constitute the waiver of any performance other than the
actual performance specifically waived.
Borrower hereby waives presentment, notice of non-payment, notice of
dishonor, protest, demand and diligence.
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IN WITNESS WHEREOF, Borrower has executed this Secured Full Recourse
Promissory Note as of the date and year first above written.
BORROWER:
________________________________
LLOYD TAYLOR
________________________________
DANA TAYLOR
ACCEPTED AND ACKNOWLEDGED:
KEYNOTE SYSTEMS INCORPORATED
________________________________
UMANG GUPTA, President and
Chief Executive Officer
SIGNATURE PAGE TO NOTE BY LLOYD TAYLOR AND DANA TAYLOR TO
KEYNOTE SYSTEMS INCORPORATED DATED JANUARY __, 1999
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EXHIBIT B
STOCK PLEDGE AGREEMENT
<PAGE>
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement is entered into effective January __, 1999 (as
from time to time amended, restated, supplemented, or otherwise modified, this
"AGREEMENT"), by Lloyd Taylor, an individual and Dana Taylor, his spouse
(collectively referred to as (the "PLEDGOR") in favor of Keynote Systems
Incorporated, a California corporation (the "SECURED PARTY").
WHEREAS, Pledgor and Secured Party have entered into that certain Loan
and Security Agreement, dated January __, 1999 (as may be amended,
supplemented or otherwise modified from time to time, the "LOAN
AGREEMENT"). The term "LOAN DOCUMENTS" and all other capitalized terms
used in this Agreement that are not otherwise defined in this
Agreement shall have the meanings ascribed to such terms in the Loan
Agreement; and
WHEREAS, all shares of Secured Party capital stock or other equity
securities that Borrower acquires pursuant to: (i) Borrower's
exercise of options to purchase Secured Party equity securities under
Secured Party's 1996 Stock Option Plan or any subsequent or similar
stock option plan of Secured Party, or (ii) any employee stock
purchase agreement or other similar plan of Secured Party, are to be
issued by Secured Party subject to the terms of this Agreement
immediately upon their issuance. All such Secured Party equity
securities shall be identified on SCHEDULE 1 or on an Addendum to
SCHEDULE 1 upon their issuance; and
WHEREAS, Pledgor is the legal and beneficial owner of the shares of
capital stock or other equity securities identified on such SCHEDULE 1
or addenda as being owned by Pledgor (collectively, the "PLEDGED
SHARES"); and
WHEREAS, it is a condition precedent under the Loan Agreement to
making the Loan that Pledgor shall agree to make the pledges
contemplated by this Agreement;
NOW, THEREFORE, in consideration of the promises set forth in this
Agreement and to induce Secured Party to make the Loan, Pledgor hereby
agrees with Secured Party as follows:
1. STOCK PLEDGE PROVISIONS.
1.1 PLEDGE. Pledgor hereby pledges to Secured Party, and grants to
Secured Party a security interest in, all of Pledgor's, right, title, and
interest in and to the following (the "PLEDGED COLLATERAL"): (i) all of the
Pledged Shares; (ii) the certificates, if any, representing the Pledged Shares;
and (iii) all dividends, cash, instruments and other property or proceeds, from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares.
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1.2 SECURITY INTEREST. This Agreement secures, and the Pledged
Collateral is security for, the full and prompt payment by Pledgor when due
(whether at stated maturity, by acceleration or otherwise) of, and the
performance by Pledgor of, all of Pledgor's current and future obligations under
this Agreement and each of the Loan Documents to which Pledgor is a party,
including without limitation principal, interest, fees, and expenses (including
any interest, fees, or expenses that, but for the provisions of the Bankruptcy
Code, would have accrued). The security interest in the Pledged Collateral
created by this Agreement will continue, and the provisions of this Agreement
will remain in full force and effect, until the termination of this Agreement
pursuant to Section 1.7.
1.3 REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to the Secured Party that, as of the date each of the Pledged Shares is
issued: (i) Pledgor is the legal and beneficial owner of the Pledged Collateral
free and clear of any lien, and (ii) Pledgor has the right to pledge and grant
to the Secured Party a security interest in the Pledged Collateral.
1.4 TRANSFERS AND OTHER LIENS. Pledgor agrees that Pledgor will not:
(i) sell or otherwise dispose of, or grant any option or warrant with respect
to, any of the Pledged Collateral except as permitted by the Loan Agreement, or
(ii) create or permit to exist any lien upon or with respect to any of the
Pledged Collateral, except for the lien created pursuant to this Agreement.
1.5 FURTHER ASSURANCES. Pledgor agrees to promptly execute and
deliver all further instruments and documents, and take all further action that
may be necessary or desirable, or that Secured Party may reasonably request, in
order to perfect and protect the lien granted or purported to be granted hereby
or to enable Secured Party to exercise and enforce its rights and remedies with
respect to any Pledged Collateral. Pledgor agrees to defend the title to the
Pledged Collateral and Secured Party's lien on the Pledged Collateral against
the claim of any other third party and to maintain and preserve such lien until
indefeasible payment in full of all obligations.
1.6 SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
obligation contained in this Agreement, Secured Party may itself perform, or
cause performance of such obligation, and the expenses of Secured Party incurred
in connection therewith shall be payable by Pledgor under Section 3.1 and
constitute obligations secured by this Agreement.
1.7 TERMINATION OF SECURITY INTEREST. This Agreement, and the
security interests created or granted by this Agreement, shall automatically
terminate and be released on the date at which the Loan has been fully and
finally paid in cash. Upon any release of the security interest created by this
Agreement in any of the Pledged Collateral pursuant to this Section 1.7, Secured
Party shall promptly:
(a) return, transfer and deliver to Pledgor all certificates,
instruments and other property held by Secured Party pursuant to this Agreement
representing or evidencing such Pledged Collateral as shall not have been sold
or otherwise applied pursuant to the terms of this Agreement, all without
recourse upon, or representation or warranty whatsoever by, Secured Party,
except that the same shall be free and clear of any claims, liens or
encumbrances created by or in respect of Secured Party, and at the cost and
expense of Pledgor, and
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(b) execute and deliver to Pledgor such instruments as may be
reasonably requested by Pledgor acknowledging the release of such security
interest with respect to such Pledged Collateral.
2. DELIVERY AND POSSESSION OF PLEDGED COLLATERAL.
2.1 DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments,
if any, representing or evidencing the Pledged Collateral shall be issued to and
held by or on behalf of Secured Party pursuant to this Agreement and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party.
2.2 RIGHTS TO VOTE AND RECEIVE DIVIDENDS. As long as no event of
default shall have occurred under the Loan Agreement and be continuing:
(a) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or any other
Loan Documents;
(b) Pledgor shall be entitled to receive and retain (subject to
any lien thereon in favor of Secured Party) any and all dividends or
distributions paid in respect of the Pledged Collateral, other than any and all:
(i) dividends paid or payable other than in cash in
respect of, and instruments and other property received receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral;
(ii) dividends and other distributions paid or payable in
cash in respect of any Pledged Shares in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in-surplus; and
(iii) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, all of which shall be
forthwith delivered to Secured Party; and
(c) Secured Party shall execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies and other instruments as
Pledgor may reasonably request for the purpose of enabling Pledgor to exercise
the voting and other rights which it is entitled to exercise pursuant to Section
2.2(a) and to receive the dividends or distributions which it is authorized to
receive and retain pursuant to Section 2.2(b).
2.3 ADJUSTMENTS. Secured Party shall have the right at any time to
exchange certificates representing or evidencing any of the Pledged Collateral
for certificates of smaller or larger denominations.
2.4 REASONABLE CARE. Secured Party shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which Secured Party accords its own property, it being understood that
Secured Party shall not have any responsibility for: (i)
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<PAGE>
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral,
whether or not Secured Party has or is deemed to have knowledge of any such
matter, or (ii) taking any necessary steps to preserve rights against any
person with respect to any Pledged Collateral.
3. ADDITIONAL PROVISIONS UPON DEFAULT.
3.1 REMEDIES UPON DEFAULT. The rights and remedies granted to
Secured Party by this Section 3 will be in addition to all the rights, powers
and remedies of Secured Party under the Loan Documents. All such rights and
remedies will be cumulative and not exclusive of any other rights or remedies
provided by law or otherwise. If any event of default under the Loan Agreement
shall have occurred and be continuing:
(a) Secured Party may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for in this
Agreement or otherwise available to it, all the rights and remedies of a secured
party after default under the California Commercial Code or any other applicable
law in effect in the State of California at that time, and Secured Party may
also, without notice except as specified below, sell the Pledged Collateral or
any part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any office of Secured Party or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Secured
Party may deem commercially reasonable. Pledgor agrees that, to the extent
notice of sale shall be required by law, at least ten (10) days' notice to
Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Pledgor hereby waives any claims against
Secured Party arising by reason of the fact that the price at which any Pledged
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Secured Party accepts
the first offer received and does not officer such Pledged Collateral to more
than one (1) offeree. With respect to Pledged Collateral consisting of
securities registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), Secured Party will comply with applicable securities laws in
connection with any foreclosure sale.
(b) Pledgor recognizes that by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral, to limit purchasers to those which will agree, among other
things, to acquire such securities for their own account, for investment, and
not with a view to the distribution or resale. Pledgor acknowledges and agrees
that any such sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale without such restrictions and,
notwithstanding such circumstances, agrees that any such sale shall be deemed to
have been made in a commercially reasonable manner. Secured Party shall be
under no obligation to delay the sale of any of the Pledged Collateral for the
period of time necessary to permit Pledgor to register such securities for
public sale under the Securities Act, or under applicable state securities laws,
even if Pledgor would agree to do so.
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(c) In the event of a sale of Pledged Collateral in accordance
with the provisions of this Section 3.1, notwithstanding anything to the
contrary contained elsewhere in this Agreement, all of the net before tax
proceeds from any such sale shall be applied by Secured Party, or paid directly
to Secured Party, to pay down the Loan in accordance with the Loan Agreement.
3.2 RIGHTS IN PLEDGED COLLATERAL UPON DEFAULT. Upon the occurrence
and during the continuance of an event of default under the Loan Agreement:
(a) upon notice by Secured Party to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 2.2(a) shall cease, and
all such rights shall thereupon become vested in Secured Party who shall
thereupon have the sole right to exercise such voting and other consensual
rights;
(b) all rights of Pledgor to receive the dividends or
distributions which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(b) shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right to
receive and hold as Pledged Collateral such dividends or distributions;
(c) All dividends or distributions which are received by Pledgor
contrary to the provisions of Section 3.2(b) shall be received in trust for the
benefit of Secured Party, shall be segregated from other property or funds of
Pledgor and shall be forthwith delivered to Secured Party;
(d) Pledgor shall, if necessary to permit Secured Party to
exercise the voting and other rights which it may be entitled to exercise
pursuant to Section 2.2(a) and to receive all dividends and distributions which
it may be entitled to receive under Section 2.2(b), execute and deliver to
Secured Party, from time to time and upon written notice of Secured Party,
appropriate proxies and other instruments as Secured Party may reasonably
request; and
(e) Secured Party shall have the right, to the extent permitted
under any applicable law, at any time in its discretion and without notice to
Pledgor, to transfer to or to register in its name or in the name of any of its
nominees any or all of the Pledged Collateral.
The foregoing shall not in any way limit Secured Party's power
and authority granted pursuant to Section 3.3.
3.3 SECURED PARTY APPOINTED ATTORNEY-IN-FACT AND PROXY. Subject to
Section 3.1, Pledgor hereby irrevocably constitutes and appoints Secured Party
and any officer or agent of Secured Party, effective upon the occurrence and
during the continuance of an event of default under the Loan Agreement, with
full power of substitution, as its true and lawful attorney-in-fact and proxy
with full irrevocable power and authority in the place and stead of Pledgor and
in the name of Pledgor or in its own name, from time to time in Secured Party's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement. Without limiting the generality of
the foregoing, Pledgor hereby gives Secured Party the power and right, on behalf
of Pledgor, upon the occurrence and during the continuance of an event of
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default under the Loan Agreement, to receive, endorse and collect all
instruments made payable to Pledgor representing any dividend or distribution in
respect of the Pledged Collateral or any part thereof, to give full discharge
for the same, and to vote or grant any consent in respect of the Pledged Shares
authorized by Section 3.1. Pledgor hereby ratifies, to the extent permitted by
law, all that any said attorney shall lawfully do or cause to be done by virtue
hereof. This power, being coupled with an interest, is irrevocable until, and
shall automatically terminate upon, the termination of this Agreement pursuant
to Section 1.7.
4. GENERAL PROVISIONS.
4.1 SUCCESSORS AND ASSIGNS; ASSIGNMENT. Except as otherwise provided
in this Agreement, this Agreement, and the rights and obligations of the parties
hereunder, will be binding upon and inure to the benefit of their respective
successors, assigns, heirs, executors, administrators and legal representatives.
The Secured Party may assign any of its rights and obligations under this
Agreement. The Pledgor may not assign, whether voluntarily or by operation of
law, any of its rights and obligations under this Agreement, except with the
prior written consent of the Secured Party. An assignment by operation of law
includes, without limitation, (i) a merger, reorganization, consolidation or
other transaction in which the shareholders of such party before such merger,
reorganization, consolidation or other transaction own less than fifty percent
(50%) of the outstanding voting equity securities of the surviving corporation,
(ii) a sale or other transfer of all or substantially all of the assets of such
party, or (iii) a transfer of more than fifty percent (50%) of the outstanding
voting equity securities of such party in one transaction or a series of related
transactions.
4.2 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of California, without giving effect to
that body of laws pertaining to conflict of laws.
4.3 NOTICES. Any and all notices required or permitted to be given
to a party pursuant to the provisions of this Agreement will be in writing and
will be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) one (1) business day after deposit with
an express overnight courier for United States deliveries, or two (2) business
days after such deposit for deliveries outside of the United States, with proof
of delivery from the courier requested; or (iii) three (3) business days after
deposit in the United States mail by registered or certified mail (return
receipt requested) for United States deliveries.
All notices for delivery outside the United States will be sent
by express courier. All notices not delivered personally will be sent with
postage and/or other charges prepaid and properly addressed to the party to be
notified at the principal executive offices of Secured Party, or at such other
address as such other party may designate by ten (10) days advance written
notice to the other parties hereto. Notices to the Secured Party will be marked
"Attention: President."
4.4 FURTHER ASSURANCES. The parties agree to execute such further
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
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4.5 TITLES AND HEADINGS. The titles, captions and headings of this
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically
stated, all references herein to "sections" and "exhibits" will mean "sections"
and "exhibits" to this Agreement.
4.6 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein, including but not limited to, the Loan Documents, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Agreement, and supersede all prior understandings and agreements, whether
oral or written, between or among the parties hereto with respect to the
specific subject matter hereof.
4.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
4.8 SEVERABILITY. If any provision of this Agreement is determined
by any court or arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to the maximum
extent possible given the intent of the parties hereto. If such clause or
provision cannot be so enforced, such provision shall be stricken from this
Agreement and the remainder of this Agreement shall be enforced as if such
invalid, illegal or unenforceable clause or provision had (to the extent not
enforceable) never been contained in this Agreement. Notwithstanding the
forgoing, if the value of this Agreement based upon the substantial benefit of
the bargain for any party is materially impaired, which determination as made by
the presiding court or arbitrator of competent jurisdiction shall be binding,
then this Agreement will not be enforceable against such affected party and both
parties agree to renegotiate such provision(s) in good faith.
4.9 FACSIMILE SIGNATURES. This Agreement may be executed and
delivered by facsimile and upon such delivery the facsimile signature will be
deemed to have the same effect as if the original signature had been delivered
to the other party.
4.10 AMENDMENT AND WAIVERS. This Agreement may be amended only by a
written agreement executed by each of the parties hereto. No amendment of or
waiver of, or modification of any obligation under this Agreement will be
enforceable unless set forth in a writing signed by the party against which
enforcement is sought. Any amendment effected in accordance with this section
will be binding upon all parties hereto and each of their respective successors
and assigns. No delay or failure to require performance of any provision of
this Agreement shall constitute a waiver of that provision as to that or any
other instance. No waiver granted under this Agreement as to any one provision
herein shall constitute a subsequent waiver of such provision or of any other
provision herein, nor shall it constitute the waiver of any performance other
than the actual performance specifically waived.
4.11 WAIVER OF JURY TRIAL. Pledgor and Secured Party waive any right
they may have to a trial by jury in respect of any litigation based on, or
arising out of, under or in connection with, this Agreement or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or other action of any loan party or any secured party.
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IN WITNESS WHEREOF, Pledgor has caused this Agreement to be duly executed
and delivered by its duly authorized officer on the date first above written.
PLEDGOR:
_____________________________________
LLOYD TAYLOR
_____________________________________
DANA TAYLOR
ACCEPTED AND ACKNOWLEDGED:
SECURED PARTY
KEYNOTE SYSTEM INCORPORATED
_____________________________________
UMANG GUPTA, President and
Chief Executive Officer
SIGNATURE PAGE TO STOCK PLEDGE AGREEMENT
BY LLOYD TAYLOR AND DANA TAYLOR DATED JANUARY __, 1999
8
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KEYNOTE SYSTEMS INCORPORATED
LOAN AND PLEDGE AGREEMENT
LOAN AND PLEDGE AGREEMENT effective as of 15 January 1999 between Lloyd
Taylor and Keynote Systems Incorporated, a California corporation (the
"Company").
R E C I T A L S
A. Shareholder has purchased from the Company on 15 January 1999 (the
"Exercise Date") upon exercise of an option ("Option") 300,000 shares of Common
Stock (the "Pledged Shares"), at a price of $0.25 per share and a total exercise
price of $75,000.000 (the "Exercise Price").
B. Shareholder is paying the Exercise Price in full by the execution
and delivery of this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. LOAN
1.1 PRINCIPAL AND INTEREST. Shareholder hereby promises to pay
to the order of the Company the principal amount of $300.00 (the "Loan")
together with simple interest at the rate of seven percent (7%) per annum, from
the date of this Agreement.
1.2 PAYMENT SCHEDULE. Interest shall be due and payable in
arrears on the first anniversary of the Exercise Date and on each subsequent
anniversary thereafter until all principal and accrued interest have been paid
in full. Payment of the entire unpaid principal balance shall be made on or
before the fifth anniversary of the Exercise Date.
1.3 OPTIONAL PREPAYMENT. The Loan may be prepaid, in whole
or in part, at any time without prepayment penalty.
1.4 FULL RECOURSE. The Loan is a full recourse obligation and
the promise to pay principal is absolute and unconditional and is not subject to
offset by Shareholder. Shareholder shall be liable for any deficiency in the
collateral.
1.5 RIGHT OF REPURCHASE. The Company has a Right of Repurchase
under the Option Agreement. If the Company elects to exercise that Right, the
Company shall have the right (but not the obligation) to offset the repurchase
price directly against accrued interest or principal of the Loan upon notice to
the Shareholder.
2. SECURITY
2.1 PLEDGE. Shareholder hereby assigns and pledges to the
Company the Pledged Shares as security for repayment of the Loan in full and
payment of all expenses under this Agreement. Shareholder has delivered to the
Company the certificates representing the Pledged Shares together with an
UNDATED SIGNED Assignment Separate From Certificate.
<PAGE>
2.2 DIVIDENDS AND DISTRIBUTIONS. Provided that Shareholder is
not in default under the Loan, all current cash dividends paid in respect of the
Pledged Shares shall be delivered to Shareholder. All other distributions,
including liquidating dividends, shares received in recapitalizations or
pursuant to stock dividends, shall be delivered to the Company to be held by the
Company as additional collateral, whether or not the Shareholder is in default
under the Loan. If Shareholder is in default under the Loan, the Company shall
be entitled to all current cash dividends.
2.3 VOTING RIGHTS. Provided that Shareholder is not in default
under the Loan, Shareholder shall have all voting rights with respect to the
Pledge Shares on all corporate matters. If Shareholder is in default under the
Loan, the Company shall have all such voting rights.
2.4 RELEASE OF SECURITY. Upon payment in full of all principal
and interest on the Loan, the Pledged Shares shall be released to the
Shareholder or the escrow agent as appropriate. At the request of the
Shareholder and upon Shareholder's repaying or making arrangements satisfactory
to the Company to repay the Loan in part, the Company shall release the Pledged
Shares on a pro rata basis in accordance with the portion of that principal
payment on the Loan; provided that the ratio of the fair market value of the
remaining Pledged Shares to the remaining principal amount of the Loan is not
less than such a ratio on the Exercise Date.
3. ACCELERATION OF THE LOAN. In the event that Shareholder is in
default in making any payment required under the Loan for a period of more than
five days or ceases to be employed by the Company for any reason, the Company
may (i) declare the entire unpaid balance under the Loan immediately due and
payable, (ii) sell the Pledged Shares at any private or public sale on not less
than ten days' written notice to Shareholder, and otherwise in accordance with
the provisions of Section 9504(3) of the California Commercial Code, or (iii)
retain the Pledged Shares in satisfaction of the indebtedness evidenced by the
Loan pursuant to the provisions of Section 9505(2) of the California
Corporations Code. In case of any sale, after deducting the costs of sale, the
remaining proceeds of such sale shall be applied first to accrued interest and
then to the principal of the Loan, and the balance, if any shall be paid to
Shareholder.
4. AMENDMENT. This Agreement may be amended only upon the written
consent of the parties. The Company may waive any provision of this Agreement
and may condition such waiver in any manner it deems appropriate.
5. COSTS AND ATTORNEYS' FEES. All costs and expenses, including
reasonable attorneys' fees, incurred in the exercise of any right, power, or
remedy conferred by this Agreement shall be an obligation of Shareholder and
become part of the indebtedness secured by this Agreement.
6. RIGHTS OF THE PARTIES. The rights, powers, and remedies of the
parties under this Agreement shall be in addition to all rights, powers, and
remedies given to them by virtue of any statute or rule of law. Any forbearance
or failure or delay by either party in exercising any right, power, or remedy
shall not be deemed to be a waiver and any single or partial exercise shall not
preclude further exercise.
<PAGE>
7. NOTICES. All notices and other communications shall be in writing
and shall be deemed to have been given on the date of service if served
personally or on the second day after mailing if mailed to the party to whom
notice is to be given by first class mail, registered or certified, postage
prepaid, and addressed to the most recent address of the parties set forth in
the records of the Company.
8. ASSIGNMENT. The Company's rights under this Agreement may be
assigned or transferred in whole or in part to any party to whom the Loan is
assigned or transferred. The Shareholder may not transfer his or her interest
under this Agreement or in the Pledged Shares for so long as this Agreement
shall remain in effect.
9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this Loan and Pledge
Agreement the date first written above written.
KEYNOTE SYSTEMS INCORPORATED
By: /s/ Umang Gupta
Print name:
Title:
SHAREHOLDER
By: /s/ Lloyd W. Taylor
Print name: Lloyd W. Taylor
If I reside in California, or in another community property
jurisdiction, my spouse also accepts and agrees to be bound by the terms and
conditions of this Agreement.
/s/ Dana S. Taylor
Shareholder's Spouse
<PAGE>
Assignment Separate From Certificate
FOR VALUE RECEIVED, employee name hereby assigns and transfers unto
Keynote Systems Incorporated (the "Company"), 300,000 shares of Common Stock of
the Company represented by certificate number ______ standing in the name of the
undersigned on the books of the Company and all rights, obligations, preferences
and privileges relating to such securities. The undersigned also does hereby
irrevocably constitute and appoint the Secretary of the Company or the transfer
agent of the Company as the undersigned's attorney in fact to transfer the said
securities on the books of the above named corporation with full Power of
Substitution
Dated:_________________________ ________________________
<PAGE>
WARRANT TO PURCHASE 110,920
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-010
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.
This certifies that for the agreed upon value of One Dollar ($1.00)
and for other good and valuable consideration received, APPLEWOOD ASSOCIATES,
L.P. (the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 110,920 (ONE HUNDRED TEN THOUSAND NINE HUNDRED TWENTY) of fully
paid and nonassessable shares (subject to adjustment as provided herein) of the
Company's Common stock determined as provided in Section 1.1 below (the "Warrant
Shares") for cash at a price of $0.025 per share (the "Exercise Price") (subject
to adjustment as provided herein) at any time or from time to time up to and
including 5:00 p.m. (Pacific Standard Time) on the earlier of (i) January 21,
2002, and (ii) the closing of the initial underwritten public offering of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (such earlier day being referred to herein as the
"Expiration Date"), upon surrender to the Company at its principal office (or at
such other location as the Company may advise the Holder in writing) of this
Warrant properly endorsed with the Form of Subscription attached hereto duly
filled in and signed and accompanied by payment in-cash or by check of the
aggregate Exercise Price for the number of shares for which this Warrant is
being exercised determined in accordance with the provisions hereof. The
Exercise Price is subject to adjustment as provided in Section 3 of this Warrant
and the right to purchase the Warrant Shares and the number of Warrant Shares
that may be purchased hereunder are subject to the provisions of and the
contingencies set forth in this Warrant.
This Warrant is issued in connection with that certain Note and
Warrant Purchase Agreement, dated as of January 21, 1997, between the Company,
Holder, and other purchasers of the Company's convertible promissory notes (the
"Purchase Agreement"), and is subject to the following terms and conditions:
<PAGE>
1. EXERCISE OF WARRANT; ISSUANCE OF CERTIFICATES.
1.1 GENERAL. This Warrant is exercisable at the option of the Holder
of record hereof on or prior to the Expiration Date, at any time or from time to
time, for all or any part of the Warrant Shares (but not for a fraction of a
share) which may be purchased hereunder, as that number may be adjusted pursuant
to Section 3 of this Warrant. The Company agrees that the Warrant Shares
purchased under this Warrant shall be and are deemed to be issued to the Holder
hereof as the record owner of such warrant Shares as of the close of business on
the date on which this Warrant shall have been surrendered, properly endorsed,
the completed and executed Form of Subscription delivered, and payment made for
such Warrant Shares. Certificates for the warrant Shares so purchased, together
with any other securities or property to which the Holder hereof is entitled
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense not later than ten (10) days after the rights represented
by this Warrant have been so exercised. In case of a purchase of less than all
the Warrant Shares which may be purchased under this warrant, the Company shall
cancel this Warrant and execute and deliver to the Holder hereof within a
reasonable time a new Warrant or Warrants of like tenor for the balance of the
Warrant Shares purchasable under the Warrant surrendered upon such purchase.
Each stock certificate so delivered shall be registered in the name of such
Holder.
1.2 NET ISSUE EXERCISE OF WARRANT. Notwithstanding any provisions
herein to the contrary, if the fair market value of one Warrant Share is greater
than the Exercise Price (at the date of calculation as set forth below), in lieu
of exercising this warrant for cash, Holder may elect to receive Warrant Shares
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Form of Subscription in which event
the Company shall issue to the Holder a number of Warrant Shares computed using
the following formula:
Y (A-B)
X = -----------
A
Where X = the number of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares purchasable under the
Warrant or, if only a portion of the Warrant
is being exercised, the portion of the Warrant
being canceled (at the date of such calculation)
A = the fair market value of one Warrant Share (at the date
of such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
2
<PAGE>
For purposes of the above calculation, the fair market value of one Warrant
Share shall be determined by the Company's Board of Directors in the good faith
exercise of its reasonable business judgment; provided, however, that if at the
time of such exercise the Company's Common Stock is listed on any established
stock exchange or a national market system, the fair market value per share
shall be the product of (i) the average of the closing bid and asked prices of
the Common Stock quoted in the over-the-counter market summary or the last
reported sale price of the Common Stock or the closing price quoted on the
NASDAQ National Market System or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in The Wall Street Journal for the
five (5) trading days prior to the date of determination of fair market value
and (ii) the number of shares of Common Stock into which each Warrant Share is
convertible at the time of such exercise. Notwithstanding the foregoing, in the
event the Warrant is exercised in connection with the Company's initial public
offering of Common Stock, the fair market value per share shall be the per share
offering price to the public of the Company's initial public offering.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that all
Warrant Shares will, upon issuance and, if applicable, payment of the applicable
Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and the total number of Warrant Shares shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3. Upon
each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of warrant Shares
issuable hereunder proportionately increased, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares issuable hereunder
proportionately decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital stock
of the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification Events") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, or other
assets or property, then, as a condition of such Reclassification Event lawful
and adequate
3
<PAGE>
provisions shall be made whereby the Holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities, or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares for which the Warrant may be exercised equal to
the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any
Reclassification Event, appropriate provision shall be made with respect to
the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments
of the Exercise Price and of the number of Warrant Shares), shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities, or assets thereafter deliverable upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise Price
or any increase or decrease in the number of Warrant Shares, the company shall
give written notice thereof, by first class mail postage prepaid, addressed to
the registered Holder of this warrant at the address of such Holder as shown on
the books of the Company. The notice shall be prepared and signed by the
Company's Chief Financial Officer and shall state the Exercise Price resulting
from such adjustment and the increase or decrease, if any, in the number of
shares purchasable at such price upon the exercise of this warrant, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
4. REGISTRABLE SECURITIES. Upon exercise of this Warrant the Warrant
Shares shall, on the terms set forth therein, be Registrable Securities under
that certain Investor Rights Agreement (the "Rights Agreement") to which the
Company and the holders of its Series A Preferred Stock are parties and the
Holder of this Warrant shall be entitled to exercise the registration rights
granted under the Rights Agreement. By its receipt of this Warrant, Holder
agrees to be bound by the terms and restrictions of the Rights Agreement.
5. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant shall
be construed as conferring upon the holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company on any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
6. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT.
6.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof, are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares, except
under circumstances which will not result in a violation of the Act or any
applicable state securities laws. This Warrant and all Warrant Shares (unless
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
4
<PAGE>
THESE SECURTTIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
6.2 WARRANT TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws under which this Warrant was purchased, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed; provided, however, that the Holder shall notify the Company
in writing in advance of any proposed transfer and shall not transfer this
Warrant or any rights hereunder to any person or entity which is then engaged in
a business in direct competition with the Company.
6.3 DISPOSITION OF WARRANT SHARES. With respect to any offer, sale,
or other disposition of the warrant or of any Warrant Shares prior to
registration of such shares, the Holder hereof and each subsequent Holder of
this Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, if reasonably requested by the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of such Warrant or Warrant Shares, as the case may be, and indicating
whether or not under the Act certificates for such Warrant or Warrant Shares, to
be sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the Act.
Promptly upon receiving such written notice and opinion, the Company, as
promptly as practicable, shall notify such Holder that such Holder may sell or
otherwise dispose of such Warrant or Warrant Shares, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subparagraph 6.3 that the opinion of the counsel for the Holder
is not reasonably satisfactory to the Company, the Company shall so notify the
Holder promptly after such determination has been made. Notwithstanding the
foregoing, such Warrant or Warrant Shares may be offered, sold or otherwise
disposed of in accordance with Rule 144 under the Act, provided that the Company
shall have been furnished with such information as the Company may request to
provide reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing the Warrant or Warrant Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of counsel for the Holder, such
legend is not required in order to insure compliance with the Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
7. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the
5
<PAGE>
Company and a majority-in-interest of the Holders under the Purchase
Agreement; provided, however, that any amendment that would materially and
adversely affect Holder in a manner different from the holders of the
remaining Warrants issued pursuant to the Purchase Agreement shall also
require the consent of Holder.
8. NOTICES. Any notice, request, or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
9. OTHER NOTICES. If at any time:
(1) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Stock;
(2) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another entity;
(3) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company; or
(4) there shall be an initial public offering of Company securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least ten (10) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution, or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up, or public offering, at least ten
(10) days, prior written notice of the date when the same shall take place;
provided, however, that the Holder shall make a best efforts attempt to respond
to such notice as early as possible after the receipt thereof. Any notice given
in accordance with the foregoing clause (a) shall also specify, in the case of
any such dividend or distribution the date on which the holders of Common Stock
shall be entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up, conversion, or public
offering, as the case may be.
10. GOVERNING LAW. This warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California, excluding those laws that direct the application of the
laws of another jurisdiction.
6
<PAGE>
11. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
12. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the form of Subscription is received by the Company.
13. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
14. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall he
enforceable by any such Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its offer, thereunto duly authorized as of this 22nd day of January,
1997.
KEYNOTE SYSTEMS INCORPORATED
a California corporation
---------------------------------------
James G. Barrick, Jr.,
President
7
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of warrant)
To:
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, __________(1) shares of Common Stock of
KeyNote Systems Incorporated (the "Company") and herewith makes payment of
__________ Dollars ($____________) therefor, and requests certificates for
such shares be issued in the name of, and delivered to, ______________________
whose address is _____________________________________.
The undersigned represents that it is acquiring such shares for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof.
DATED: _______________
________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the warrant)
_________________________________
_________________________________
(1) Insert here the number of shares called for on the face of the Warrant, as
adjusted if necessary pursuant to Section 1.2 (or, in the case of a partial
exercise, the portion thereof as to which the Warrant is being exercised).
8
<PAGE>
WARRANT TO PURCHASE 25,632
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-002
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.
This certifies that for the agreed upon value of One Dollar ($1.00)
and for other good and valuable consideration received, IRWIN LIEBER (the
"Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms
set forth below, 25,632 (TWENTY FIVE THOUSAND SIX HUNDRED THIRTY TWO) of
fully paid and nonassessable shares (subject to adjustment as provided
herein) of the Company's Common stock determined as provided in Section 1.1
below (the "Warrant Shares") for cash at a price of $0.025 per share (the
"Exercise Price") (subject to adjustment as provided herein) at any time or
from time to time up to and including 5:00 p.m. (Pacific Standard Time) on
the earlier of (i) January 21, 2002, and (ii) the closing of the initial
underwritten public offering of the Company's Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended (such
earlier day being referred to herein as the "Expiration Date"), upon
surrender to the Company at its principal office (or at such other location
as the Company may advise the Holder in writing) of this Warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and
signed and accompanied by payment in-cash or by check of the aggregate
Exercise Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Exercise
Price is subject to adjustment as provided in Section 3 of this Warrant and
the right to purchase the Warrant Shares and the number of Warrant Shares
that may be purchased hereunder are subject to the provisions of and the
contingencies set forth in this Warrant.
This Warrant is issued in connection with that certain Note and
Warrant Purchase Agreement, dated as of January 21, 1997, between the
Company, Holder, and other purchasers of the Company's convertible promissory
notes (the "Purchase Agreement"), and is subject to the following terms and
conditions:
<PAGE>
1. EXERCISE OF WARRANT; ISSUANCE OF CERTIFICATES.
1.1 GENERAL. This Warrant is exercisable at the option of the
Holder of record hereof on or prior to the Expiration Date, at any time or
from time to time, for all or any part of the Warrant Shares (but not for a
fraction of a share) which may be purchased hereunder, as that number may be
adjusted pursuant to Section 3 of this Warrant. The Company agrees that the
Warrant Shares purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the record owner of such warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered, properly endorsed, the completed and executed Form of
Subscription delivered, and payment made for such Warrant Shares.
Certificates for the warrant Shares so purchased, together with any other
securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense not later than ten (10) days after the rights represented
by this Warrant have been so exercised. In case of a purchase of less than
all the Warrant Shares which may be purchased under this warrant, the Company
shall cancel this Warrant and execute and deliver to the Holder hereof within
a reasonable time a new Warrant or Warrants of like tenor for the balance of
the Warrant Shares purchasable under the Warrant surrendered upon such
purchase. Each stock certificate so delivered shall be registered in the name
of such Holder.
1.2 NET ISSUE EXERCISE OF WARRANT. Notwithstanding any provisions
herein to the contrary, if the fair market value of one Warrant Share is
greater than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this warrant for cash, Holder may elect to
receive Warrant Shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company together with the properly endorsed
Form of Subscription in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
Y (A-B)
X = -------------
A
Where X = the number of Warrant Shares to be issued to
Holder
Y = the number of Warrant Shares purchasable under the
Warrant or, if only a portion of the Warrant
is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one Warrant Share (at the date
of such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
2
<PAGE>
For purposes of the above calculation, the fair market value of one Warrant
Share shall be determined by the Company's Board of Directors in the good
faith exercise of its reasonable business judgment; provided, however, that
if at the time of such exercise the Company's Common Stock is listed on any
established stock exchange or a national market system, the fair market value
per share shall be the product of (i) the average of the closing bid and
asked prices of the Common Stock quoted in the over-the-counter market
summary or the last reported sale price of the Common Stock or the closing
price quoted on the NASDAQ National Market System or on any exchange on which
the Common Stock is listed, whichever is applicable, as published in The Wall
Street Journal for the five (5) trading days prior to the date of
determination of fair market value and (ii) the number of shares of Common
Stock into which each Warrant Share is convertible at the time of such
exercise. Notwithstanding the foregoing, in the event the Warrant is
exercised in connection with the Company's initial public offering of Common
Stock, the fair market value per share shall be the per share offering price
to the public of the Company's initial public offering.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that all
Warrant Shares will, upon issuance and, if applicable, payment of the
applicable Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for
restrictions on transfer provided for herein or under applicable federal and
state securities laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the total number of Warrant Shares shall be subject to adjustment
from time to time upon the occurrence of certain events described in this
Section 3. Upon each adjustment of the Exercise Price, the Holder of this
Warrant shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Exercise Price resulting
from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of warrant
Shares issuable hereunder proportionately increased, and conversely, in case
the outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant
Shares issuable hereunder proportionately decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital
stock of the Company or any reorganization, consolidation, merger, or any
sale, lease, license, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all, of the business
and/or assets of the Company (the "Reclassification Events") shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities, or other assets or property, then, as a condition
of such Reclassification Event lawful and adequate
3
<PAGE>
provisions shall be made whereby the Holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities, or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares for which the Warrant may be exercised equal to
the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any
Reclassification Event, appropriate provision shall be made with respect to
the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments
of the Exercise Price and of the number of Warrant Shares), shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities, or assets thereafter deliverable upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise
Price or any increase or decrease in the number of Warrant Shares, the
company shall give written notice thereof, by first class mail postage
prepaid, addressed to the registered Holder of this warrant at the address of
such Holder as shown on the books of the Company. The notice shall be
prepared and signed by the Company's Chief Financial Officer and shall state
the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4. REGISTRABLE SECURITIES. Upon exercise of this Warrant the Warrant
Shares shall, on the terms set forth therein, be Registrable Securities under
that certain Investor Rights Agreement (the "Rights Agreement") to which the
Company and the holders of its Series A Preferred Stock are parties and the
Holder of this Warrant shall be entitled to exercise the registration rights
granted under the Rights Agreement. By its receipt of this Warrant, Holder
agrees to be bound by the terms and restrictions of the Rights Agreement.
5. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof the right to vote or
to consent to receive notice as a shareholder of the Company on any other
matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised.
6. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT.
6.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant,
by acceptance hereof, agrees that this Warrant and the Warrant Shares to be
issued upon exercise hereof, are being acquired for investment and that it
will not offer, sell, or otherwise dispose of this Warrant or any Warrant
Shares, except under circumstances which will not result in a violation of
the Act or any applicable state securities laws. This Warrant and all
Warrant Shares (unless registered under the Act) shall be stamped or
imprinted with a legend in substantially the following form:
4
<PAGE>
THESE SECURTTIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
6.2 WARRANT TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws under which this Warrant was purchased,
this Warrant and all rights hereunder are transferable, in whole or in part,
without charge to the Holder (except for transfer taxes), upon surrender of
this Warrant properly endorsed; provided, however, that the Holder shall
notify the Company in writing in advance of any proposed transfer and shall
not transfer this Warrant or any rights hereunder to any person or entity
which is then engaged in a business in direct competition with the Company.
6.3 DISPOSITION OF WARRANT SHARES. With respect to any offer,
sale, or other disposition of the warrant or of any Warrant Shares prior to
registration of such shares, the Holder hereof and each subsequent Holder of
this Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of
such holder's counsel, if reasonably requested by the Company, to the effect
that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal
or state law then in effect) of such Warrant or Warrant Shares, as the case
may be, and indicating whether or not under the Act certificates for such
Warrant or Warrant Shares, to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order
to insure compliance with the Act. Promptly upon receiving such written
notice and opinion, the Company, as promptly as practicable, shall notify
such Holder that such Holder may sell or otherwise dispose of such Warrant or
Warrant Shares, all in accordance with the terms of the notice delivered to
the Company. If a determination has been made pursuant to this subparagraph
6.3 that the opinion of the counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Notwithstanding the foregoing, such
Warrant or Warrant Shares may be offered, sold or otherwise disposed of in
accordance with Rule 144 under the Act, provided that the Company shall have
been furnished with such information as the Company may request to provide
reasonable assurance that the provisions of Rule 144 have been satisfied.
Each certificate representing the Warrant or Warrant Shares thus transferred
(except a transfer pursuant to Rule 144) shall bear a legend as to the
applicable restrictions on transferability in order to insure compliance with
the Act, unless in the aforesaid opinion of counsel for the Holder, such
legend is not required in order to insure compliance with the Act. The
Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
7. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged, or terminated only by an instrument in
writing signed by the
5
<PAGE>
Company and a majority-in-interest of the Holders under the Purchase
Agreement; provided, however, that any amendment that would materially and
adversely affect Holder in a manner different from the holders of the
remaining Warrants issued pursuant to the Purchase Agreement shall also
require the consent of Holder.
8. NOTICES. Any notice, request, or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall
be delivered or shall be sent by certified mail, postage prepaid, to each
such Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant or such other address as either may from time to time provide to the
other.
9. OTHER NOTICES. If at any time:
(1) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Stock;
(2) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
entity;
(3) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company; or
(4) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the Holder of this Warrant at the
address of such Holder as shown on the books of the Company, (a) at least ten
(10) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution, or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or public
offering, at least ten (10) days, prior written notice of the date when the
same shall take place; provided, however, that the Holder shall make a best
efforts attempt to respond to such notice as early as possible after the
receipt thereof. Any notice given in accordance with the foregoing clause
(a) shall also specify, in the case of any such dividend or distribution the
date on which the holders of Common Stock shall be entitled thereto. Any
notice given in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, conversion, or public offering, as the case may be.
10. GOVERNING LAW. This warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of California, excluding those laws that direct the application
of the laws of another jurisdiction.
6
<PAGE>
11. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant.
12. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the Holder entitled to such fraction a sum in cash
equal to such fraction (calculated to the nearest 1/100th of a share)
multiplied by the then effective Exercise Price on the date the form of
Subscription is received by the Company.
13. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment. Upon the request of the
Holder, the Company will at any time during the period this warrant is
outstanding acknowledge in writing, in form satisfactory to Holder, the
continued validity of this Warrant and the Company's obligations hereunder.
14. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of
the Company and the Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant, and
shall he enforceable by any such Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its offer, thereunto duly authorized as of this 21st day of
January, 1997.
KEYNOTE SYSTEMS INCORPORATED
a California corporation
---------------------------------
James G. Barrick, Jr.,
President
7
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of warrant)
To:
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder,_________(1) shares of Common Stock of
KeyNote Systems Incorporated (the "Company") and herewith makes payment of
__________ Dollars ($____________) therefor, and requests certificates for
such shares be issued in the name of, and delivered to, ______________________
whose address is _____________________________________.
The undersigned represents that it is acquiring such shares for its own
account for investment and not with a view to or for sale in connection with
any distribution thereof.
DATED: _______________
________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the warrant)
_________________________________
_________________________________
(1) Insert here the number of shares called for on the face of the Warrant,
as adjusted if necessary pursuant to Section 1.2 (or, in the case of a
partial exercise, the portion thereof as to which the Warrant is being
exercised).
8
<PAGE>
WARRANT TO PURCHASE 25,632
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-011
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.
This certifies that for the agreed upon value of One Dollar ($1.00)
and for other good and valuable consideration received, WOODLAND PARTNERS (the
"Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS INCORPORATED,
a California corporation (the "Company"), subject to the terms set forth below,
25,632 (TWENTY FIVE THOUSAND SIX HUNDRED THIRTY TWO) of fully paid and
nonassessable shares (subject to adjustment as provided herein) of the Company's
Common stock determined as provided in Section 1.1 below (the "Warrant Shares")
for cash at a price of $0.025 per share (the "Exercise Price") (subject to
adjustment as provided herein) at any time or from time to time up to and
including 5:00 p.m. (Pacific Standard Time) on the earlier of (i) January 21,
2002, and (ii) the closing of the initial underwritten public offering of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (such earlier day being referred to herein as the
"Expiration Date"), upon surrender to the Company at its principal office (or at
such other location as the Company may advise the Holder in writing) of this
Warrant properly endorsed with the Form of Subscription attached hereto duly
filled in and signed and accompanied by payment in-cash or by check of the
aggregate Exercise Price for the number of shares for which this Warrant is
being exercised determined in accordance with the provisions hereof. The
Exercise Price is subject to adjustment as provided in Section 3 of this Warrant
and the right to purchase the Warrant Shares and the number of Warrant Shares
that may be purchased hereunder are subject to the provisions of and the
contingencies set forth in this Warrant.
This Warrant is issued in connection with that certain Note and
Warrant Purchase Agreement, dated as of January 21, 1997, between the Company,
Holder, and other purchasers of the Company's convertible promissory notes (the
"Purchase Agreement"), and is subject to the following terms and conditions:
<PAGE>
1. EXERCISE OF WARRANT; ISSUANCE OF CERTIFICATES.
1.1 GENERAL. This Warrant is exercisable at the option of the Holder
of record hereof on or prior to the Expiration Date, at any time or from time to
time, for all or any part of the Warrant Shares (but not for a fraction of a
share) which may be purchased hereunder, as that number may be adjusted pursuant
to Section 3 of this Warrant. The Company agrees that the Warrant Shares
purchased under this Warrant shall be and are deemed to be issued to the Holder
hereof as the record owner of such warrant Shares as of the close of business on
the date on which this Warrant shall have been surrendered, properly endorsed,
the completed and executed Form of Subscription delivered, and payment made for
such Warrant Shares. Certificates for the warrant Shares so purchased, together
with any other securities or property to which the Holder hereof is entitled
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense not later than ten (10) days after the rights represented
by this Warrant have been so exercised. In case of a purchase of less than all
the Warrant Shares which may be purchased under this warrant, the Company shall
cancel this Warrant and execute and deliver to the Holder hereof within a
reasonable time a new Warrant or Warrants of like tenor for the balance of the
Warrant Shares purchasable under the Warrant surrendered upon such purchase.
Each stock certificate so delivered shall be registered in the name of such
Holder.
1.2 NET ISSUE EXERCISE OF WARRANT. Notwithstanding any provisions
herein to the contrary, if the fair market value of one Warrant Share is greater
than the Exercise Price (at the date of calculation as set forth below), in lieu
of exercising this warrant for cash, Holder may elect to receive Warrant Shares
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Form of Subscription in which event
the Company shall issue to the Holder a number of Warrant Shares computed using
the following formula:
Y (A-B)
X = -------------
A
Where X = the number of Warrant Shares to be issued to Holder
Y = the number of Warrant Shares purchasable under the
Warrant or, if only a portion of the Warrant
is being exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A = the fair market value of one Warrant Share (at the date
of such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
2
<PAGE>
For purposes of the above calculation, the fair market value of one Warrant
Share shall be determined by the Company's Board of Directors in the good faith
exercise of its reasonable business judgment; provided, however, that if at the
time of such exercise the Company's Common Stock is listed on any established
stock exchange or a national market system, the fair market value per share
shall be the product of (i) the average of the closing bid and asked prices of
the Common Stock quoted in the over-the-counter market summary or the last
reported sale price of the Common Stock or the closing price quoted on the
NASDAQ National Market System or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in The Wall Street Journal for the
five (5) trading days prior to the date of determination of fair market value
and (ii) the number of shares of Common Stock into which each Warrant Share is
convertible at the time of such exercise. Notwithstanding the foregoing, in the
event the Warrant is exercised in connection with the Company's initial public
offering of Common Stock, the fair market value per share shall be the per share
offering price to the public of the Company's initial public offering.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees that all
Warrant Shares will, upon issuance and, if applicable, payment of the applicable
Exercise Price, be duly authorized, validly issued, fully paid and
nonassessable, and free of all liens and encumbrances, except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and the total number of Warrant Shares shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3. Upon
each adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of warrant Shares
issuable hereunder proportionately increased, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares issuable hereunder
proportionately decreased.
3.2 RECLASSIFICATION. If any reclassification of the capital stock
of the Company or any reorganization, consolidation, merger, or any sale, lease,
license, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the business and/or assets of the
Company (the "Reclassification Events") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, or other
assets or property, then, as a condition of such Reclassification Event lawful
and adequate
3
<PAGE>
provisions shall be made whereby the Holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities, or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares for which the Warrant may be exercised equal to
the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any
Reclassification Event, appropriate provision shall be made with respect to
the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments
of the Exercise Price and of the number of Warrant Shares), shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities, or assets thereafter deliverable upon the exercise hereof.
3.3 NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise Price
or any increase or decrease in the number of Warrant Shares, the company shall
give written notice thereof, by first class mail postage prepaid, addressed to
the registered Holder of this warrant at the address of such Holder as shown on
the books of the Company. The notice shall be prepared and signed by the
Company's Chief Financial Officer and shall state the Exercise Price resulting
from such adjustment and the increase or decrease, if any, in the number of
shares purchasable at such price upon the exercise of this warrant, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
4. REGISTRABLE SECURITIES. Upon exercise of this Warrant the Warrant
Shares shall, on the terms set forth therein, be Registrable Securities under
that certain Investor Rights Agreement (the "Rights Agreement") to which the
Company and the holders of its Series A Preferred Stock are parties and the
Holder of this Warrant shall be entitled to exercise the registration rights
granted under the Rights Agreement. By its receipt of this Warrant, Holder
agrees to be bound by the terms and restrictions of the Rights Agreement.
5. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant shall
be construed as conferring upon the holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company on any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
6. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT.
6.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof, are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares, except
under circumstances which will not result in a violation of the Act or any
applicable state securities laws. This Warrant and all Warrant Shares (unless
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
4
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
6.2 WARRANT TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws under which this Warrant was purchased, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed; provided, however, that the Holder shall notify the Company
in writing in advance of any proposed transfer and shall not transfer this
Warrant or any rights hereunder to any person or entity which is then engaged in
a business in direct competition with the Company.
6.3 DISPOSITION OF WARRANT SHARES. With respect to any offer, sale,
or other disposition of the warrant or of any Warrant Shares prior to
registration of such shares, the Holder hereof and each subsequent Holder of
this Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, if reasonably requested by the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of such Warrant or Warrant Shares, as the case may be, and indicating
whether or not under the Act certificates for such Warrant or Warrant Shares, to
be sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the Act.
Promptly upon receiving such written notice and opinion, the Company, as
promptly as practicable, shall notify such Holder that such Holder may sell or
otherwise dispose of such Warrant or Warrant Shares, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subparagraph 6.3 that the opinion of the counsel for the Holder
is not reasonably satisfactory to the Company, the Company shall so notify the
Holder promptly after such determination has been made. Notwithstanding the
foregoing, such Warrant or Warrant Shares may be offered, sold or otherwise
disposed of in accordance with Rule 144 under the Act, provided that the Company
shall have been furnished with such information as the Company may request to
provide reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing the Warrant or Warrant Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of counsel for the Holder, such
legend is not required in order to insure compliance with the Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
7. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the
5
<PAGE>
Company and a majority-in-interest of the Holders under the Purchase
Agreement; provided, however, that any amendment that would materially and
adversely affect Holder in a manner different from the holders of the
remaining Warrants issued pursuant to the Purchase Agreement shall also
require the consent of Holder.
8. NOTICES. Any notice, request, or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
9. OTHER NOTICES. If at any time:
(1) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Stock;
(2) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another entity;
(3) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company; or
(4) there shall be an initial public offering of Company securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least ten (10) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution, or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, and (b) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up, or public offering, at least ten
(10) days, prior written notice of the date when the same shall take place;
provided, however, that the Holder shall make a best efforts attempt to respond
to such notice as early as possible after the receipt thereof. Any notice given
in accordance with the foregoing clause (a) shall also specify, in the case of
any such dividend or distribution the date on which the holders of Common Stock
shall be entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up, conversion, or public
offering, as the case may be.
10. GOVERNING LAW. This warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California, excluding those laws that direct the application of the
laws of another jurisdiction.
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11. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
12. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share,
pay the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the form of Subscription is received by the Company.
13. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
14. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall he
enforceable by any such Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its offer, thereunto duly authorized as of this 21st day of January,
1997.
KEYNOTE SYSTEMS INCORPORATED
a California corporation
----------------------------------------
James G. Barrick, Jr.,
President
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of warrant)
To:
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, (1) shares of Common Stock of KeyNote
Systems Incorporated (the "Company") and herewith makes payment of __________
Dollars ($____________) therefor, and requests certificates for such shares be
issued in the name of, and delivered to, ______________________ whose address is
_____________________________________.
The undersigned represents that it is acquiring such shares for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof.
DATED: _______________
________________________________
(Signature must conform in all respects to name of Holder as specified on the
face of the warrant)
_________________________________
_________________________________
(1) Insert here the number of shares called for on the face of the Warrant, as
adjusted if necessary pursuant to Section 1.2 (or, in the case of a partial
exercise, the portion thereof as to which the Warrant is being exercised).
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Exhibit 10.16
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is dated as of the 23rd day of
February, 1999, by and between ELECTRONICS FOR IMAGING, INC., a Delaware
corporation ("Sublessor"), and KEYNOTE SYSTEMS, INC., a California
corporation ("Sublessee").
A. Sublessor, as Tenant, and The Joseph and Eda Pell Revocable
Trust, as Landlord ("Master Landlord"), previously entered into that certain
Agreement of Lease, dated July 30, 1992 ("Original Lease"), which has been
amended by that certain First Addendum to Lease dated July 30, 1992 ("First
Addendum"), that certain Second Addendum to Lease dated April 1, 1993
("Second Addendum"), that certain Third Addendum to Lease dated May 20, 1993
("Third Addendum"), that certain Fourth Addendum to Lease dated May 25, 1993
("Fourth Addendum"), that certain Fifth Addendum to Lease dated July 12, 1994
("Fifth Addendum"), that certain Sixth Addendum to Lease dated January 19,
1995 ("Sixth Addendum"), and that certain Seventh Addendum to Lease dated
December 4, 1996 ("Seventh Addendum") (collectively, the "Master Lease").
Under the Master Lease, Sublessor leases from Master Landlord approximately
forty-nine thousand seven hundred seventy-nine (49,779) rentable square feet
("Master Premises") on the first and second floors of the building located at
2855 Campus Drive, San Mateo, California ("Building"). A copy of the Master
Lease is attached hereto as EXHIBIT A. Capitalized terms used but not
defined herein shall have the meanings given them under the Master Lease.
B. Sublessor desires to sublease a portion of the Master Premises to
Sublessee, and Sublessee desires to sublease a portion of the Master Premises
from Sublessor, on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublessor and Sublessee agree
as follows:
1. SUBLEASE PREMISES. Upon and subject to the terms and conditions
of this Sublease, Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor that portion of the Master Premises
identified on the floor plan attached hereto as EXHIBIT B ("Sublease
Premises") and incorporated herein by this reference. The Sublease Premises
are located on the second floor of the Building. Sublessor and Sublessee
hereby stipulate that the Sublease Premises contain twenty-four thousand
eight hundred eighty-nine (24,889) rentable square feet ("RSF") , which is
approximately fifty percent (50%) of the Master Premises.
1.1 AS-IS. The Sublease Premises shall be delivered to
Sublessee in "AS-IS AND WITH ALL FAULTS" condition and without any
representations or warranties, express or implied, with respect thereto by
Sublessor or any of Sublessor's directors, officers, shareholders, employees,
agents or representatives ("Sublessor's Representatives") ; provided,
however, that Sublessor shall clean the carpets in the Sublease Premises upon
Sublessor vacating the Sublease Premises and shall deliver the Sublease
Premises to Sublessee in a "broom-clean" condition. Specifically, neither
Sublessor nor any of Sublessor's Representatives has made, or hereby
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makes, any representation or warranty concerning the compliance of the
Sublease Premises or the Building with the American with Disabilities Act, 42
U.S.C. Section 12101 et. seq. ("ADA"), Title 24 of the California
Administrative Code ("Title 24") or any other similar federal, state or local
laws, statutes, ordinances, codes, regulations, rules, orders, actions,
policies or decrees pertaining to the accessibility of business
establishments to persons with disabilities.
2. TERM. Although it is anticipated that the term of this Sublease
shall commence upon April 1, 1999 ("Scheduled Commencement Date") , the term
of this Sublease shall formally commence on the earlier of: (i) the date on
which Sublessee takes possession of the Sublease Premises if such date is
prior to the Scheduled Commencement Date; (ii) the Scheduled Commencement
Date if on such date the term has not already commenced and Sublessor tenders
possession of the Sublease Premises to Sublessee on or prior to the Scheduled
Commencement Date; and (iii) such date subsequent to the Scheduled
Commencement Date on which Sublessor tenders possession of the Sublease
Premises to Sublessee if on such date the term has not already commenced (the
earlier date being the "Commencement Date"). The term of this Sublease shall
end on June 30, 2000 ("Expiration Date"), unless sooner terminated pursuant
to this Sublease.
2.1 POSSESSION. Notwithstanding any provision of this
Sublease, if for any reason Sublessor cannot deliver possession of the
Sublease Premises to Sublessee on the Scheduled Commencement Date, Sublessor
shall not be subject to any liability therefor, nor shall such failure affect
the validity of this Sublease or the obligations of Sublessee hereunder or
extend the term hereof, but in such case Sublessee shall not be obligated to
pay rent until possession of the Sublease Premises is tendered to Sublessee.
If Sublessor has not delivered possession of the Sublease Premises to
Sublessee within sixty (60) days after the Scheduled Commencement Date,
Sublessee may, at its election, by notice in writing to Sublessor within ten
(10) days after such sixty (60) day period, cancel this Sublease, in which
event Sublessor shall return all sums deposited by Sublessee with Sublessor,
and neither party shall have any further liability to the other and both
parties shall be discharged from all obligations hereunder. If Sublessee
occupies the Sublease Premises prior to the Scheduled Commencement Date, such
occupancy shall be subject to this Sublease, and Sublessee shall commence
paying Rent upon such occupancy pursuant to Section 4 below. Any such early
occupancy shall not advance the Expiration Date.
2.2 NO RENEWAL, EXTENSION OR EXPANSION RIGHTS. To the extent
that Sublessor has not previously exercised such rights, Sublessor and
Sublessee shall not exercise any renewal, extension or expansion rights
pertaining to the Sublease Premises under the Master Lease.
3. USE. The Sublease Premises shall be used and occupied by
Sublessee solely in a manner and for the uses permitted under the Master
Lease and for no other purpose. Sublessee, at its sole cost and expense,
shall promptly comply with all federal, state and local laws, statutes,
ordinances, codes, regulations, rules, orders, actions, policies or decrees
now or hereinafter in effect ("Laws"), including, without limitation, the
ADA, Title 24 and similar Laws pertaining to the accessibility of business
establishments to persons with disabilities. Sublessee shall not do or
permit to be done in or about the Sublease Premises or Building, nor bring or
keep anything
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therein, which will in any way increase the existing rate of or affect any
fire or other insurance upon the Building or the Sublease Premises or any of
its contents, or cause cancellation of any insurance policy covering the
Building or the Sublease Premises or any part thereof. Sublessee shall
comply with the provisions of Section 28 of the Original Lease and shall
defend, indemnify and hold Master Landlord and Sublessor harmless pursuant
thereto. Sublessee shall not use or permit the use of the Sublease Premises
in any manner that will tend to create waste or a nuisance or which will tend
to disturb other tenants of the Building.
4. RENT.
4.1 BASE RENT. Beginning on the Commencement Date and
continuing thereafter during the term of this Sublease, Sublessee shall pay
to Sublessor a base rent of Seventy-Three Thousand Nine Hundred Twenty and
33/100 Dollars per month ($73,920.33/month) ("Base Rent").
4.2 ADDITIONAL RENT. In addition to Base Rent, beginning on
the Commencement Date and continuing thereafter during the term of this
Sublease, Sublessee shall pay to Sublessor an amount equal to Six Thousand
Four Hundred Seventy-One and 14/100 Dollars per month ($6,471.14/month)
("Additional Rent") as Sublessee's contribution towards any Project Taxes and
Operating Expenses in excess of Base Year Project Taxes and Operating
Expenses (as those terms are defined under the Master Lease) payable by
Sublessor under the Master Lease and any over-standard electrical charges
payable by Sublessor under Section 4 of the Seventh Addendum. In
clarification of the immediately preceding sentence, the Six Thousand Four
Hundred Seventy-One and 14/100 Dollars per month ($6471.14/month) is the
full, entire and only amount that Sublessee shall be required to pay to
anyone with respect to Project Taxes and operating Expenses during the term
of this Sublease. In addition, Sublessee shall reimburse Sublessor for any
late fees, charges or penalties, after-hour services fees or charges, or
other fees, charges or penalties imposed under the Master Lease with respect
to the Sublease Premises (other than excess Project Taxes and Operating
Expenses and over-standard electrical charges imposed under Section 4 of the
Seventh Addendum), except to the extent such are due solely to the fault of
Sublessor, and any electrical service charges due to after-hours services.
Except as provided in Section 4.4 below, Additional Rent shall be payable
monthly. Base Rent, Additional Rent and any other rental items payable by
Sublessee to Sublessor under this Sublease are collectively referred to
herein as "Rent".
4.3 PRORATIONS. The Rent for any period during the term of
this Sublease which is less than one month shall be a prorata portion of the
Rent for such month.
4.4 PAYMENT OF RENT. Except as otherwise specifically provided
in this Sublease, Rent shall be payable in lawful money without demand,
offset, deduction, counterclaim or setoff, in monthly installments, in
advance, on the first day of each month during the term of this Sublease.
All Rent is to be paid to Sublessor at its office at the address set forth in
Section 19.1 below, or at such other place as Sublessor may designate by
notice to Sublessee. To the extent any Rent is payable on account of items
which are not payable monthly by Sublessor to Master Landlord under the
Master Lease, such amounts shall be paid to Sublessor as
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and when such items are payable by Sublessor to Master Landlord under the
Master Lease unless otherwise provided herein. Upon written request by
Sublessee, Sublessor agrees to provide Sublessee with copies of any
statements or invoices received by Sublessor from Master Landlord pursuant to
the terms of the Master Lease.
4.5 ADVANCE RENT. Concurrently with the execution of this
Sublease, Sublessee shall pay to Sublessor the sum of Eighty Thousand Three
Hundred Ninety-One and 47/100 Dollars ($80,391.47) ("Advance Rent") , which
Advance Rent shall be applied by Sublessor toward the Base Rent for the first
month of the Sublease.
5. SECURITY DEPOSIT. In addition to the Advance Rent and within
seven (7) days after the execution of this Sublease, Sublessee shall deliver
to Sublessor an unconditional and irrevocable letter of credit in favor of
Sublessor, drawn upon Silicon Valley Bank in a form reasonably acceptable to
Sublessor, for the principal sum of One Hundred Sixty Thousand Seven Hundred
Eighty-Two Dollars ($160,782) ("Deposit") as security for Sublessee's
faithful performance of Sublessee's obligations hereunder. If Sublessee
faithfully performs all of Sublessee's obligations under this Sublease, then
on or after April 1, 2000, Sublessee may elect to reduce the principal amount
of the letter of credit to Eighty Thousand Three Hundred Ninety-One Dollars
($80,391). Upon Sublessee exercising such right, the term "Deposit" shall
mean such reduced principal amount. If any letter of credit held by
Sublessor will expire prior to the Expiration Date, and it is not extended or
a new letter of credit is not substituted within thirty (30) days prior to
the expiration date of the letter of credit then held by Sublessor, then
Sublessor shall be entitled to draw the entire amount of the letter of credit
then held by Sublessor and hold such funds in accordance with this Section 5
until the Expiration Date. At any time that Sublessee fails to pay Rent or
any other amounts due hereunder, or otherwise defaults with respect to any
provision of this Sublease or the Master Lease, Sublessor shall be entitled
to draw the entire amount of any letter of credit then held by Sublessor and
use, apply or retain all or any portion of the Deposit for the payment of
such amounts or for the payment of any other amount to which Sublessor may
become obligated by reason of Sublessee's default, or to compensate Sublessor
for any loss or damage which Sublessor may suffer thereby. If Sublessor so
uses or applies all or any portion of the Deposit, Sublessee shall within ten
(10) days after written demand therefor deposit cash with Sublessor in an
amount sufficient to restore the Deposit to the full amount hereinabove
stated and Sublessee's failure to do so shall be a material breach of this
Sublease. Sublessor shall not be required to keep the Deposit separate from
its general accounts. If Sublessee faithfully performs all of Sublessee's
obligations hereunder, any letter of credit then held by Sublessor pursuant
to this Section 5 or if Sublessor has drawn upon such letter of credit
pursuant to this Section 5, the Deposit, or so much thereof as has not been
previously applied by Sublessor, shall be returned, without payment of
interest or other increment for its use, to Sublessee at the expiration of
the term hereof and after Sublessee has vacated the Sublease Premises. No
trust relationship is created herein between Sublessor and Sublessee with
respect to said letter of credit or Deposit.
6. PARKING. Sublessee shall have the non-exclusive right to use
fifty percent (50%) of the reserved and non-reserved parking spaces available
for use by Sublessor under the Master Lease.
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7. SIGNS. To the extent Sublessee desires to erect, install or
utilize any signs, it shall do so only in accordance with the Master Lease
and at its sole cost and expense. Further, to the extent that any exterior
or public area signage available under the Master Lease is of a limited
nature, such signage shall be shared equally between the Sublease Premises
and the remainder of the Master Premises; provided, however, that under no
circumstances shall Sublessor be obligated to remove or modify Sublessor's
existing monument signage located at the intersection of the driveway to the
Building and Campus Drive prior to Sublessor vacating all of the Master
Premises.
8. MASTER LEASE.
8.1 INCORPORATION OF MASTER LEASE. To the extent applicable to
the Sublease Premises, the Master Lease is incorporated into this Sublease in
its entirety as if fully set forth herein, except that the following
provisions thereto are expressly excluded in their entirety from the
Sublease: (i) Sections 2, 3, 20 and 31 of, and Exhibit B to, the Original
Lease; (ii) Sections 1, 3, 7, 8, 20, 21, 22, 23 and 24 of the First Addendum;
(iii) Sections 20 and 22 of, and Exhibit B to, the Third Addendum; (iv)
Sections 20 and 22 of, and Exhibit B to, the Fourth Addendum; (v) Sections 20
and 22 of the Fifth Addendum; (vi) Sections 20 and 22 of the Sixth Addendum;
and (vii) Sections 3 and 4 of the Seventh Addendum. Notwithstanding the
immediately preceding sentence, if Sublessee "holds-over", then in addition
to those provisions of the Master Lease incorporated pursuant to the
immediately preceding sentence, the following provisions shall be
incorporated into this Sublease as if fully set forth herein and Sublessee
shall be solely responsible for all amounts payable by Sublessor to Master
Landlord under the Master Lease: (a) Sections 3 and 20 of the Original
Lease; (b) Sections 7 and 8 of the First Addendum; (c) Section 20 of each of
the Third Addendum, Fourth Addendum, Fifth Addendum and Sixth Addendum; and
(d) Sections 3 and 4 of the Seventh Addendum. If any provision of this
Sublease expressly conflicts with any provision of the Master Lease as
incorporated herein, the terms of this Sublease shall govern. Sublessee
shall assume and perform for the benefit of Sublessor and Master Landlord the
Tenant's obligations under the Master Lease provisions incorporated herein to
the extent that the provisions are applicable to the Sublease Premises.
Whenever the Master Lease requires the approval or consent of Master
Landlord, Sublessee shall be required to obtain the approval or consent of
both Sublessor and Master Landlord. Whenever the Master Lease requires
Tenant to submit, exhibit to, supply or provide Master Landlord with
evidence, certificates, or any other matter or thing, Sublessee shall submit,
exhibit to, supply or provide, as the case may be, the same to both Master
Landlord and Sublessor. In any such instance, Sublessor shall reasonably
determine if such evidence, certificate or other matter or thing shall be
satisfactory. Sublessee acknowledges that it has reviewed the Master Lease
and is familiar with the terms and conditions thereof. Neither Sublessor nor
Sublessee shall do or permit to be done anything which would constitute a
violation or breach of any of the terms or conditions of the Master Lease, or
which would cause the Master Lease to be terminated or forfeited.
8.2 DIRECT PERFORMANCE. At any time and on reasonable prior
notice to Sublessee, Sublessor may elect to require Sublessee to perform its
obligations under this
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Sublease directly to Master Landlord, in which event Sublessee shall promptly
send to Sublessor copies of all notices and other communications between
Sublessee and Master Landlord.
9. PERFORMANCE BY SUBLESSOR/STATUS OF MASTER LANDLORD.
Notwithstanding any other provision of the Master Lease or this Sublease,
Sublessee acknowledges and agrees that performance by Sublessor is
conditioned in all cases upon Master Landlord's performance of its
corresponding obligations under the Master Lease, and performance by Master
Landlord shall be deemed performance by Sublessor. Sublessor does not assume
the obligations of the Master Landlord under the Master Lease. Sublessor
shall not be liable to Sublessee for any default or other failure of the
Master Landlord under the Master Lease. Despite any default or other failure
by Master Landlord under the Master Lease, this Sublease shall remain in full
force and effect, and Sublessee' shall pay all Rent and other amounts due
under this Sublease without any abatement, deduction, counterclaim or offset;
provided, however, in the event of a default by Master Landlord under the
Master Lease involving the failure to provide utilities, elevator services,
HVAC services or other base-building services which renders the Sublease
Premises not useable for commercial purposes, Sublessee shall be entitled to
abate Rent during the period that the Sublease Premises are so rendered not
useable for commercial purposes. With respect to work, services, repairs,
repainting, restoration, the provision of utilities, elevator or HVAC
services, or the performance of other obligations required of Master Landlord
under the Master Lease, Sublessor's sole obligation with respect thereto
shall be to request the same from Master Landlord, upon written request by
Sublessee. Sublessee shall contact Master Landlord first to obtain the
desired service or item and shall only contact Sublessor if Master Landlord
fails to perform pursuant to the Master Lease.
10. FURNITURE. As further consideration for and as a condition
precedent to this Sublease, Sublessee agrees to purchase from Sublessor, and
Sublessor agrees to sell to Sublessee, One Hundred Twenty-Nine (129) cubicles
currently located in the Sublease Premises and the in-place wiring therefor
(collectively, the "Cubicles") for the amount of Seventy-Seven Thousand Four
Hundred Dollars ($77,400) (129 cubicles * $600 per cubicle), which amount
shall be due and payable one (1) day prior to the Commencement Date. The
Cubicles are part of a Harpers cubicle system, a typical cubicle of which is
comprised of two (2) corner sections and one (1) straight section, a chair, a
pencil drawer and two overhead files, and is wired for four CAT 5 (data) and
one split CAT 3 (voice) connections. Sublessee acknowledges that neither
Sublessor nor Sublessor's Representatives have made, or hereby makes, any
representation or warranty, written or oral, statutory, express or implied,
as to any matter whatsoever, with respect to the Cubicles, including, without
limitation, the design, quality, capacity, material, workmanship, operation,
condition, merchantability or fitness for a particular purpose.
11. ALTERATIONS. Sublessee shall be solely responsible for all
costs and expenses associated with any improvements and alterations to the
Sublease Premises (collectively, "Alterations"). All Alterations shall be
subject to Sublessor's prior written approval, which approval shall not be
unreasonably withheld. Sublessee shall give Master Landlord at least ten
(10) days prior written notice before undertaking any Alterations to enable
Master Landlord, in its sole discretion, to post and record notices of
nonresponsibility. Sublessee shall, at all times, keep the Sublease Premises
and the Building free and clear of all mechanic's or
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materialman's liens relating to or arising from any Sublessee Alterations.
If any mechanic's or materialman's lien arising from Sublessee's Alterations
is filed and/or recorded against the Sublease Premises or the Building,
Sublessee shall cause such lien to be released and removed within ten (10)
days of such filing and/or recording, either by satisfaction or by the
posting of a release bond in the amount required by statute, and if Sublessee
fails to do so, then Master Landlord or Sublessor may do so at Sublessee's
sole cost and expense. Sublessee acknowledges that it is not authorized to
undertake any Alterations in or to the Sublease Premises except as permitted
under this Sublease and the Master Lease and that it must deliver the
Sublease Premises to Sublessor on the Expiration Date in the condition
required under the Master Lease.
12. ASSIGNMENT AND SUBLETTING. Sublessee shall not assign the
Sublease or sublease all or any portion of the Sublease Premises without the
prior written consent of Sublessor, which consent shall not be unreasonably
withheld. Sublessor may grant its consent on reasonable conditions,
including, without limitation, those set forth in the Master Lease. Any such
assignment or subletting without Sublessor's reasonable consent shall be void
and, at the option of Sublessor, Sublessor may terminate the Sublease. No
assignment or sublease shall release Sublessee from any of its obligations
hereunder. If the consent of the Sublessor to an assignment or subletting is
obtained, Sublessor shall promptly contact the Master Landlord to request the
Master Landlord's consent pursuant to the Master Lease.
13. INDEMNIFICATION. Sublessee agrees to defend, indemnify and hold
Master Landlord, Sublessor and their respective trustees, directors,
officers, shareholders, employees, agents and representatives harmless from
and against all claims, damages, liabilities, losses, actions, causes of
action, judgments, costs and expenses, including, without limitation,
reasonable attorneys' fees (collectively, "Claims"), arising out of or
relating to (i) any breach by Sublessee under this Sublease, (ii) Sublessee's
use of the Sublease Premises, the Building, the Cubicles or any common areas,
(iii) the conduct of Sublessee's business therein, or (iv) any act or
omission of Sublessee or Sublessee's directors, officers, employees, agents,
representatives, licensees, contractors or invitees in or about the Sublease
Premises or the Building; provided, however, that Sublessee shall not be
required to so indemnify, defend or hold harmless (a) Sublessor to the extent
such Claims are directly caused by the negligence or willful misconduct of
Sublessor, or (b) Master Landlord to the extent such Claims are directly
caused by the negligence or willful misconduct of Master Landlord. The
foregoing indemnification and defense obligations shall survive the
expiration or earlier termination of this Sublease.
14. INSURANCE. During the entire term of this Sublease, Sublessee
shall, at its sole cost and expense, procure and maintain all insurance
required under Section 9 of the Original Lease; provided, however, that
comprehensive general liability insurance described in Section 9 of the
Original Lease shall have a combined single limit for bodily injury and/or
property damage liability of not less than Two Million Dollars ($2,000,000)
per occurrence. Sublessee shall name Sublessor and Master Landlord as
additional insureds under all such insurance policies.
14.1 WAIVER OF SUBROGATION. Sublessee shall obtain from its
insurer a waiver of all rights of subrogation that the insurer of Sublessee
might have against Sublessor under all policies of insurance maintained by
Sublessee at any time during the Sublease term insuring or
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covering the Sublease Premises or the Building or any improvements, fixtures,
equipment, furnishings or other property, including, without limitation,
salable goods, merchandise, and inventory, if any, in, on or about the
Sublease Premises or Building.
15. CONSENT OF LANDLORD. The Master Lease requires Sublessor to
obtain the written consent of Master Landlord to this Sublease. Sublessor
shall solicit Master Landlord's consent to this Sublease promptly following
the execution and delivery of this Sublease by Sublessor and Sublessee. In
the event Master Landlord's written consent to this Sublease has not been
obtained within thirty (30) days after the execution thereof on terms
reasonably acceptable to Sublessee, then this Sublease may be terminated by
either party hereto upon notice to the other, and upon such termination all
documents and deposits delivered hereunder shall be promptly returned and
neither party hereto shall have any further rights against or obligations or
liabilities to the other party hereto.
16. DEFAULT BY SUBLESSEE. Upon any default by Sublessee under this
Sublease, Sublessor shall have all rights and remedies available to Master
Landlord under the Master Lease in the event of a similar default on the part
of Sublessor thereunder, and all rights and remedies at law or in equity.
Notwithstanding any other provision of this Sublease, Sublessee shall, with
respect to the Sublease Premises, cure any default by Sublessee under this
Sublease within the period allowed to Tenant under the Master Lease even if
such time period is shorter than the period otherwise allowed under this
Sublease due to the fact that notice of default from Sublessor to Sublessee
is given after the corresponding notice of default from Master Landlord to
Sublessor.
17. TERMINATION OF THE LEASE. If for any reason the term of the
Master Lease shall terminate prior to the Expiration Date, this Sublease
shall automatically be terminated and Sublessor shall not be liable to
Sublessee by reason thereof unless said termination shall have been caused by
the default of Sublessor under the Master Lease.
18. BROKERS. Sublessor and Sublessee represent and warrant to each
other that no brokers were involved in connection with the negotiation or
consummation of this Sublease other than BT Commercial ("Sublessee's
Broker"), as Sublessee's representative, and Colliers Parrish International
("Colliers") , as Sublessor's representative. Except as to Colliers and
Sublessee's Broker, each party agrees to defend, indemnify, and hold the
other harmless from and against any and all Claims arising out of or relating
to any broker, agent, finder or other such person or entity claiming by,
through or under the acts or agreements of such indemnifying party.
Sublessor shall pay to Colliers a commission due pursuant to Sublessor's
separate written agreement with Colliers. Colliers shall pay fifty percent
(50%) of such commission to Sublessee's Broker.
19. MISCELLANEOUS PROVISIONS.
19.1 NOTICES. Any notice, demand or request which may be
permitted, required or desired to be given in connection with this Sublease
shall be given in writing and directed to Sublessor and Sublessee as follows:
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If to Sublessor: Electronics for Imaging, Inc.
303 Velocity Way
Foster City, California 94404
Attention: Michael L. Wright
Facsimile No.: (650) 357-3219
With a copy to: Russell & Walker LLP
Spear Street Tower
One Market Plaza
Eighteenth Floor
San Francisco, California 94105
Attention: Richard Walker, Esq.
Facsimile No.: (415) 808-4840
If to Sublessee- Keynote Systems, Inc.
2 W. 5th Avenue
San Mateo, California 94402
Attention: Doug Finlay
Facsimile No.: (650) 524-3099
With a copy to: Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 84306
Attention: Blakeney Stafford, Esq.
Facsimile No.: (650) 493-3248
Notices shall be either (i) personally delivered (including delivery by
Federal Express or other courier service) to the offices set forth above, in
which case they shall be deemed delivered on the date of delivery to said
offices; (ii) sent by facsimile, in which case they shall be deemed delivered
on the date sent if a business day or otherwise on the next following
business day, provided, however, that any notices sent by facsimile shall
also be sent by overnight courier on the same day; or (iii) sent by certified
mail, return receipt requested, in which case they shall be deemed delivered
on the date shown on the receipt unless delivery is refused or delayed by the
addressee, in which event they shall be deemed delivered on the date of
refusal or delay of delivery by the addressee. The addresses and addressees
may be changed by giving notice of such change in the manner provided for
above.
19.2 ENTIRE AGREEMENT; INTERPRETATION. This Sublease
(including all exhibits attached hereto, except those sections of the Master
Lease excluded under Section 8.1 above) constitutes the entire understanding
between the parties with respect to the transaction contemplated herein, and
all prior or contemporaneous agreements, understandings, representations and
statements, whether oral or written, are superseded by this Sublease. In the
event of a conflict between the wording actually set forth in this document
and the provisions of the Master Lease incorporated herein by reference
pursuant to Section 8.1 above, the wording actually set forth in this
document shall control and take precedence.
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19.3 TIME OF ESSENCE. Time is of the essence in this Sublease.
19.4 APPLICABLE LAW. This Sublease shall be governed by and
construed pursuant to the laws of the State of California.
19.5 ATTORNEYS' FEES. In the event of any litigation
(including, without limitation, any litigation in a bankruptcy proceeding)
between the parties with respect to the Sublease Premises, this Sublease, the
performance of the parties' obligations hereunder or the effect of a
termination of this Sublease, or any other matter related thereto, the
prevailing party shall be entitled to its reasonable costs and expenses
incurred in connection with such litigation, including reasonable attorneys'
fees.
19.6 RECORDING. Neither Sublessor or Sublessee shall record
this Sublease or a memorandum hereof without the consent of the other.
19.7 EXAMINATION OF SUBLEASE. SUBMISSION OF THIS INSTRUMENT
FOR EXAMINATION OR SIGNATURE BY SUBLESSEE DOES NOT CONSTITUTE A RESERVATION
OF OR OPTION FOR SUBLEASE, AND IT IS NOT EFFECTIVE AS A SUBLEASE OR OTHERWISE
UNTIL EXECUTION BY AND DELIVERY TO BOTH SUBLESSOR AND SUBLESSEE AND CONSENTED
TO BY MASTER LANDLORD IN ACCORDANCE WITH THE TERMS OF THE MASTER LEASE.
19.8 COUNTERPARTS. This Sublease may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
19.9 MASTER LEASE. Sublessor represents and warrants to
Sublessee that, as of the date first written above, it has neither received
nor given notice of a default under the Master Lease and Sublessor does not
have actual, personal knowledge of any events that would over the passage of
time constitute a default by Master Landlord under the Master Lease.
(Signatures On Next Page]
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IN WITNESS WHEREOF, Sublessor and Sublessee have executed
this Sublease as of the date first written above.
SUBLESSOR: ELECTRONICS FOR IMAGING, INC.,
a Delaware corporation
By:
--------------------------
Eric T. Saltzman
Vice-President
SUBLESSEE: KEYNOTE SYSTEMS, INC.,
a California corporation
By:
--------------------------
Doug Finlay
Chief Financial Officer
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Master Landlord hereby consents to the foregoing Sublease, upon the
following express terms and conditions:
1. The Sublease is subject and subordinate to the Master
Lease and to all of the terms, covenants, conditions, provisions and
agreements contained in the Master Lease.
2. Pursuant to Section 5 of the Master Lease, (a) Sublessor
shall pay to Master Landlord, throughout the term of the Sublease, fifty
percent (50%) of all amounts collected by Sublessor under the Sublease which
are in excess of the amounts required to be paid by Sublessor under the
Master Lease with respect to the Sublease Premises; and (b) Sublessor shall
promptly reimburse Master Landlord for the actual costs incurred by Master
Landlord in connection with the review and processing of the Sublease,
including, without limitation, Master Landlord's reasonable attorneys, fees.
3. Any improvements or alterations to the Sublease Premises
shall require the prior written approval of Master Landlord pursuant to the
terms of the Master Lease.
MASTER LANDLORD: THE JOSEPH AND EDA PELL
REVOCABLE TRUST
By:
----------------------------------
Its:
---------------------------------
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LIST OF EXHIBITS
Exhibit A Master Lease
Exhibit B Floor Plan
<PAGE>
EXHIBIT A
TO
SUBLEASE AGREEMENT
MASTER LEASE
A copy of the Master Lease is attached hereto.
<PAGE>
AGREEMENT OF LEASE
THIS LEASE is made on the 30th day of July, 1992, between The Joseph and
Eda Pell Revocable Trust ("LANDLORD") and Electronics For Imaging, a California
corporation ("TENANT").
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, upon the terms and conditions hereinafter set forth, those
premises (hereinafter "premises") constituting approximately 32,863 rentable
square feet and 31,254 useable square feet as shown on Exhibit "A" attached
hereto, of which 25,000 rentable square feet and 24,264 useable square feet are
located on the first floor and 7,863 rentable square feet and 6,990 useable
square feet oh the second floor of that building commonly known as 2855 Campus
Drive (hereinafter "the building"). The building is located on that real
property commonly known as 2855 Campus Drive, San Mateo, California (hereinafter
"the Project"), which includes the building, parking area, arcade, landscaping
and related improvements.
2. TERM. The term of this lease shall be fifty (50) months and shall
commence on the 1st day of November, 1992, and end on the 31st day of December,
1996, inclusive, provided, however that in the event Landlord is unable to
deliver possession of the premises to Tenant upon the date above specified for
the commencement of the term of this lease, neither Landlord nor its agents
shall be liable for any damage caused thereby, nor shall this lease thereby
become void or voidable, and the term herein specified shall in such case
commence upon the date of delivery of possession of the premises to Tenant and
shall terminate fifty (50) months thereafter.
In such event Tenant shall not be liable for any rent until such time as
Landlord shall deliver possession of said premises to Tenant.
3. RENT. Tenant agrees to pay to Landlord as rent for the premises the
sum of Forty-Seven Thousand Three Hundred Twenty-Two Dollars ($47,322.00) per
month in advance on the 1st day of the term of this lease (subject to
Paragraph 36 hereof) and on the 1st day of each calendar month thereafter during
the term, except that if the lst day of the term shall not be the 1st day of the
month, the rental for the portion of the term occurring in the first and last
calendar months of the term shall be appropriately prorated. All installments
of rent shall be paid at the office of Landlord, or at such other place as may
be designated in writing from time to time by Landlord, in lawful money of the
United States and without deduction or offset for any cause whatsoever except as
otherwise specifically provided herein. The rental for which provision is
hereinabove made shall be subject to adjustment as provided in Paragraph 20
hereof, or other covenants and conditions hereinafter set forth.
Notwithstanding the foregoing, no such rent shall be due for the first five (5)
months of the lease term.
All other sums which are to be paid to Landlord by Tenant pursuant to the
terms of this lease shall be deemed additional rent, and shall be paid by Tenant
to Landlord within ten (10) days after receipt by Tenant of a billing therefor
or at such other time as is specifically provided in this lease.
<PAGE>
4. USE. The premises are to be used for general office purposes and
for no other business or purpose. No use shall be made or permitted to be made
of the premises, nor acts done in or about the premises, which will in any way
conflict with any law, ordinance, rule or regulation, permit, occupancy
certificate, or other entitlement affecting the use or occupancy of the
premises, now or hereafter in effect, or which will increase the existing rate
of insurance upon the Project or cause a cancellation of any insurance policy
covering the building or any part thereof, nor shall Tenant sell, or permit to
be kept, used or sold in or about the premises any article which may be
prohibited by the standard form of fire insurance policy. Tenant shall at its
own expense comply with all present and future laws, ordinances, orders, rules,
regulations, and/or requirements of all governmental authorities pertaining to
Tenant's particular use or occupancy of the premises, or Tenant's activities
therein. Tenant shall not commit, or suffer to be committed, any waste upon the
premises, or any public or private nuisance, or other act or thing which may
obstruct or disturb the quiet enjoyment of any other tenant in the Project, nor
shall Tenant, without the written consent of Landlord, use any apparatus,
machinery or device in or about the premises which shall cause any substantial
noise or vibration, or which shall substantially increase the amount of
electricity or water, if any, agreed to be furnished or supplied under this
lease. Tenant shall not install or use heat-generating machines, excess
lighting, or other equipment which may affect the temperature otherwise
maintained by the air conditioning equipment, without the prior written consent
of Landlord. Tenant may install the usual office machines and equipment, such as
electrical typewriters, adding machines, teletypewriters and similar equipment.
Notwithstanding the foregoing, Tenant may install and operate at the premises
computers and related equipment, subject to the provisions of this lease
respecting use of the premises and installation of alterations and trade
fixtures.
5. ASSIGNMENT. Tenant shall not directly or indirectly sell, assign,
mortgage, encumber or transfer this lease, sublet the premises or any part
thereof or allow any other person (excepting Tenant's agents and employees)
to occupy the premises or any portion thereof, without the prior written
consent of Landlord; provided that Tenant shall not be required to obtain
Landlord's consent to use of the Premises by Tenant's invitees and customers
so long as such invitees and customers are not subtenants or assignees of
Tenant. Any such proposed, attempted or consummated sale, assignment,
mortgage, encumbrance, transfer, subletting, occupancy or other prohibited
act described in the preceding sentences is herein collectively called a
"transfer" and the person or entity who or which is the proposed or actual
recipient of a "transfer" is herein collectively called a "transferee." This
prohibition against transfers does not include the transfer of the Tenant's
stock through any public exchange. As used herein, a "transfer" shall not
include a transfer of this lease in connection with a merger, consolidation
or nonbankruptcy reorganization of Tenant's business, or a transfer to a
subsidiary, affiliate, division or corporation controlled by or under common
control with Tenant or a purchaser of substantially all of the assets of
Tenant located at the premises, so long as the transferee agrees in writing
to be bound by all of the terms of this lease and has a net worth equal to or
greater than that of Tenant at the time of the proposed transfer (with
Tenant's net worth measured as of the commencement date of this lease) , the
use proposed by the transferee is permitted pursuant to Paragraph 4 above and
is otherwise consistent with the first class office nature of the building;
and no such transfer shall result in Tenant being released or discharged from
any liability under this lease. Tenant shall give Landlord written notice of
any proposed transfer. Said notice shall
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<PAGE>
state the proposed commencement date of the desired transfer, all material
terms of the proposed transfer, the name and address of the proposed
transferee, and Tenant shall deliver to Landlord with said notice a true and
complete copy of all agreements relating to the proposed transfer together
with current complete financial statements of the proposed transferee.
Thereafter, Tenant shall immediately furnish Landlord with any other
information concerning the proposed transferee as Landlord shall reasonably
request.
Landlord shall not unreasonably refuse or delay its consent to Tenant's
transfer of the premises. Landlord may grant its consent on reasonable
conditions, including but not limited to (i) Landlord's approval of the proposed
transferee's financial status; (ii) Landlord's approval of the proposed tenant
improvement plan, including any modifications affecting the HVAC system; (iii) a
condition that the proposed tenant improvements are to be made in a manner
reasonably satisfactory to Landlord, and (iv) a condition that Landlord shall be
entitled to receive fifty percent (50%) of the amount by which the rent received
by Tenant from a transferee exceeds the rental required hereunder.
Any transfer hereunder by Tenant shall not result in Tenant being released
or discharged from any liability under this lease other than as specifically set
forth above. As a condition to Landlord's prior written consent as provided for
in this paragraph, the transferee(s) shall agree in writing to comply with and
be bound by all of the terms, covenants, conditions, provisions and agreements
of this lease, and Tenant shall deliver to Landlord, promptly after execution,
an executed copy of each sublease and an agreement of said compliance by each
transferee. Tenant shall not agree to any modification of such sublease,
including any further transfer, without Landlord's prior written consent.
If Landlord consents to any such subletting or assignment, Tenant shall pay
to Landlord the amount of all Landlord's actual costs of processing such
proposed transfer (including, without limitation, reasonable attorney's fees).
Consent to any transfer shall not constitute consent to any subsequent
transfer. If Tenant makes any transfer without the prior written consent of
Landlord, Landlord may collect rent from the transferee and apply such rent
against amounts owing hereunder without waiving its rights hereunder, and
consent of Landlord shall not be deemed or presumed from such conduct. Landlord
may, at its option, terminate this lease in the event of any transfer of this
lease which does not comply with the provisions of this paragraph.
6. REPAIRS AND ALTERATIONS. Subject to any punchlist items prepared in
accordance with Exhibit B and to any latent defects discovered within one year
after delivery (provided that nothing herein shall be construed to require
Landlord to correct any item in the premises damaged by Tenant's misuse
thereof), Tenant agrees by taking possession of the premises as herein set forth
that such premises are then in a tenantable and good condition and conform with
the requirements of this lease, that Tenant will take good care of the premises,
and that the same will not be altered or changed without the written consent of
the Landlord. Tenant shall promptly notify Landlord of any damage to or defect
in any part of the premises, or in any equipment or utility system serving the
premises, of which Tenant becomes aware and which
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<PAGE>
may cause or result in death or injury to any person or damage to property
notwithstanding that Landlord may have no obligation with respect thereto.
As part of the consideration for rental hereunder, Tenant agrees that all
alterations, improvements, repairs or maintenance of the premises shall,
except as otherwise herein agreed, be made by contractors reasonably
acceptable to Landlord, at Tenant's expense, and Tenant hereby waives the
provisions of Subdivision (1) of Section 1932 and of Sections 1941 and 1941.1
of the Civil Code of California, and all rights to make repairs at Landlord's
expense under the provisions of Section 1942 and 1942.1 of said Civil Code or
any other provision of law. Unless otherwise provided by written agreement,
all alterations, improvements and changes that may be permitted by Landlord
shall at the termination of the lease become the property of Landlord and
shall remain upon and be surrendered with the premises, provided however,
that at Landlord's option Tenant shall, at Tenant's expense, when
surrendering the premises, remove the same and restore the premises to their
original condition at the commencement of this lease, provided that Landlord
shall have so notified Tenant at the time Landlord consented to such
alterations, improvements or changes. All damage or injury done to the
premises by Tenant, or by any persons who may be in or around the premises
with the consent of Tenant, shall be paid for by Tenant. Tenant shall, at the
termination of this lease by the expiration of time or otherwise, surrender
and deliver up the premises to Landlord in as good condition as when received
by Tenant from Landlord, reasonable wear and tear excepted. Tenant shall pay
for all damage to the building, the Project, or appurtenant areas or
equipment, as well as all damage to tenants or occupants thereof or their
property caused by Tenant or by Tenant's agents, contractors, invitees or
representatives. Subject to Tenant's express repair obligations set forth
herein, Landlord shall maintain and keep the Project in good condition,
provided that Landlord shall be entitled to treat the costs thereof as
"Operating Expenses" to the extent permitted under Paragraph 20(e)(2) of this
lease. Landlord agrees to reasonably cooperate with Tenant in enforcing any
warranties applicable to systems and equipment Tenant is obligated to repair
and maintain hereunder.
7. TRADE FIXTURES. Subject to the provisions of Paragraphs 4 and 6
hereof, Tenant may install and maintain its trade fixtures on the premises,
provided that such fixtures, by reason of the manner in which they are affixed,
do not become an integral part of the building or premises. Tenant, if not in
default hereunder, may at any time or from time to time during the term hereof,
or upon the expiration or termination of this lease, alter or remove any such
trade fixtures so installed by Tenant. If not so removed by Tenant on or before
the expiration or termination of this lease, Tenant, upon the request of
Landlord, shall remove the same. Any damage to the premises caused by any such
installation, alteration or removal of such trade fixtures shall be promptly
repaired at the expense of the Tenant.
8. SERVICES. Landlord shall furnish the premises with a reasonable
amount of water and electricity suitable for general office uses including a
normal complement of electrical office equipment, daily janitor service except
on Saturdays, Sundays and public holidays, window washing with reasonable
frequency, replacement of fluorescent tubes and light bulbs, toilet room
supplies, and elevator service consisting of non-attended automatic elevators.
Such heat and air-conditioning as may be required for the comfortable occupation
of the premises will be provided during the hours of 7:30 AM to 6:00 PM daily
except Saturdays, Sundays and public holidays. During other hours' Landlord
shall provide reasonable heat and air-conditioning upon
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twenty-four (24) hours, notice by Tenant to Landlord, and Tenant, upon
presentation of a bill therefor, shall pay Landlord for such service on an
hourly basis at the then prevailing rate as established by Landlord. The
current hourly rate is Thirty Dollars ($30.00) per hour. This rate shall be
reviewed and may be subject to adjustment annually.
If in the reasonable judgment of Landlord any equipment or device used on
the premises (other than the usual office machines permitted pursuant to
Paragraph 4 hereof) will result in unusual electrical (e.g., 24-hour, on-line
computer functions) or water use, Landlord may either (i) estimate the amount of
Tenant's excess usage and charge Tenant a surcharge based on the current actual
utility rates for the building, or (ii) cause a special meter to be installed on
the premises to measure the amount of electric current or water consumed for
such equipment or device. Tenant shall pay all expenses directly related to any
such meters, including without limitation, the expense of such meters and of
installation, maintenance and repair thereof, for all such electric current or
water so consumed (at the rates then in effect by the utility furnishing same
utilizing the average rate for the building), and for the expense of keeping
account of the electric current or water so consumed. If Landlord does not
install such separate meter until after the use of such equipment or device has
commenced, Tenant shall pay the actual expense of electric current or water
consumed prior to installation of the meter as reasonably estimated by Landlord
on the basis of actual use determined after installation of the meter. Landlord
may install supplemental air conditioning units in the premises or otherwise
provide supplemental air conditioning if any heat-generating equipment or
devices are installed or used on the premises, and all expenses of such
supplemental air conditioning (including without limitation installation,
operation, repair and maintenance, separate metering, if any, and accounting for
such expenses), determined in the reasonable judgment of Landlord, shall be paid
by Tenant. Landlord shall not be liable for direct or indirect or consequential
damage or damages for (i) personal discomfort, inconvenience, illness, injury or
death of Tenant, its employees, agents, invitees, clients, licensees, guests,
customers or any other persons whatsoever, nor (ii) injury or damage to
property, by reason of the operation or non-operation of any of the
above-referenced equipment or systems, or for any interruption, reduction, or
cessation of the supply, quality or character of any utility or other service,
unless caused by the gross negligence or willful misconduct of Landlord. Tenant
shall be solely responsible for providing appropriate protections (including
data storage back-up devices) against loss of its computer data or other
electronic data.
Landlord's obligations hereunder are subject to adoption by Landlord of
energy conservation measures required by any governmental entity, and Tenant
shall cooperate in effectuating such energy conservation measures upon
request of Landlord including without limitation those measures specified in
the Project Rules and Regulations.
9. INSURANCE. Notwithstanding any other provision of this lease,
Tenant at its expense shall maintain the following insurance coverages:
(a) worker's compensation insurance as may be required by law; (b)
comprehensive general liability insurance issued by an insurer reasonably
satisfactory to Landlord, with a combined single liability limit for bodily
injury and property damage of not less than One Million Dollars ($1,000,000)
per occurrence, or such greater amount as an institutional mortgagee of
Landlord may reasonably require from time to time, insuring against all
liability of Tenant and its authorized representatives arising out of and
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in connection with Tenant's use or occupancy of the premises; and (c) "all
risk" property insurance on Tenant's personal property and fixtures and all
Tenant's improvements to the premises. Tenant's property policies shall not
provide for deductible amounts in excess of $1,000 without the prior written
consent of Landlord. At the request of Landlord, the liability insurance
shall include products liability coverage. All such insurance shall insure
performance by Tenant of the indemnity and hold harmless provisions of
Paragraph 10 hereof. Landlord shall be named as an additional insured with
Tenant on such liability policy, and such policy shall include
cross-liability endorsements. Tenant's liability policy of insurance shall
be primary and noncontributory to any insurance carried by Landlord. At the
commencement of the lease term, and annually on renewal of such insurance,
Tenant shall deliver to Landlord an original certificate of such insurance
from the insurer, which certificate shall show the coverages required by this
lease (including, without limitation, that Tenant's insurance is primary and
noncontributory with respect to any insurance of Landlord), that Landlord
shall be an additional insured, and shall provide that such policy shall not
be cancelled or modified without thirty (30) days prior written notice by the
insurer to Landlord. If Tenant fails to obtain such insurance or to furnish
such certificate as required in this lease, Landlord may, but shall not be
obligated to, obtain such insurance at the expense of Tenant, and Tenant
shall promptly pay such expense to Landlord.
Landlord may, without diminishing or affecting in any way Tenant's
obligations to maintain insurance as herein provided, maintain any insurance
coverage on the building, the Project, or the premises deemed appropriate by
Landlord in its sole discretion, including without limitation lessor's risk
or comprehensive general liability insurance, worker's compensation
insurance, extended coverage, fire or casualty insurance, with replacement
cost riders, flood or earthquake insurance, rental or business interruption
insurance, and such insurance may provide for such deductible amounts in
amounts deemed appropriate by Landlord. Except as otherwise expressly
provided herein or required by law, Landlord shall have no obligation to
maintain such insurance. Notwithstanding any contribution by Tenant to
Landlord for insurance premiums as part of the operating expenses as may be
required in this lease, no insurable interest is conferred upon Tenant under
any policies carried by Landlord, and Tenant shall have no right to receive
any proceeds of insurance from policies carried by Landlord. If Tenant
desires to receive indemnity by way of insurance for any property, work or
thing whatever, Tenant shall insure same for its own account and shall not
look to Landlord for reimbursement or recovery in the event of loss or damage
from any cause, whether or not Landlord has insured same and recovered
therefor.
Each party hereby waives its right of recovery against the other for any
losses which are or are required to be insured against under this Paragraph,
regardless of cause or origin, including negligence of the other party hereto,
and covenants that no insurer shall hold any right of subrogation against such
other party. Each party shall advise insurers of the foregoing, and such waiver
shall be a part of each policy maintained by each party which applies to the
premises or Tenant's use and occupancy of any part thereof.
10. HOLD HARMLESS AND NONLIABILITY OF LANDLORD. Inasmuch as Tenant has
agreed to carry the insurance-specified in Paragraph 9, the parties agree that
Landlord
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shall not be liable for, and Tenant hereby waives all claims against Landlord
with respect to or arising out of, any death or injury or damage that may
result to any person or property in or about the premises, or the Project,
from any cause whatsoever, including but not limited to injury or damage
resulting from any defects in the Project or any equipment located therein,
or from the acts or omissions of any persons, including cotenants, or any
acts or omissions of Landlord, except insofar as such injury or damage may
result from the negligence or willful misconduct of Landlord or its employees
agents, contractors, licensees or invitees. In addition, Landlord shall not
be liable for any loss or damage for which Tenant is required to insure
pursuant to Paragraph 9, nor for any loss or damage resulting from any
construction, alterations or repairs performed by Tenant or its contractors,
agents or employees.
Tenant agrees to indemnify and hold Landlord harmless against all claims,
and the expense of defending against such claims, for death or for injury or
damage to persons or property occurring in or about the premises or occurring
outside the premises to the extent such death, injury or damage results from the
act, failure to act, negligence or other fault of Tenant or its agents,
employees, contractors, licensees or invitees. Tenant further agrees to
indemnify and hold harmless Landlord against any and all claims by or on behalf
of any person, firm or corporation, arising from the conduct of any work done by
or for Tenant in or about or from transactions of Tenant concerning the
premises, and will further indemnify and hold Landlord harmless against and from
any and all claims arising from any breach or default on the part of the Tenant
to be performed pursuant to the terms of this lease. Tenant shall also
indemnify and hold harmless Landlord against all costs, reasonable counsel fees,
expenses and liabilities incurred in connection with any such claims or actions
or proceedings brought thereon. If any action or proceeding is brought against
Landlord by reason of an such claims or liability, Tenant agrees to defend such
action or proceeding at Tenant's sole expense by counsel reasonably satisfactory
to Landlord. The provisions of this Paragraph 10 shall survive the expiration
or termination of this lease.
Should Landlord, without fault on Landlord's part, be made a party to any
litigation instituted by or against Tenant, or by or against any person holding
under or using the premises by license of Tenant, or for the foreclosure of any
lien for labor or material furnished to or for Tenant or any such other person
or otherwise arising out of or resulting from any act or transaction of Tenant
or of any such other person, Tenant shall pay to Landlord the amount of any
judgment rendered against Landlord or the premises or any part thereof, and all
costs and expenses, including reasonable attorneys' fees, incurred by Landlord
in or in connection with such litigation.
11. DESTRUCTION. If the premises or the building wherein the same are
situated shall be destroyed by fire or other casualty, or be so damaged thereby
that they are untenantable and cannot be rendered tenantable within one hundred
eighty (180) days from the date of such destruction or damage in the reasonable
opinion of the Landlord, Landlord shall so notify Tenant in writing within
thirty (30) days after the date of such destruction or damage, and either
Landlord or Tenant may terminate this lease by giving written notice to the
other within thirty (30) days after the date of the first notice. If neither
party elects to terminate this lease, or if the damage or destruction shall not
be such as to permit termination of the lease as above provided,
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Landlord shall with due diligence, to the extent of any insurance proceeds
received by Landlord, or to the extent of insurance proceeds which would have
been received by Landlord but for Landlord's failure to maintain the
insurance required of Landlord pursuant to this Lease, repair said premises,
and a proportionate reduction shall be made in the rent herein corresponding
to the time during which and to the portion of the premises of which Tenant
shall be deprived of possession, as reasonably determined by Landlord. The
provisions of Subdivision 2 of Section 1932 of the California Civil Code, and
of Subdivision 4 of Section 1933 of that Code, shall not apply to this lease,
and Tenant waives the benefits of such provisions. In repairing the
premises, Landlord may use designs, plans and specifications other than those
used in the original construction, and may alter or relocate any or all of
the building, including the premises, provided that the premises as altered
or relocated shall be in all material respects reasonably comparable to the
premises as defined herein. Leasehold improvements installed in the premises
by Landlord at its expense shall be repaired and rebuilt by Landlord, subject
to the same requirements applicable to the premises under this paragraph.
12. NOTICES. All notices, demands, requests, consents, or approvals
("notices" hereafter) which are required or authorized to be given by
Landlord or Tenant pursuant to this lease or by law, or which Landlord or
Tenant may desire to give to the other, shall be in writing. All notices to
Landlord shall be addressed to Pell Development Company, 100 Smith Ranch
Road, Suite 325, San Rafael, California 94903 or such other address as
Landlord may from time to time request, and shall be personally delivered to
an employee of Landlord or served by mail. All notices to Tenant shall be
addressed to Tenant at the premises, and shall be delivered to the premises,
personally or by messenger or air courier, or served by mail addressed to the
premises, whether or not Tenant has departed from, abandoned, or vacated the
premises, or to such other address as Tenant may from time to time designate
in writing. Tenant waives the provisions of Section 1162 of the California
Code of Civil Procedure, provided that any notice to Tenant under Section
1161 of the California Code of Civil Procedure is given in compliance with
this Paragraph. All notices served by mail shall be deposited in the United
States mail, first class postage prepaid (or, at the option of, the party
giving the notice, may be by certified or registered mail, postage prepaid),
addressed as herein provided, and shall be effective (a) on the third day
after being deposited in the mail, as determined by the postmark, or if there
is no postmark then by other competent evidence, or (b) when received if
earlier or if otherwise served.
13. INSOLVENCY OR RECEIVERSHIP. Either (a) the appointment of a
receiver to take possession of all, or substantially all, of the assets of
Tenant, which appointment is not dissolved for a period of thirty (30) days
thereafter, (b) a general assignment by Tenant for the benefit of creditors,
(c) any action taken or suffered by Tenant under any insolvency or bankruptcy or
reorganization act, which action remains undischarged for a period of thirty
(30) days, (d) the attachment, execution or other judicial seizure of Tenant's
interest in this lease or in any substantial amount of Tenant's assets located
on the premises, which such seizure is not discharged for a period of thirty
(30) days thereafter; or (e) an admission by Tenant in writing of its inability
to pay its debts as they become due, shall constitute a breach of this lease by
Tenant.
14. DEFAULT.
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(a) EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default on the part of Tenant: (1) failure of
Tenant to pay rent or other payments when due hereunder, such failure continuing
for a period of five (5) days after Landlord gives Tenant written notice of such
failure; provided, however, that Landlord shall not be required to provide such
notice more than twice in any 12-month period during the term of this lease, the
third such nonpayment constituting default without requirement of notice;
(2) vacation or abandonment by Tenant of the premises; (3) transfer of Tenant's
interest in this lease, or any part thereof without the consent of Landlord as
provided in Paragraph 5 hereof; (4) occurrence of a breach of this lease under
Paragraph 13 hereof, relating to the financial condition of Tenant; (5) failure
of Tenant to cure a breach of an obligation under this lease which results in a
nuisance to other tenants in the Project or to Landlord, or presents a hazard to
persons or property, within 48 hours after notice of such breach; (6) failure of
Tenant to perform any other obligation, covenant, or agreement under this lease,
other than those matters specified above, such failure continuing for thirty
(30) days after notice of such failure (or such longer period as is reasonably
necessary to remedy such default, provided that Tenant shall, within such thirty
(30) day period commence and thereafter continuously and diligently pursue such
remedy at all times until such default is cured). Any notice by Landlord under
this Paragraph shall be sufficient if it informs Tenant of the general nature of
Tenant's failure to perform Tenant's obligations hereunder. If Tenant fails to
perform any obligation hereunder at a time when Tenant is entitled to no cure
periods, Landlord shall be entitled to exercise the remedies herein provided for
default without written notice to Tenant or an opportunity to Tenant to cure
such default.
(b) REMEDIES. Upon the occurrence of an event of default under
Paragraph 14(a) of this lease, Landlord shall have the following rights and
remedies, which shall be cumulative, and any other remedies provided by law:
Without prejudice to any of the remedies that Landlord may have
under this lease, or at law or equity by reason of Tenant's default, Landlord
may (i) terminate this lease and avail itself of all the rights and remedies of
the Landlord provided by section 1951.2 of the Civil Code of the State of
California, or successor Code section; (ii) elect to have the lease continue in
effect for so long as Landlord does not terminate Tenant's right to possession,
in which case Landlord may enforce all of its rights and remedies under this
lease, including (but without limitation) the right to recover all unpaid
rental, including adjustments pursuant to paragraph 20 hereof, as it becomes
due, and Landlord, without terminating this lease, may exercise all of the
rights and remedies of a Landlord under section 1951.4 of the Civil Code of the
State of California or any successor Code section; (iii) enter the premises and
remove therefrom all persons and property, store such property in a public
warehouse or elsewhere at the cost of and for the account of Tenant, and sell
such property and apply the proceeds therefrom pursuant to applicable California
law, and (iv) have a receiver appointed for Tenant, upon application by
Landlord, to take possession of the premises and to apply any rental collected
from the premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph (iii) above. Acts of maintenance and
preservation or efforts to lease the premises or the appointment of a receiver
upon application of Landlord to protect its interest under the lease shall not
be construed as a termination of Tenant's right to possession of the premises
under Section 1951.4 of the California Civil Code, or any successor law thereto,
nor shall any such act be construed as an
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election on Landlord's part to terminate this lease unless a written notice
of such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction.
If Landlord elects to terminate this lease after Tenant's default, Landlord
may recover all amounts provided in Section 1951.2 of the California Civil Code
(including, without limitation, the costs and expenses of recovering the
premises, the reasonable costs and expenses of subletting or re-letting the
premises including reasonable attorneys' fees and any real estate commissions
actually paid or incurred, provided that, any commission paid to a company owned
by Landlord shall not exceed the prevailing market rate for such commission, and
any costs and expenses of repairs or alterations for such sub-letting or
re-letting) with interest thereon at the rate herein provided, and any
additional amounts which may now or hereafter be authorized by law.
If Landlord subleases the premises, then upon each such subletting, Tenant
shall immediately pay to Landlord (in addition to any other amounts due
hereunder) all reasonable costs and expenses of such subletting, including
without limitation reasonable attorneys' fees and any real estate commissions
actually paid or incurred (provided that any commission paid to a company owned
by Landlord shall not exceed the prevailing market rate for such commissions)
and any costs and expenses of such alterations and repairs, and the present
worth of the amount, if any, by which the unpaid rentals and other amounts due
hereunder for any portion of the balance of the term of this lease included in
the period of such subletting exceed the rentals reserved in such sublease
(computing present worth by assuming the legal rate of interest), less the
amount, if any, of said rental loss which Tenant proves could have been
reasonably avoided, with interest on all such sums at the rate herein provided.
Rents received by Landlord from such re-letting shall be applied; first, to the
payment of any unpaid sums due to Landlord from Tenant under the preceding
sentence hereof; second, to the payment of any indebtedness, other than monthly
rent, due hereunder from Tenant to Landlord (including interest on defaulted
payments hereunder); third, to the payment of rent due and unpaid hereunder and
the residue, if any, shall be held by Landlord and applied in payment of future
rent or other obligations as the same may become due and payable hereunder. If
rentals received from such a subletting during any month are less than rentals
and other payments to be paid during or prior to that month by Tenant hereunder,
Tenant shall pay any such deficiency to Landlord. Any such deficiency shall be
calculated and paid monthly.
Landlord shall have the right to cure any default of Tenant at Tenant's
expense. Tenant shall pay to Landlord immediately upon demand all costs
incurred by Landlord in curing any such default. No such cure by Landlord shall
constitute a waiver by Landlord of the default of Tenant or prevent Landlord
from exercising the other remedies herein provided for default by Tenant.
(c) LATE CHARGES. Tenant acknowledges that late payment by Tenant
to Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this lease, including without limitation processing
and accounting charges, administrative expense, and additional interest expense
or late charges to Landlord resulting from late payment by Landlord of payments
due on obligations of Landlord, whether or not secured by an encumbrance on the
premises. Tenant acknowledges that the exact amount of such damages
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would be extremely difficult and impractical to ascertain, and that the
expense of attempting to ascertain the exact amount of such damages would be
an additional cost not contemplated by this lease. Accordingly, in the event
that Tenant shall fail to pay any installment of rent or any sum due
hereunder within ten (10) days after the later of the date such amount is due
or the effective date of any notice required to be given by Landlord in
connection therewith, and without regard to whether Landlord exercises any
remedy herein provided for default by Tenant, Tenant shall pay to Landlord as
additional rent a late charge equal to four percent (4%) of each such
installment or other sum. Landlord and Tenant agree that the late charge
herein provided is a reasonable estimate of the damages which Landlord shall
incur by reason of late payment by Tenant. Landlord's acceptance of any late
charge shall not constitute a waiver of Tenant's default with respect to the
overdue amount if Tenant fails to pay such amount within any applicable grace
period provided in this lease, nor shall such acceptance prevent Landlord
from exercising any rights or remedies herein provided for default by Tenant.
(d) OTHER. In addition to the foregoing, and regardless of
whether Landlord has exercised any remedies for default hereunder, if an event
of default has occurred under Paragraph 14(a) hereof and is continuing at the
time Tenant purports to exercise a right or option granted hereunder, Tenant
shall have no right to exercise any right of first refusal, option to extend the
term of this lease or option to expand the premises granted to Tenant hereunder
or in any other agreement relating to the premises, the building or the Project,
and any attempt to exercise such a right or option shall be void and of no
effect whatsoever, provided, however, that Tenant's right to possession of the
premises, and Tenant's rights to sublet the premises or assign its lease
pursuant to the provisions of Paragraph 5 hereof, shall not be deemed terminated
unless Landlord terminated the lease by written notice as herein provided. Any
period provided herein for the exercise by Tenant of any such right or option
hereunder shall not be tolled, extended, or otherwise affected to the benefit of
Tenant by reason of any such disability of Tenant hereunder regardless of any
attempt by Tenant to exercise such right or option hereunder while such an event
of default exists hereunder. Any defaulted payments hereunder shall bear
interest at 3% per annum plus the greater of (i) the Federal Reserve Bank rate,
specified in Article 15, Section 1 of the California Constitution, prevailing on
the 25th day of the month preceding execution of this lease (it being understood
that this lease is not a contract to make a loan or forbearance), or (ii) such
Federal Reserve Bank rate prevailing on the 25th day of the month preceding the
date such defaulted payment was due hereunder, regardless of whether Landlord
exercises any remedies hereunder.
Tenant hereby waives all claims for damages that may be caused by
Landlord's re-entering and taking possession of the premises or removing and
storing the property of Tenant as authorized in this paragraph, and will hold
Landlord harmless against all loss, costs or damages occasioned thereby, and no
such re-entry shall be considered or construed to be a forcible entry.
15. REMOVAL OF PROPERTY. [Intentionally deleted].
16. WAIVER. No provision of this lease shall be deemed waived by
Landlord or Tenant except by a writing signed by Landlord or Tenant. The waiver
by Landlord or Tenant of
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any breach of any term, covenant, or condition herein contained shall not be
deemed to be a waiver of such term, covenant, or condition or of any
subsequent breach of the same or any other term, covenant, or condition
herein contained. The subsequent acceptance of rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach by Tenant of any
term, covenant, or condition of this lease, other than the failure of Tenant
to pay the particular rental so accepted, regardless of Landlord's knowledge
of such preceding breach at the time of acceptance of such rent. No
endorsement on any check or other form of payment or statement in any
communication accompanying any payment shall be deemed an accord or
satisfaction, and Landlord or Tenant may accept any payment without prejudice
to any rights Landlord or Tenant may have at law or under this lease. Any
consent by Landlord or Tenant to any act or omission by Tenant or Landlord
for which Landlord's or Tenant's consent is required hereunder shall not be
deemed to be a consent to any subsequent act or omission of the same or
different nature, nor shall any such consent be deemed to be a waiver of the
requirement of Landlord's or Tenant's consent for any subsequent act or
omission of the same or different nature.
17. ATTORNEYS' FEES. If Tenant or Landlord shall bring any action for
any relief against the other, declaratory or otherwise, arising out of this
lease or Tenant's occupancy of the premises, including any suit by Landlord for
the recovery of rent or possession of the premises, the losing party shall pay
to the prevailing party a reasonable sum for attorneys' fees incurred in
bringing such suit, and/or enforcing any judgment granted therein, all of which
shall be deemed to have accrued upon the commencement of such action and shall
be paid whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such judgment.
For the purposes of this section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions;
(2) contempt proceedings; (3) garnishment, levy, and debtor and third party
examinations; (4) discovery; and (5) bankruptcy litigation.
18. TAXES PAYABLE BY TENANT. Tenant shall pay, before delinquency, all
taxes levied against, imposed upon, measured by, or resulting from or with
respect to (a) any personal property or trade fixtures placed by Tenant in or
about the premises; (b) any improvements ("Special Improvements") to the
premises in excess of building standard improvements, whether owned by Landlord
or Tenant; (c) the possession, lease, operation, management, maintenance,
alteration, improvement, repair, use or occupancy of the premises or any portion
thereof by Tenant (provided that this clause shall not be construed to require
Tenant to make payments in duplication of amounts payable pursuant to
Paragraph 20 hereof); (d) this transaction or any document to which Tenant is a
party creating or transferring any interest or estate in the premises; (e) the
cost and expenses of contesting the amount or validity of any of the foregoing
taxes. If any such taxes are levied against Landlord or Landlord's property,
and if Landlord pays the same, which Landlord shall have the right to do
regardless of the validity of such levy, or if the assessed value of Landlord's
property is increased by the inclusion therein of a value placed upon such
personal property, trade fixtures or Special Improvements of Tenant, and if
Landlord pays the taxes based upon such increased assessment, which Landlord
shall have the right to do regardless of the validity thereof, Tenant shall,
upon demand, repay to Landlord the taxes so levied against Landlord, or the
proportion of such taxes resulting from such increase
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in the assessment, as the case may be. In the event that it shall not be
lawful for Tenant so to reimburse Landlord, the rent payable to Landlord
under this lease shall be revised to yield to Landlord the same net rent from
the premises after imposition of any such tax upon Landlord as would have
been received by Landlord from the premises prior to the imposition of such
tax. The amount of any tax upon Tenant's personal property attached to the
premises, trade fixtures or Special Improvements which is included in the
property tax assessment for the building shall be determined on the basis of
the records of the County Assessor if such records are sufficiently detailed
to allow such determination, and if not, then the amount shall be determined
on the basis of the actual cost of construction or installation thereof.
Notwithstanding the foregoing, Tenant shall have the right to contest the
imposition or assessment of any such taxes by appropriate legal procedures,
provided that unless the taxing authority agrees to suspend Tenant's
obligation to pay such amounts during the pendency of such contest, Tenant
shall not be relieved of the obligation to pay, or reimburse Landlord for,
any such taxes during the pendency of such contest, and Tenant shall
indemnify and hold Landlord harmless from any liability, cost, damage or
expense arising out of such contest.
19. LIENS. Tenant shall keep the premises, building, and the Project,
free from any liens arising out of any work performed, materials furnished or
obligations incurred by Tenant.
20. RENTAL ADJUSTMENT. The monthly rental provided in Paragraph 3 shall
be subject to adjustment as follows:
(a) Landlord shall bear all Project Taxes and Operating Expenses
through and including the Base Year, which is calendar year 1993. If Project
Taxes and Operating Expenses in any subsequent year of the lease term exceed the
Base Year Project Taxes and Operating Expenses, Tenant shall pay to Landlord
with respect to each such year, Tenant's Share of such excess.
(b) Tenant shall pay its share of any such excess in the following
manner: After the first calendar year following the Base Year (hereinafter
referred to, together with each successive calendar year of the lease term, as
the "Comparison Year"), Landlord shall calculate the actual Project Taxes and
Operating Expenses and Tenant's share of the excess amount over the Base Year
Project Taxes and operating Expenses. Landlord shall notify Tenant of the total
amount of its share of the excess. Tenant shall pay to Landlord the full amount
of its share of the excess for the first Comparison Year within thirty (30) days
after its receipt of the invoice. One-twelfth (1/12th) of Tenant's share of the
excess for the first Comparison Year shall be added to the monthly rental
payments required to be made by Tenant in the Second Comparison Year as an
estimated amount of Tenant's share of the excess for such Comparison Year, and
any installments which would have been payable in the months preceding
Landlord's notice to Tenant shall be payable within thirty (30) days after
Landlord's notice. The procedure outlined above shall be repeated in each
successive Comparison Year, provided that the total amount of monthly payments
made by Tenant in any Comparison Year shall be deducted from its share of the
excess amount for such Comparison Year, with the balance to be paid by Tenant
within thirty (30) days after its receipt of the reconciliation statement for
such Comparison Year, or with any overpayment by Tenant to be credited against
the next installment of rent due under the lease,
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and further provided that Tenant shall pay the same installment amount in
each Comparison Year as in the prior year until such amount is adjusted by
Landlord in the reconciliation statement for the prior Comparison Year.
(c) Landlord shall, as soon as practicable after the close of
any calendar year for which rental was increased under Subparagraph 20(a)
hereof, deliver to Tenant a written statement summarizing actual Project
Taxes and Operating Expenses for such calendar year and showing Tenant's
Share of any excess over the Base Year Project Taxes and Operating Expenses.
If Tenant disputes the amount set forth in such statement, Tenant shall have
the right, by written request made not later than thirty (30) days following
receipt of such statement, to cause Landlord's books and records with respect
to such calendar year to be audited by independent certified public
accountants mutually acceptable to Landlord and Tenant. Prior to any such
audit, Tenant shall pay to Landlord a deposit equal to the full amount of any
unpaid amount in dispute. Notwithstanding the foregoing, Tenant may elect to
deposit such disputed amount with a neutral escrowholder by so notifying
Landlord provided that in such event, the audit must be concluded, and
Landlord and Tenant shall each cause the escrowholder to release any amounts
determined to be owed to Tenant or Landlord, respectively, no later than
sixty (60) days following the original due date for the disputed amount. All
amounts held in such escrow account shall bear interest at the highest
available rate for short-term deposits for the benefit of Tenant, unless such
audit reveals that the amount in dispute is in fact owing to Landlord, in
which case such interest shall be for the benefit of Landlord. The amounts
payable under Subparagraph 20(b) by Landlord to Tenant or Tenant to Landlord,
as the case may be, shall be appropriately adjusted on the basis of such
audit. If such audit discloses a liability for further refund by Landlord to
Tenant in excess of five percent (5%) of the amount determined by Landlord
pursuant to this subparagraph 20(c) hereof as Tenant's Share of actual excess
Project Taxes and Operating Expenses for such calendar year, the cost of such
audit and the escrowholder's fee shall be borne by Landlord; otherwise the
cost of such audit and the escrowholder's fee shall be borne by Tenant.
Tenant shall pay all reasonable expenses of Landlord in connection with any
inspection or audit of Landlord's books and records hereunder (including
without limitation accounting or legal fees incurred by Landlord in
connection therewith), unless under the terms of this subparagraph 20(c)
Landlord is required to pay the cost of an audit for the calendar year
covered by Tenant's inspection or audit. If Tenant shall not request an
audit in accordance with the provisions of this subparagraph 20(c) within
ninety (90) days of receipt of Landlord's statement, such statement shall be
conclusively binding upon Tenant.
(d) Tenant's obligation under this Paragraph 20 for any fraction
of a calendar year at the end of the lease term shall be determined by prorating
Tenant's obligation hereunder on the basis which the number of days in such
fractional calendar year in the lease term bears to 365. If the lease term
terminates during a calendar year, additional rent payable hereunder, as
pro-rated, shall be due and payable when determined notwithstanding the
termination of this lease. If this lease shall be terminated by Landlord
pursuant to the default provisions of Paragraph 14, Tenant's liability under
this Paragraph 20 shall immediately be due and payable, based upon Landlord's
reasonable current projection as to likely excess actual Project Taxes and
Operating Expenses if the same are not yet then ascertainable with certainty,
with any such
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projection and payment by Tenant subject to subsequent adjustment when the
actual applicable Project Taxes and operating Expenses can be determined.
For purposes of this Paragraph 20, Project Taxes and Operating Expenses for
any year (including the Base Year) during which the Project is not fully
occupied shall be calculated by projection as if the Project were 95%
occupied during the entire calendar year.
(e) For the purposes of this paragraph the following definitions
shall apply:
(1) "Project Taxes" shall include (a) all real estate
taxes, possessory interest taxes, personal property taxes levied upon, measured
by, or assessed to Landlord in connection with the Project other than taxes
covered by Paragraph 18, and any other taxes, charges and assessments
(including, without limitation, any taxes, charges or assessments for public
improvements, services or benefits, transit development fees, housing funds,
education funds, street highway or traffic fees, environmental charges, fees or
penalties imposed as a means of controlling or abating environmental degradation
or energy use (provided, however, that Project Taxes shall not include charges
based on the presence of Hazardous Substances), and taxes, charges or
assessments upon or measured by or for parking facilities) which are levied with
respect to or in connection with the Project, and any improvements, fixtures and
equipment and all other property of Landlord, real or personal, located in or
around the Project and used in connection with the operation of the Project; and
(b) any other tax, charge, assessment, fee or governmental imposition or charge
of every kind or nature whatsoever assessed to Landlord in connection with the
Project, any part thereof, or the premises (other than estate taxes, inheritance
taxes, or net income taxes payable against nonrental as well as rental income)
whether or not in addition to or in lieu of such real estate and possessory
interest or personal property taxes, whether or not now customary or within the
contemplation of the parties hereto, ordinary or extraordinary, foreseen or
unforeseen, or similar or dissimilar to any of the foregoing, including by way
of illustration but not limitation any and all taxes, impositions, charges, fees
or assessments upon, allocable to, or measured by the area of the premises or
the Project or on the rent payable hereunder or the rent payable on the premises
or the Project or any portion thereof, including without limitation any gross
income tax, excise tax or value added tax, levied by any governmental or
quasi-governmental entity with respect to the Project, any part thereof, or such
rent; and (c) the reasonable cost and expenses of contesting the amount or
validity of any of the foregoing taxes. In the event that it shall not be lawful
for Tenant to reimburse Landlord for Tenant's Share of any tax, as defined
herein, the rent payable to Landlord under this lease shall be revised to yield
to Landlord the same net rent from the premises after imposition of any such tax
upon Landlord as would have been received by Landlord hereunder prior to the
imposition of such tax. Notwithstanding anything to the contrary in this
paragraph, Tenant shall not be responsible for any increase in real property
taxes arising from any sale or transfer of the Project, or any interest therein,
or in Landlord, during the first five (5) years commencing with the commencement
of this lease. Tenant shall be responsible for Tenant's share of any increases
in real property taxes occasioned by changes in the existing real property tax
laws or regulations, or the enactment of any new real property tax laws or
regulations, after the date hereof.
(2) "Operating Expenses" shall mean all costs and expenses
of ownership, operation and maintenance of the Project (excluding depreciation
on the buildings
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and improvements, all amounts paid on loans of Landlord, real estate brokers'
commissions, and expenses capitalized for federal income tax purposes except
as specified herein) including by way of illustration but not limited to:
utilities; supplies; insurance; business license, permit, inspection and
other authorization fees, charges, exactions and taxes; special charges or
assessments for services provided to the Project, including without
limitation sewer, water, fire or police protection; cost of services of
independent contractors (including without limitation accounting and legal
services and property management fees); cost of compensation (including
employment taxes and fringe benefits) of all persons who perform regular and
recurring duties connected with day-to-day operation, maintenance and repair
of the buildings, their equipment and the adjacent walks, malls, arcades,
atriums, balconies, roof gardens, parking area and landscaped areas,
including without limitation janitorial, scavenger, gardening and
landscaping, security, operating engineer, elevator, painting, plumbing,
electrical, carpentry, heating, ventilation, air-conditioning, window
washing, signing and advertising (but excluding persons performing services
not uniformly available to or performed for substantially all Project
tenants); maintenance and repair expenses, including but not limited to
capital expenditures required to meet changed government regulations and
governmental regulations for environmental protection or energy conservation,
and rental expenses for personal property to the extent used in the
maintenance, operation and repair of the Project; Landlord's reasonable
administration expense; and the reasonable cost of contesting the validity,
amount, or applicability of any governmental enactments or other expenses
which may affect Operating Expenses.
(3) "Tenant's Share" is agreed to be forty-three and 30/100
percent (43.3%).
21. SUBORDINATION. Tenant agrees that this lease shall be subject and
subordinate to any mortgage, deed of trust or like encumbrance heretofore or
hereafter placed upon the Project or the premises by Landlord or its successors
in interest, to secure the payment of monies loaned, interest thereon and/or
other obligations, and this lease also shall be subject and subordinate to any
ground lease or underlying lease heretofore or hereafter affecting the Project.
Notwithstanding the foregoing, in the event that, subsequent to the execution of
this lease, a new mortgage, deed of trust or like encumbrance on the premises is
created, or a ground lease or underlying lease to which this lease shall be
subordinate is entered into, then this lease shall be subject and subordinate to
such encumbrance or lease only if Landlord obtains from such mortgagor or lessor
a written agreement in form acceptable to such mortgagor or lessor, providing
substantially that Tenant's rights under this lease shall not be affected by any
foreclosure or deed in lieu of foreclosure of, or sale under such encumbrances
for so long as Tenant performs its obligations under this lease (or, in the case
of a ground lease or underlying lease, Tenant's rights shall not be affected by
any termination of such lease for so long as Tenant performs its obligations
under this lease). Tenant agrees to execute and deliver, upon demand of
Landlord, any and all instruments reasonably desired by Landlord, subordinating
in the manner requested by Landlord, this lease to such mortgage, deed of trust,
like encumbrance, ground lease, or underlying lease. On or before the
commencement date of this Lease, Landlord shall deliver to Tenant a recordable
non-disturbance agreement in favor of Tenant, in commercially reasonable form,
executed by Bank of America with respect to its mortgage lien encumbering the
Project.
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22. OFFSET STATEMENT. Within ten (10) business days after request
therefor by Landlord, or in the event of any sale, assignment or
hypothecation of the premises and/or the Project or any portion thereof, by
Landlord, Tenant agrees to deliver in recordable form a certificate to any
proposed mortgagee, trust deed beneficiary or purchaser, or to Landlord, in
form reasonably satisfactory to the addressee, certifying as to (a) the date
of this lease and any amendments thereto, (b) the date upon which this lease
term commenced and will end, (c) the fact that this lease, as so amended is
in full force and effect and has not been modified except as stated, (d)
whether any rentals are then prepaid or unpaid hereunder, (e) whether any
defaults then exist hereunder, (f) whether Tenant claims any offsets or
defenses to any obligation imposed hereunder and (g) any other information
reasonably requested of Tenant. If Tenant is provided with a proposed form
of such certificate, and fails to execute same within ten (10) business days
after receipt thereof, Tenant agrees that such failure shall, at Landlord's
option, constitute an event of default under this lease. Tenant acknowledges
that any proposed mortgagee, trust deed beneficiary, or purchaser, or
Landlord, may rely on the truth of statements set forth in such certificate
as executed by Tenant.
23. ATTORNMENT. In the event of a termination of all or any part of
Landlord's interest in the building or the Project due to sale or other
disposition, or from any cause whatsoever or in the event of the foreclosure
of or exercise of a power of sale under any mortgage or deed of trust made by
Landlord covering the premises, Tenant shall attorn to and recognize as
Landlord hereunder, Landlord's assignee or successor in interest or the
purchaser at such foreclosure or sale in lieu thereof, as the case may be, on
condition that such assignee, successor or purchaser does not disturb
Tenant's possession under this lease (so long as no event of default exists
under Paragraph 14(a) hereof). Any such sale, disposition, or other
termination of Landlord's interest in the building or Project shall operate
to release Landlord from any liability thereafter arising under any of the
covenants or conditions of this lease, express or implied, in favor of
Tenant, and in such event Tenant agrees to look solely to the responsibility
of Landlord's successor in interest under this lease, as limited by Paragraph
29 hereof.
24. CONDEMNATION. Should the whole or any part of the premises be
condemned and taken by any competent authority for any public or quasi-public
use or purpose, or should Landlord receive written notice of any threatened
condemnation or taking, Landlord shall promptly notify Tenant in writing.
All awards payable on account of such condemnation and taking shall be
payable to Landlord, and Tenant hereby waives all interest in or claim to
said awards, or any part thereof; provided, however, that nothing contained
herein shall be deemed to give Landlord any interest in or require Tenant to
assign to the Landlord any award made payable to Tenant and specifically
designated as compensation for the taking of personal property and fixtures
belonging to Tenant and removable by Tenant at the expiration of the term of
the lease or for the interruption of or damage to Tenant's business or for
any costs or expenses of relocating Tenant's business. If the whole of the
premises shall be so condemned and taken, then this lease shall terminate
effective on the earlier of thirty (30) days after Landlord's delivery of a
notice to Tenant to such effect or the date upon which the condemning
authority takes possession. If a part only of the premises is condemned and
taken and the remaining portion thereof is not suitable for the purposes of
which Tenant had leased said premises, either Landlord or Tenant may
terminate this lease upon thirty days' notice to the other, which notice must
be
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served on the other within ten (10) business days of Landlord's delivery of
the notice of condemnation to Tenant. If by such condemnation and taking a
part only of the premises is taken, and the remaining part thereof is
suitable for the purposes for which Tenant has leased said premises, this
lease shall continue, but the rental shall be reduced in an amount
proportionate to the value of the portion taken as it related to the total
value of the premises.
25. WAIVER OF REDEMPTION, HOLDING OVER. Tenant hereby waives for
Tenant and all those claiming under Tenant, all right now or hereafter
existing to redeem the leased premises after termination of Tenant's right of
occupancy by notice of termination by Landlord pursuant to Paragraph 14
hereof or by order or judgment of any court or by any legal process or writ.
If Tenant holds over after the term hereof, with or without the express or
implied consent of Landlord, such tenancy shall be from month to month only,
and not a renewal hereof or an extension for any further term, and in such
case the rent shall be increased to any amount which Landlord may specify in
a written notice to Tenant (but not exceeding 125% of the rent payable
hereunder immediately before expiration of the term), and all other payments
provided herein shall be payable in the amount and at the times specified in
this lease. Such month to month tenancy shall be subject to every other
term, covenant, and agreement contained herein except as to the term of this
lease.
26. ENTRY AND INSPECTION; CONFIDENTIALITY.
(a) Landlord and its agents shall have the right to enter into
and upon the premises at all reasonable times upon at least 24 hours oral
notice (which shall not be required in the case of emergency), for the
purpose of inspecting the same, or for the purpose of showing same to
prospective purchasers, mortgagees, or tenants, or for the purpose of
protecting the interest therein of Landlord or to post notices of
non-responsibility, or to make alterations or additions, to the premises or
to any other portion of the building in which the premises are situated,
including the erection of scaffolding or other mechanical devices, or to
provide any service provided by Landlord to Tenant hereunder, including
window cleaning and janitor service, without any rebate of rent to Tenant for
any loss of occupancy or quiet enjoyment of the premises, or damage, injury
or inconvenience thereby occasioned, provided that in all situations other
than an emergency Landlord shall exercise its rights hereunder in a manner
that will not unreasonably interfere with Tenant's use of the premises. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon, and about the premises,
excluding Tenant's vaults and safes, or special security areas (designated in
a writing signed by Tenant and Landlord in advance), and Landlord shall have
the right to use any and all means which Landlord may deem necessary or
proper to open said doors in an emergency, without liability of Landlord to
Tenant, in order to obtain entry to any portion of the premises, and any
entry to the premises, or portions thereof obtained by Landlord by any of
said means, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the premises, or an
eviction, actual or constructive, of Tenant from the premises or any portions
thereof. Landlord shall make reasonable efforts to minimize any interference
with Tenant's use and enjoyment of the premises in making any such entry. In
connection with any such entry to the premises, Tenant may require that
Landlord or its agent or
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contractor be accompanied by Tenant, provided that Tenant shall be available
for such accompaniment in accordance with Landlord's or its agent's or
contractor's schedule.
(b) Landlord acknowledges that Tenant's operations at the
premises will include the development, application and marketing of
confidential and proprietary trade secrets. If Tenant provides Landlord
written notice describing in reasonably sufficient detail certain areas
within the premises as secure areas, Landlord agrees to enter such areas only
after advance notice to Tenant and subject to accompaniment by Tenant, except
that such notice and accompaniment shall not be required in cases of
emergency, or upon expiration or earlier termination of this lease. Landlord
agrees to not disclose such confidential and/or proprietary information about
Tenant and its business; provided, however, that Landlord shall not be
precluded from making any disclosure compelled by a court or other
governmental entity.
(c) Subject to events of force majeure, acts of God, riot, war,
public disturbance, casualties, events beyond Landlord's control, and to the
necessity to limit or restrict access as may be required from time to time
for safety, repair or maintenance, Tenant shall have access to the premises
24 hours per day, seven days a week.
27. BUILDING PLANNING. Landlord shall have the right at any time,
without the same constituting an actual or constructive eviction and without
incurring any liability to Tenant therefor, to change the arrangement and/or
location of entrances or passageways doors and doorways, and corridors,
elevators, stairs, toilets, or other public parts of the building and the
Project, and to change the name, number or designation by which the building
or the Project is commonly known.
28. HAZARDOUS SUBSTANCES. Landlord represents and warrants to Tenant
that to the best of its knowledge as of the date of this lease, there are no
Hazardous Substances located in, on or under the building or the Project
other than as disclosed to Tenant in writing; provided that, for purposes of
the foregoing representation and warranty, "Hazardous Substances" shall mean
those substances which are as of the date of this lease regulated by local,
state or federal law or regulation requiring removal or other remediation,
warning or restrictions on use, generation, storage, disposal or
transportation to the extent those substances are present in quantities which
are deemed hazardous by such laws or regulations. For purposes of the
remainder of this Paragraph 28, "Hazardous Substances" shall mean those
substances which are now or hereafter regulated by local, state or federal
law or regulation requiring removal or other remediation, warning or
restrictions on use, generation, storage, disposal or transportation to the
extent those substances are present in quantities which are deemed hazardous
by such laws or regulations. Landlord shall indemnify and hold Tenant
harmless from and against all claims, costs, damages and liabilities,
including attorneys' fees and costs, arising out of or in connection with the
presence of any Hazardous Substances in, on or under the building or the
Project to the extent such presence is caused by Landlord or such presence
existed prior to the date of this lease. Landlord's obligations hereunder
shall survive the termination of this lease.
Tenant, at its sole cost, shall comply with all laws relating to its
storage, use, generation, transportation, disposal and release of Hazardous
Substances. If Tenant does store, use, generate,
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transport or dispose of any Hazardous Substances, Tenant shall notify
Landlord in writing at least ten (10) days prior to their first appearance on
the premises; provided, however, that Tenant shall not have to give such
notice with regard to incidental quantities of any such Hazardous Substances
present in products stored, used or otherwise brought onto the premises for
general office and/or janitorial purposes. Tenant shall be solely
responsible for and shall defend, indemnify and hold Landlord and its agents,
employees and representatives harmless from and against all claims, costs,
damages and liabilities, including attorneys, fees and costs, arising out of
or in connection with Tenant's, or Tenant's agents, contractors or employees,
storage, use, generation, transport, disposal or release of Hazardous
Substances, including, without limitation, any such claims, costs, damages
and liabilities, including attorneys' fees and costs, arising out of or in
connection with any investigation, testing, removal, clean-up, remediation
and/or restoration services, work, equipment and materials necessary to
remove or otherwise satisfactorily remediate the contamination and any
related problems actually caused by Tenant's, or Tenant's agents, contractors
or employees, use, storage, generation, transportation, disposal or release
of Hazardous Substances in, on or around the premises or the Project; but it
is understood and agreed that Tenant shall not be responsible, and Landlord
releases Tenant from liability for, Hazardous Substances contamination in, on
or around the premises, including without limitation investigation, testing,
remediation and/or restoration costs related thereto, that is not actually
caused by the storage, use, generation, transport, disposal or release of
Hazardous Substances by Tenant or Tenant's agents, contractors or employees.
Tenant's obligations hereunder shall survive the termination of this lease.
If at any time during or after the term of this lease, as it may be extended,
Tenant becomes aware of any inquiry, investigation, administrative
proceeding, or judicial proceeding Joy any governmental agency regarding the
storage, use or disposition of any Hazardous Substances by Tenant or its
agents, contractors or employees on or about the premises or the Project,
Tenant shall within five (5) days after first learning of such inquiry,
investigation or proceeding give Landlord written notice advising Landlord of
same. Landlord and Tenant agree that this Paragraph 28 is intended to
delineate the parties' respective rights and obligations regarding the
presence of Hazardous substances in, on or around the premises or the Project
and that other provisions of this lease shall not be construed to expand, or
limit, such rights or obligations.
29. LIMITATION ON LANDLORD'S LIABILITY. In the event of any actual or
alleged failure, breach or default by Landlord hereunder pertaining to the
premises, the building, or the Project, Tenant shall give Landlord written
notice of such default and Landlord shall not be deemed in default hereunder
unless Landlord fails to cure such default within thirty (30) days after
receipt of such written notice (or such longer period as is reasonably
necessary to remedy such default, provided that Landlord shall, within such
thirty (30) day period, commence and thereafter diligently pursue such remedy
until such default is cured). If Landlord fails to cure such default in the
applicable time period, Tenant may elect to cure such default, and Landlord
shall reimburse Tenant the reasonable costs of such cure within thirty (30)
days after its receipt of documentation of such costs. If Landlord fails to
make such payment when due, Tenant may deduct the amount of such costs from
its monthly base rental payment, provided that the amount of the deduction in
any one month shall not exceed fifty percent (50%) of the base rental amount
due for such month, and provided further that Tenant shall not be entitled to
exercise such deduction right with respect to base monthly rental payments
for more than four months in any
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twelve month period during the term of this Lease. In consideration of the
benefits accruing to Tenant hereunder, Tenant agrees for itself and its
successors and assigns that in the event of any such failure, breach or
default or of any damage to Tenant from any act or omission of Landlord
pertaining to the premises or the Project, the sole and exclusive remedy of
Tenant shall be against Landlord's interest in the Project, that any judgment
obtained against Landlord, or any person who owns an interest in the building
or land shall be satisfied solely by execution of the judgment and levy
against the right, title and interest of Landlord or such person in the
Project, and rentals therefrom. Neither Landlord, nor any such person who
owns any interest whatsoever in the Project, shall be personally liable for
any deficiency after such execution and levy. Notwithstanding the foregoing,
Tenant shall have recourse against Landlord for any loss incurred by Tenant
as a result of Landlord's failure to carry the insurance required under this
lease, or the failure of an assignee of Landlord to whom Landlord has sold or
transferred its interest in the Project to assume liability for the defaults
or obligations of Landlord which accrued prior to the date of such sale or
transfer.
30. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof relating
to assignment, mortgaging, pledging and subletting, this lease is intended to
and does bind the heirs, executors, administrators, successors and assigns of
any and all of the parties hereto.
31. SECURITY. Tenant has deposited with Landlord the sum of
Forty-Seven Thousand Three Hundred Twenty-Two Dollars ($47,322.00) as the
Security Deposit for the full and faithful performance of every provision of
this lease to be performed by Tenant. Title to the Security Deposit has been
transferred to Landlord subject only to Tenant's right to the return of the
security Deposit as set forth below. If Tenant defaults with respect to any
provision of this lease, Tenant's right to the return of the Security Deposit
shall terminate to the extent of any payments then past due hereunder, and
Landlord may apply all or any part of the Security Deposit for the payment of
any rent or other sum in default, the repair of such damage to the premises
or the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default to the full extent permitted by law. If any portion of the Security
Deposit is so applied, Tenant shall, within five (5) days after written
demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. If Tenant
is not otherwise in default, the Security Deposit or any balance thereof
shall be returned to Tenant at its last address known to Landlord within
thirty (30) days of termination of the lease.
32. PARKING. Landlord agrees that Tenant shall be provided on a
non-exclusive basis and at no additional cost with 112 non-reserved
automobile parking spaces. Such number of parking spaces shall be subject to
pro rata adjustment if a lesser or greater area shall hereafter be contained
in the definition of the premises subject to this lease. Said parking spaces
shall be located in the parking area which is part of the Project. Landlord
shall keep the parking area clean, lighted and in good repair. Landlord shall
not oversubscribe parking at the Project. Landlord may designate certain
parking areas as Visitors' Parking, to be reserved for guests
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and/or visitors of the Project, and Tenant and Tenant's employees shall not
park in areas designated for Visitors' Parking. Additionally, Landlord
agrees that Tenant shall be provided on an exclusive basis and at no
additional cost with fifteen (15) reserved automobile parking spaces. Said
reserved parking spaces shall be properly marked by Landlord as "Reserved."
The location of the reserved parking stalls is identified in Exhibit C.
Landlord shall have no policing or enforcing responsibilities with respect to
the reserved spaces.
33. SUITE AND BUILDING IDENTIFICATION. Landlord will provide, at
Landlord's expense, Tenant's name plate and suite number on Tenant's suite
door using building standard design and materials and shall provide lobby
directory signage for Tenant and a reasonably limited number of key employees
in building standard design. Tenant shall be permitted monument signage at
the front of the building at Tenant's sole expense, subject to Landlord's
reasonable approval and provided that Tenant shall be responsible for
compliance with applicable codes and regulations.
34. RULES AND REGULATIONS. The rules and regulations attached to this
lease, as well as such reasonable rules and regulations as may be hereafter
adopted by Landlord for the safety, care and cleanliness of the premises and
the operation of the Project, and the preservation of good order thereon, are
hereby expressly made a part hereof, and Tenant agrees to comply with them.
Landlord shall not be liable to any person, including Tenant, for the failure
of any other tenant or person to observe such rules and regulations.
35. TIME. Time is of the essence of this lease.
36. LEASE EXAMINATION AND EXECUTION. Tenant acknowledges that
submission of this lease for examination by Tenant does not constitute a
reservation or option for lease, and that this lease is not and shall not be
effective until (a) Tenant has delivered to Landlord at least three originals
of this lease, fully executed by Tenant, accompanied by payment to Landlord
of a sum equal to the sum of (i) one month's rent hereunder, which shall be
applied toward Tenant's rental obligations under Paragraph 3 hereof upon
commencement of this lease, and (ii) the amount of the security deposit
provided in Paragraph 31 hereof; and (b) Landlord has delivered to Tenant at
least one fully executed original of this lease. Tenant, and each person
executing this lease on behalf of Tenant, represent and warrant that this
lease is duly executed by Tenant, and that the persons executing this lease
on behalf of Tenant are duly authorized so to do and to bind Tenant to the
obligations set forth in this lease. Landlord, and each person executing
this lease on behalf of Landlord, represent and warrant that this lease is
duly executed by Landlord, and that the persons executing this lease on
behalf of Landlord are duly authorized so to do and to bind Landlord to the
obligations set forth in this lease.
37. MISCELLANEOUS. This lease shall constitute the entire agreement
of the parties pertaining to the premises and all prior agreements and
representations of the parties (except representations of Tenant concerning
its financial condition), whether written or oral, shall be superseded by
this lease. This lease may not be amended or modified except by written
agreement duly executed by the parties hereto. This lease shall be
interpreted as follows: (a) according to the fair meaning of the language
without strict construction against either party;
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(b) under the laws of the state of California; (c) by disregarding captions,
which shall have no significance except convenience; (d) by substituting
appropriate gender where required; and (e) by substituting the plural for the
singular, and vice versa, where the context requires. If any provision of
this lease is found to be unenforceable or otherwise invalid, such
unenforceable provision shall be deemed separable and the remaining
provisions of this lease shall remain in full force and effect. Landlord's
and Tenant's covenants shall survive termination of this lease where
reasonably appropriate to accomplish the purpose thereof. Tenant, at its
sole cost and expense, may cause to be prepared a memorandum of lease to be
executed by the parties, in form reasonably acceptable to Landlord, which may
be recorded by Tenant in the Official Records of San Mateo County,
California. Upon the expiration or earlier termination of this lease, Tenant
shall cause to be prepared and recorded in the Official Records of San Mateo
County, California, at its sole cost and expense, a quitclaim deed to be
executed by Tenant, in form reasonably acceptable to Landlord.
38. EXHIBITS. Exhibit A hereto, Exhibit B hereto, Exhibit C hereto,
the Rules and Regulations attached hereto as Exhibit D, and any other Exhibit
or Addendum which is initialed or signed by Landlord and Tenant and attached
hereto shall be considered a part of this lease for all purposes.
39. BROKERS. Landlord and Tenant each warrants that it ha s had no
dealings with any real estate brokers or agents in connection with the
negotiation of this lease excepting only Cornish and Carey Commercial and The
CAC Group and it knows of no other real estate broker or agent who is
entitled to a commission in connection with this lease.
40. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which is now or may hereafter be erected
on lands adjacent to the Project shall in no way affect this lease or impose
any liability on Landlord. Noise, dust or vibration or other incidents to
new construction of improvements on lands adjacent to the Project, whether or
not by Landlord, shall in no way affect this lease or impose any liability on
Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed these presents the
day and year first above written.
LANDLORD: TENANT:
THE JOSEPH AND EDA PELL ELECTRONICS FOR IMAGING,
REVOCABLE TRUST a California corporation
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------- --------------------------
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------- --------------------------
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EXHIBIT A
[CAMPUS DRIVE FLOOR MAPS]
<PAGE>
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE ("First Addendum") is dated for reference
purposes as of July 30, 1992, and is made between The Joseph and Eda Pell
Revocable Trust ("Landlord") and Electronics for Imaging ("Tenant") to be a
part of that certain Agreement of Lease, of even date herewith, between
Landlord and Tenant (herein the "Lease Form") concerning 32,863 rentable
square feet of space (the "Premises") located at 2855 Campus Drive (the
"Project"), San Mateo, California. Landlord and Tenant agree that the Lease
Form is modified and supplemented by this First Addendum.
1. COMMENCEMENT DATE. Notwithstanding anything to the contrary in
the Lease Form:
A. The Lease shall commence (the "Commencement Date") on the
later of November 1, 1992, and the first to occur of (i) the date by which
all of the following have occurred: (a) Landlord has substantially completed
the tenant improvements described in EXHIBIT B to the Lease Form (the "Tenant
Improvements") in accordance with such EXHIBIT B, (b) Landlord has delivered
possession of the Premises to Tenant; and (c) Landlord has obtained all
approvals and permits from the appropriate governmental authorities required
for the legal occupancy of the Premises for general office use, or (ii) the
date by which the conditions specified in part (i) hereof would have been
satisfied but for Tenant Delay, as defined in EXHIBIT B.
B. If the Commencement Date has not occurred for any reason
other than Tenant Delay on or before November 1, 1992, then in that event
Tenant shall not be liable for any rent until such time as Landlord shall
deliver possession of said premises to Tenant. If the Commencement Date has
not occurred for any reason other than Tenant Delay, as defined in EXHIBIT B
by February 1, 1993, then Tenant may terminate this Lease by written notice
to Landlord, whereupon any monies previously paid by Tenant to Landlord shall
be reimbursed to Tenant.
2. RENT. Notwithstanding anything to the contrary in the Lease Form,
all base rent and additional rent shall be equitably prorated to reflect the
commencement and termination dates of the Lease.
3. ACCEPTANCE OF PREMISES. Notwithstanding anything to the contrary
in the Lease Form:
A. Tenant's acceptance of the Premises shall not be deemed a
waiver of Tenant's right to have defects caused by Landlord or Landlord's
contractor in the Tenant Improvements or the Premises repaired at Landlord's
expense.
B. Landlord warrants and represents that as of the Commencement
Date the Premises will be in good condition and repair and the electrical,
mechanical, HVAC, plumbing,
<PAGE>
elevator and other systems serving the Premises and the Building will be in
good condition and repair.
4. COMPLIANCE WITH LAWS. Notwithstanding anything to the contrary in
the Lease Form, at the Commencement Date, the Premises and the Project shall
conform to all requirements of applicable covenants, conditions, restrictions
and encumbrances ("CC&R's"), all underwriter's requirements, and all rules,
regulations, statutes, ordinances, laws and building codes (collectively,
"Laws") applicable thereto.
5. USE OF PREMISES. Notwithstanding anything to the contrary in the
Lease Form, to Landlord's knowledge, as of the Commencement Date, Landlord
represents and warrants that Tenant's use of the Premises, as described in
Paragraph 4 of the Lease Form, is permitted by all Laws, CC&R's, and fire
underwriter's requirements and that electricity, water, janitorial, heating,
ventilating, air conditioning and other services, at the levels generally
provided for office uses in comparable buildings in the vicinity of the
Premises, will be available to the Premises at all times during the Lease
term, subject to Paragraph 8 of the Lease Form, and subject to events beyond
Landlord's control.
6. ALTERATIONS ADDITIONS AND IMPROVEMENTS. Notwithstanding anything
to the contrary in the Lease Form:
A. NONSTRUCTURAL. Provided that Tenant shall deliver to
Landlord a copy of all final plans, specifications and working drawings for
any such work at least ten (10) days before commencing such work, Tenant may
construct nonstructural alterations, additions and improvements
("Alterations") in the Premises without Landlord's prior approval which (i)
do not affect any area outside the Premises, (ii) do not affect the
Building's structure, equipment, services or systems, or the outside
appearance or use of the Premises or Building, and (iii) does not cost more
than Twenty-Five Thousand Dollars ($25,000). If Landlord's consent is
required for an Alteration and Landlord does not notify Tenant in writing of
its approval or disapproval within fifteen (15) days following Tenant's
written request for approval (provided Tenant's request must specify that
failure to respond shall be deemed approval), then Landlord shall be deemed
to have approved the proposed Alteration. Tenant shall insure that all work
done by Tenant or its contractors, agents or employees complies with all
Laws, and Tenant shall obtain all necessary permits and approvals, at
Tenant's cost, copies and/or other acceptable documentation of which shall be
provided to Landlord prior to commencement of any work.
B. REMOVAL. Upon Tenant's written request, Landlord shall
advise Tenant in writing whether it reserves the right to require Tenant to
remove any Alterations from the Premises upon termination of the Lease.
C. TENANT'S PROPERTY. All Alterations, trade fixtures and
personal property installed in the Premises at Tenant's expense ("Tenant's
Property") shall at all times remain Tenant's property and Tenant shall be
entitled to all depreciation, amortization and other tax benefits with
respect thereto. Except for Alterations which cannot be removed without
structural injury to the Premises, at any time Tenant may remove Tenant's
Property from the Premises, provided Tenant repairs all damage caused by such
removal.
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D. LIEN WAIVER. Landlord shall have no lien or other interest
whatsoever in any item of Tenant's Property, or any portion thereof or
interest therein located in the Premises or elsewhere, and Landlord hereby
waives all such liens and interests. Within ten (10) business days after
receipt of Tenant's written request (and acceptable documents), Landlord
shall execute documents reasonably necessary to evidence Landlord's waiver of
any right, title, lien or interest in Tenant's Property located in the
Premises.
E. INSURANCE. Tenant shall have no obligation to insure any
property in the Premises, other than as required in the Lease Form, from fire
or any other casualty and Tenant shall be entitled to all insurance proceeds
and condemnation awards and settlements payable with respect to Tenant's
Property.
F. SALE OF TENANT'S PROPERTY. Landlord shall provide Tenant
with at least five (5) days prior written notice of any sale of Tenant's
Property by Landlord.
7. REPAIRS AND MAINTENANCE. Notwithstanding anything to the contrary
in the Lease Form:
A. Landlord shall perform and construct, and (except to the
extent any such performance, repair, maintenance or improvement is an
obligation of Tenant under the Lease Form or this Addendum, or is required
due to the act or omission of Tenant, its agents, contractors, employees,
invitees or licensees, or due to a breach of this Lease by Tenant) Tenant
shall have no responsibility to perform or construct, any repair, maintenance
or improvement (i) necessitated by the acts or omissions of Landlord or its
agents, employees or contractors, (ii) required as a consequence of any
violation of Law or construction defect in the Premises or the Project as of
the Commencement Date caused by Landlord or its contractors, and (iii) to the
heating, ventilating, air conditioning, electrical, water, sewer, and
plumbing systems serving the Premises or the Project. Tenant's obligation,
if any, to reimburse Landlord for the costs of such repairs, maintenance and
improvements shall be governed by the other provisions of this Lease. Tenant
shall not be required to perform or construct any repair, maintenance or
improvement necessitated by the acts or omissions of any other occupant of
the Project or its agents, employees or contractors.
B. CAPITAL IMPROVEMENTS. If any of Tenant's obligations under
the Lease (as modified by this First Addendum) require Tenant to pay all or
any portion of any charge which could be treated as a capital improvement
under generally accepted accounting principles, then Tenant shall pay its
share of such expense as follows:
1. The cost of such improvement shall be amortized over
the useful life of the improvement (as reasonably determined by Landlord)
with interest on the unamortized balance at the then prevailing market rate
Landlord would pay if it borrowed funds to construct such improvements from
an institutional lender, and Landlord shall inform Tenant of the monthly
amortization payment required to so amortize such costs, and shall also
provide Tenant with the information upon which such determination is made.
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2. Tenant shall pay Tenant's Share of such amortization
payment for each month after such improvement is completed until the first to
occur of (i) the expiration of the Lease term or (ii) the end of the term
over which such costs were amortized, which amount shall be due at the same
time the base monthly rent is due.
8. EXPENSES. Notwithstanding anything to the contrary in the Lease
Form:
"Operating Expenses" shall be defined to exclude the following
repairs, maintenance, improvements, replacements, premiums, claims, losses,
fees, charges, costs and expenses (collectively, "Costs"), nor shall any
portion of any Tenant Improvement allowance be applied to such costs:
A. LOSSES CAUSED BY OTHERS. Costs incurred with respect to
repairs required due to the negligent act or omission or violation of Law by
Landlord, any other occupant of the Project, or their respective agents,
employees or contractors.
B. CASUALTIES. Costs occasioned by fire, acts of God, or other
casualties to the extent such costs are covered by, or are required to be
covered by, Landlord's insurance specified in this lease.
C. CAPITAL IMPROVEMENTS. Costs relating to repairs,
alterations, improvements, equipment and tools which would properly be
capitalized under generally accepted accounting principles, except to the
extent that (i) the foregoing reduces Operating Expenses and (ii) such Cost
is amortized in an annual amount equal to the amortization of such costs over
the useful life of the capital item in question.
D. REIMBURSED EXPENSES. Costs for which Landlord actually
receives reimbursement from others, provided that Landlord shall use
commercially reasonable efforts to obtain such reimbursements to which it is
entitled.
E. REAL ESTATE TAXES. Taxes, assessments, all other
governmental levies, and any increases in the foregoing occasioned by or
relating to (i) construction of improvements for other occupants of the
Project, and (ii) a change of ownership of any interest of Landlord in the
Project during the term of the Lease, as extended pursuant to the terms
hereof, if (a) to any person or entity affiliated with or related to
Landlord, or the beneficiaries, partners, officers, shareholders or directors
which comprise Landlord, or (b) in connection with Landlord's estate planning.
F. CONSTRUCTION DEFECTS. Costs to correct any construction
defect in the Premises or the Project (except for defects in work or items
installed by Tenant or its contractors) or to correct a violation by Landlord
of any CC&R's, underwriter's requirement or Law applicable to the Premises or
the Project on the Commencement Date.
G. UTILITIES OR SERVICES. Costs (i) arising from the
disproportionate use of any utility or service supplied by Landlord to any
other occupant of the Project, or (ii) associated with utilities and services
of a type not provided to Tenant.
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H. INTERIOR IMPROVEMENTS. The cost of any renovation,
improvement, painting or redecorating of space for other tenants of the
Project.
I. LEASING EXPENSES. Fees, commissions, attorneys' fees, Costs
or other disbursements incurred in connection with negotiations or disputes
with any other occupant of the Project. Costs arising from the violation by
Landlord or any occupant of the Project (other than Tenant) of the terms and
conditions of any lease or other agreement.
J. RESERVES. Depreciation, amortization, or other expense
reserves, except to the extent amortization is otherwise expressly permitted
by this lease.
K. MORTGAGES. Interest, charges and fees incurred on debt,
payments on mortgages and rent under ground leases.
L. INSURANCE. Increases in insurance costs after the
Commencement Date caused by the activities of another occupant of the
Project, and co-insurance payments. Deductibles in excess of $5,000 for the
insurances carried by Landlord hereunder. Premiums for earthquake and flood
damage insurance, unless such insurance is required by an institutional
lender providing financing for the building or Project, but in no event shall
Tenant be required to pay in excess of Tenant's Share of $20,000 annually as
its share of such insurance.
M. HAZARDOUS SUBSTANCES. Costs incurred to investigate the
presence of any Hazardous Substance (defined in the Lease Form), Costs to
respond to any claim of Hazardous Substance contamination or damage, Costs to
remove any Hazardous Substance from the Project and any judgments or other
Costs incurred in connection with any Hazardous Substance exposure or
releases, except to the extent caused by the storage, use, release, transport
or disposal of the Hazardous Substance in question by Tenant.
N. MANAGEMENT. Any fee in excess of the management fee which
would be charged by an independent professional management service for
operation of comparable projects in the vicinity.
O. DUPLICATION. Costs and expenses for which Tenant reimburses
Landlord directly or which Tenant pays directly to a third party.
9. INDEMNITY. Notwithstanding anything to the contrary in the Lease
Form (but subject to the last paragraph of Paragraph 9 and to Paragraph 29
thereof):
A. NEGLIGENCE OR MISCONDUCT. Tenant shall neither release
Landlord from, nor indemnify Landlord with respect to: (i) the negligence or
willful misconduct of Landlord or its agents, employees, or contractors, or
(ii) a breach of Landlord's obligations or representations under this Lease.
B. LANDLORD'S INDEMNIFICATION. Except to the extent of Tenant's
negligence or willful misconduct, Landlord shall indemnify, defend, protect and
hold harmless Tenant from all losses, costs, claims and damages, including
reasonable attorneys' fees and expenses to the
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extent the foregoing results from the negligence or willful misconduct of
Landlord or its agents, employees, contractors, licensees or invitees, or the
breach by Landlord of Landlord's obligations or representations under this
Lease.
10. COMMON AREAS. Notwithstanding anything to the contrary in the
Lease Form, if Landlord is permitted to alter any common area of the Project,
such alteration shall not unreasonably interfere with Tenant's use of or
access to the Premises or Tenant's parking rights.
11. RULES AND REGULATIONS. Notwithstanding anything to the contrary
in the Lease Form, Tenant shall comply with all new nondiscriminatory rules
or regulations which do not unreasonably interfere with Tenant's use of or
access to the Premises or Tenant's parking rights.
12. REASONABLE EXPENDITURES. Notwithstanding anything to the contrary
in the Lease Form, any expenditure by a party permitted or required under the
Lease, for which such party is entitled to demand and does demand
reimbursement from the other party, shall be limited to the fair market value
of the goods and services involved, shall be reasonably incurred, and shall
be substantiated by documentary evidence available for inspection and review
by the other party or its representative during normal business hours.
13. SURRENDER. Notwithstanding anything to the contrary in the Lease
Form, Tenant's obligation to surrender the Premises shall be fulfilled if
Tenant surrenders possession of the Premises in the condition existing at the
commencement of the Lease, ordinary wear and tear, acts of God, casualties,
condemnation, Hazardous Substances (other than those stored, used or disposed
of by Tenant in or about the Premises or Project or for which Tenant is
otherwise responsible), and interior improvements which Landlord has not
stated in writing must be removed at the termination of the Lease excepted.
14. DAMAGE OR DESTRUCTION. Notwithstanding anything to the contrary
in the Lease Form:
A. LANDLORD'S INSURANCE. Landlord shall carry the following
insurance: All risk, extended coverage property and casualty insurance for
the full replacement value of the Project and comprehensive general liability
insurance in the amount of $1,000,000 per occurrence. Landlord's casualty
insurance shall contain a "building ordinance" endorsement with respect to
reconstruction costs arising out of changes in applicable building codes.
B. UNINSURED CASUALTY. Subject to the parties' rights to
terminate this Lease pursuant to the first sentence of Paragraph 11 of the
Lease Form, in the case of damage which is relatively minor (e.g., repair or
restoration would take fewer than ninety (90) days and would cost less than
five percent (5%) of the replacement cost of the Building), or if Tenant
agrees to pay the cost of repair in excess of a pre-agreed base amount,
Landlord shall, at Landlord's cost (provided that Tenant shall be responsible
for any repairs required due to the act or omission, or negligence or other
fault of Tenant, its agents, contractors, employees, invitees or licensees)
repair such damage regardless of whether insurance proceeds are available to
make such repairs.
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C. TENANT'S RIGHT TO TERMINATE. Landlord shall notify Tenant
within fifteen (15) business days following any damage to or destruction of
the Premises (or the Building if such damage or destruction interferes with
Tenant's use of the Premises) the length of time Landlord reasonably
estimates to be necessary for repair or restoration. Tenant shall have the
right to terminate the Lease provided in Paragraph 11 of the Lease Form.
D. CONSTRUCTION STANDARD. In repairing the Premises, Landlord
may use designs, plans and specifications other than those used in the
original construction, and may alter or relocate the premises, provided that
the premises as altered or relocated shall be in all material respects
reasonably comparable to the premises as defined herein.
15. EMINENT DOMAIN. Notwithstanding anything to the contrary in the
Lease Form, Tenant shall be entitled to pursue with and receive from the
condemning authority a separate award for a portion of the condemnation
proceeds (whether by award or payment under threat of condemnation) based on:
(i) the Lease bonus value (the difference between the Lease rent and fair
market value rent); (ii) the value of the condemned improvements Tenant has
the right to remove from the Premises; (iii) the unamortized value, allocable
to the remainder of the Lease term, of any improvements installed at Tenant's
expense, which are not removable; (iv) Tenant's moving cost; (v) loss to
Tenant's goodwill as a consequence of the condemnation; and (vi) Tenant's
trade fixtures.
16. QUIET POSSESSION. Notwithstanding anything to the contrary in the
Lease Form, Tenant shall peacefully have, hold and enjoy the Premises,
subject to the other terms of this Lease, provided that Tenant pays the rent
and performs all of Tenant's covenants and agreements contained in this
Lease. This covenant and the other covenants of Landlord contained in this
Lease shall be binding upon Landlord and its successors only with respect to
breaches occurring during its and their respective ownerships of Landlord's
interest hereunder.
17. OFFSET STATEMENTS, RECIPROCAL OBLIGATION. Notwithstanding
anything to the contrary in the Lease Form, Section 22 of the Lease Form
shall be deemed to impose a reciprocal obligation on Landlord for the benefit
of Tenant.
18. LANDLORD'S DEFAULT. If Landlord's failure to perform any of its
obligations under the Lease results in a condition which is causing or
threatens to cause immediate damage to Tenant's personnel or property, then
Landlord shall repair such condition as soon as possible after receiving
notice from Tenant.
19. EFFECT OF ADDENDUM. Each term used herein with initial capital
letters shall have the meaning ascribed to such term in the Lease Form unless
specifically otherwise defined herein. In the event of any inconsistency
between this First Addendum and the Lease Form, the terms of this First
Addendum shall prevail. As used herein, the term "Lease" shall mean the
Lease Form, this First Addendum and all riders, exhibits, rules, regulations,
covenants, conditions and restrictions referred to in the Lease Form or this
First Addendum.
20. OPTION TO EXTEND. Notwithstanding anything to the contrary in the
Lease Form:
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A. GRANT OF OPTION. Landlord hereby grants to Tenant two
consecutive option(s) (the "Extension Option(s)") to extend the term of this
Lease, each for an additional term of three (3) years, commencing when the
then-existing term expires, upon the terms and conditions set forth in this
Paragraph.
B. EXERCISE OF EXTENSION OPTIONS. Tenant must exercise such
Extension Option(s) by giving Landlord written notice of its intention not
less than nine (9) months prior to the expiration of the then-existing term
of this Lease. If Tenant fails to exercise its first extension option, it
shall be deemed to have waived the second such option.
C. EXTENDED TERM RENT. If the Extension Option(s) are timely
exercised, in accordance herewith, the base rent for the Premises shall be
based upon the then current fair market monthly rent ("Fair Market Rent") for
the Premises as of the commencement date of the applicable extended term, as
determined by the agreement of the parties or, if the parties cannot agree by
the date which is seven (7) months prior to the commencement of such extended
term, then by an appraisal. The base rent for the Premises during each
extended term shall equal one hundred percent (100%) of Fair Market Rent, if
such Fair Market Rent is less than the base rent payable by Tenant for the
month immediately prior to commencement of such extended term. Otherwise,
base rent during such extended term shall equal the greater of ninety-five
percent (95%) of Fair Market Rent or One and 44/100 Dollars ($1.44) per
rentable square foot of the Premises. All other terms and conditions
contained in the Lease and this First Addendum, as the same may be amended
from time to time by the parties in accordance with the provisions of the
Lease, shall remain in full force and effect and shall apply during the
extension term(s). Landlord shall be at no expense (other than applicable
leasing commissions, if any) in connection with Tenant's election to extend
the Lease term (including without limitation not being obligated to pay for
additional tenant improvements in connection with such extended term) and
Tenant shall accept the Premises during the extended term in their
then-existing condition. Notwithstanding the foregoing, if Tenant exercises
its first renewal option, Landlord, at Landlord's sole expense, shall touch
up the walls of the leased Premises, as needed, and shampoo the carpet. If
Tenant properly exercises its second renewal option, Landlord, at Landlord's
sole expense, shall repaint and recarpet the leased Premises at its sole
expense.
D. APPRAISAL. If it becomes necessary to determine the fair
market rental value for the Premises by appraisal, real estate brokers
(referred to hereafter as "appraisers"), all of whom shall be licensed real
estate brokers who have at least five (5) years experience appraising and/or
leasing office space located in the vicinity of the Premises shall be
appointed and shall act in accordance with the following procedures:
(i) If the parties are unable to agree on the Fair
Market Rent within the allowed time, either party may demand an appraisal by
giving written notice to the other party, which demand to be effective must
state the name, address and qualifications of an appraiser selected by the
party demanding an appraisal (the "Notifying Party"). Within ten (10) days
following the Notifying Party's appraisal demand, the other party (the
"Non-Notifying Party") shall either approve the appraiser selected by the
notifying party or select a second properly qualified appraiser by giving
written notice of the name, address and qualification of said
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appraiser to the Notifying Party. If the Non-Notifying Party fails to select
an appraiser within the ten (10) day period, the appraiser selected by the
Notifying Party shall be deemed selected by both parties and no other
appraiser shall be selected. If two appraisers are selected, they shall
select a third appropriately qualified appraiser. If the two appraisers fail
to select a third qualified appraiser, the third appraiser shall be appointed
by the then presiding judge of the county where the Premises are located upon
application by either party.
(ii) If only one appraiser is selected, that appraiser
shall notify the parties in simple letter form of its determination of the
Fair Market Rent for the Premises within fifteen (15) days following his
selection, which appraisal shall be conclusively determinative and binding on
the parties as the appraised Fair Market Rent.
(iii) If multiple appraisers are selected, the appraisers
shall meet not later than ten (10) days following the selection of the last
appraiser. At such meeting the appraisers shall attempt to determine the Fair
Market Rent for the Premises as of the commencement date of the extended term
by the agreement of at least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the
Fair Market Rent for the Premises at the initial meeting, such agreement
shall be determinative and binding upon the parties hereto and the agreeing
appraisers shall, in simple letter form executed by the agreeing appraisers,
forthwith notify both Landlord and Tenant of the amount set by such
agreement. If multiple appraisers are selected and two (2) appraisers are
unable to agree on the Fair Market Rent for the Premises, all appraisers
shall submit to Landlord and Tenant an independent appraisal of the Fair
Market Rent for the Premises in simple letter form within twenty (20) days
following appointment of the final appraiser. The parties shall then
determine the Fair Market Rent for the Premises by averaging the appraisals;
provided that any high or low appraisal, differing from the middle appraisal
by more than ten percent (10%) of the middle appraisal, shall be disregarded
in calculating the average.
(v) The appraisers' determination of Fair Market Rent
shall be based on rental of space of the same age, construction, size and
location as the Premises, taking into account the improvements installed
therein at Landlord's expense and Tenant's obligations to pay additional rent
under this Lease. In determining Fair Market Rent, the appraisers shall not
consider any alterations installed in the Premises at Tenant's expense.
(vi) If only one appraiser is selected, then each party
shall pay one-half of the fees and expenses of that appraiser. If three
appraisers are selected, each party shall bear the fees and expenses of the
appraiser it selects and one-half of the fees and expenses of the third
appraiser.
(vii) If the process described above for selection of Fair
Market Rent has not resulted in a determination of such rent by the
commencement of the applicable lease term, then Tenant shall continue to pay
rent in the amounts then payable under this Lease prior to the commencement
of the applicable extended term, until the appraiser(s) reach a decision,
with an appropriate rental adjustment and other adjustments for any
overpayment or underpayment of
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rent or other amounts if the above described process subsequently results in
a different rate for the Fair Market Rent than is then payable hereunder.
21. PHASE TWO EXPANSION. Tenant shall further lease from Landlord the
additional space (the "Phase Two Space") located on the second floor of the
Building consisting of 2,536 rentable square feet and 2,255 useable square
feet as shown on EXHIBIT "A" to the Lease Form as the "Phase Two Space".
Landlord shall, at Landlord's sole expense, construct the improvements to the
Phase Two Space described in the Final Plans. Landlord shall construct such
improvements in accordance with EXHIBIT "B" to the Lease Form, except that
Landlord estimates that such improvements shall be substantially complete by
February 1, 1993. As of the later of February 1, 1993 or the first to occur
of (i) the date by which all of the events described in clause (i) of
Subparagraph 1(A) of this First Addendum have occurred with respect to such
improvements and the Phase Two Space, or (ii) the date by which the events
specified in such part (i) would have occurred but for Tenant Delay(s) as
defined in EXHIBIT B, the Phase Two Space shall be deemed a portion of the
Premises, base monthly rent for the Premises shall be increased to Fifty
Thousand Nine Hundred Seventy-Four Dollars ($50,974.00), and the Tenant's
Share shall equal 46.64%. Promptly thereafter, Landlord and Tenant shall
execute an amendment to this Lease confirming the effective date of such
expansion of the Premises to include the Phase Two Space. The expansion of
the Premises to include the Phase Two Space shall further be subject to
Subparagraph 1(B) of this First Addendum, except that "May 1, 1993," shall be
substituted for "February 1, 1993."
22. OPTIONS TO EXPAND. Notwithstanding anything to the contrary in
the Lease Form:
A. GRANT OF EXPANSION OPTIONS. Landlord hereby grants to
Tenant options (the "Expansion options") to lease all of the remaining space
(the "Expansion Space") on the second floor of the Building on the terms and
conditions described in this Paragraph.
B. LANDLORD REPRESENTATIONS. Landlord represents that the
Expansion Space is subject only to the following interests, and the Expansion
options shall be subject only to such interests:
1. Cochran & Horvath currently leases 2,912 rentable
square feet (the "Cochran Space") with a lease expiration date of July 31,
1993.
2. Concrete Form Contractors currently leases 8,203
rentable square feet with a lease expiration date of July 31, 1993, but such
tenant has an option to extend its lease term for an additional two years
thereafter.
3. Lincoln National Life currently leases 3,418
rentable square feet with a lease expiration date of March 31, 1995, but such
tenant has an option to cancel such lease effective March 31, 1993.
4. Kensington Microware currently has a right of first
refusal to lease all the space on the second floor of the Building.
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C. EXERCISE OF EXPANSION OPTIONS. Landlord shall comply with
all terms and conditions of Kensington Microware's right of first refusal. In
the event that Kensington Microware does not exercise such right of first
refusal with respect to any portion of the Expansion Space, Landlord shall
promptly thereafter give Tenant written notice of the availability of such
Expansion Space, which notice shall specify the date that such Expansion
Space will become available for Tenant's occupancy. Such notice shall be
given to Tenant at least six (6) months prior to the availability date of the
Concrete Form Construction space, at least five (5) months prior to the
availability date of the Lincoln National Life Space, and at least three (3)
months prior to the availability of the Cochran & Horvath space. Tenant must
exercise its Expansion Option with respect to such available Expansion Space
by giving Landlord notice thereof within eight (8) business days after
Tenant's receipt of Landlord's notice of availability thereof.
D. EFFECT OF EXERCISE. If Tenant exercises an Expansion Option
with respect to any Expansion Space, this Lease shall be amended as follows:
1. Such Expansion Space shall be measured in accordance
with applicable BOMA measurement standards and included within the Premises,
except that the Base Year for determining Operating Expenses and Project
Taxes with respect to such Expansion Space shall be the calendar year next
following inclusion of such Expansion Space within the Premises.
2. The Tenant's Share shall be increased to equal a
fraction (expressed as a percentage), the numerator of which equals the total
rentable square feet of the Premises (including such Expansion Space) and the
denominator of which equals the total rentable square feet of the Building.
3. Base monthly rent for any Expansion Space other than
the Cochran Space shall equal the Fair Market Rent of such Expansion Space as
determined by agreement of the parties or, if the parties cannot agree within
twenty (20) days of Tenant's exercise of the Expansion Option, by the
appraisal procedure described in Subparagraph 20(D) of this First Addendum
(taking into account the tenant improvement allowance provided in Paragraph
22.D.4). If such appraisal process has not resulted in a final determination
of Fair Market Rent by the commencement date of the term respecting
applicable Expansion Space, then the rate then payable with respect to the
remainder of the Premises, shall be used until such final determination, with
an appropriate adjustment for any overpayments or underpayments of rent or
other amounts if the appraisal results in a determination of Fair Market Rent
different from such amounts then payable with respect to the remainder of the
Premises. Base monthly rent for the Cochran Space shall be at the same base
monthly rental rate per square foot of rentable space payable by Tenant under
this Lease for the initial Premises at the time the Cochran Space is included
within the Premises.
4. Landlord shall provide to Tenant an allowance for
tenant improvements to such Expansion Space in an amount equal to Fifteen
Dollars ($15.00) per rentable square foot of the applicable Expansion Space.
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5. Such amendment of the Lease shall be effective, as
to the applicable Expansion space, as of the earlier of (a) the date Tenant
takes possession of such Expansion Space, or (b) the occurrence of all of the
events described in clause (i) of subparagraph I(A) of this First Addendum
with respect to such Expansion Space and any tenant improvements to be made
by Landlord to such Expansion Space, or (c) the date by which such events
described in clause (i) would have occurred but for Tenant Delay, as defined
in EXHIBIT B. Promptly thereafter, Landlord and Tenant shall execute an
amendment to this Lease confirming the effective date of such expansion, the
base monthly rent for the entire Premises (including such Expansion Space),
the amount of Tenant's improvement allowance for the applicable Expansion
Space, and the Tenant's Share after such expansion.
23. TENANT'S RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE. If at
any time during the initial or any extended term of this Lease Landlord
determines to lease any additional space not encumbered by lease, options, or
rights of refusal at the Project ("Additional Space"), then Landlord shall
notify Tenant of the terms on which Landlord is willing to lease such
Additional Space. If Tenant, within eight (8) business days after receipt of
Landlord's written notice gives Landlord notice in writing of its agreement
to lease the Additional Space on the terms stated in Landlord's notice, then
Landlord shall lease to Tenant and Tenant shall lease from Landlord the
Additional Space on the terms stated in Landlord's notice. If Tenant does
not give Landlord written notice of its agreement to lease the Additional
Space on the terms contained in Landlord's notice within said eight (8)
business day period, then Landlord shall thereafter have the right to lease
the Additional Space to a third Party, provided that the material terms
agreed to with said third party are substantially the same as the terms
stated in Landlord's notice to Tenant. If Landlord does not lease the
Additional Space within six (6) months after the expiration of said eight (8)
business day period, any further transaction shall be deemed a new
determination by Landlord to lease such Additional Space and the provisions
of this Paragraph shall again be applicable.
24. CANCELLATION. Tenant shall have the option to cancel this Lease
prior to the expiration of the initial term by giving written notice
specifying its election to so cancel this lease to Landlord no later than the
first day of the thirty-fourth (34th) month of the lease term, in which event
such cancellation shall be effective as of the end of the forty-second (42nd)
month of the term. Tenant acknowledges that if Tenant so terminates the
lease term pursuant to this paragraph, and as payment for the privilege of
terminating the lease as herein provided, Tenant shall pay to Landlord (in
addition to all other payments for rental or other payments due during the
time the lease is in effect), the amount of One Hundred Forty one Thousand
Nine Hundred Sixty-Six and no/100 Dollars ($141,966.00). Such payment shall
be made by certified or cashiers check no later than the last day of the
forty-second (42nd) month of the term.
LANDLORD: TENANT:
THE JOSEPH AND EDA PELL REVOCABLE ELECTRONICS FOR IMAGING,
TRUST a California corporation
By: By:
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Printed Printed
Name: Name:
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Title: Title:
----------------------------- -----------------------------
Date: Date:
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EXHIBIT B
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF NOVEMBER 17, 1992
BETWEEN
CAMPUS DRIVE INVESTMENT COMPANY, AS LANDLORD,
AND
ELECTRONICS FOR IMAGING, AS TENANT ("LEASE")
CONSTRUCTION RIDER
1. Landlord shall deliver the Premises to Tenant in an "as is"
condition and Tenant shall be solely responsible for making any alterations
or improvements to the Premises in accordance with the provisions of Section
6 -"Alterations" of the Lease.
2. Landlord shall use its best efforts to deliver possession of the
Premises to Tenant on or before the Scheduled Commencement Date specified in
Section 2 - "Term; Possession" of the Lease.
3. If Landlord is unable for any reason to deliver possession of the
Premises to Tenant on or before the Scheduled Commencement Date, neither
Landlord nor its representatives shall be liable to Tenant for any damage
resulting from the delay in delivering possession to Tenant and the Lease
shall remain in full force and effect unless and until it is terminated under
the express provisions of this Paragraph. In such event, the Commencement
Date shall be the actual date of delivery of possession of the Premises to
Tenant; provided, however, that if the Commencement Date has not occurred
within one hundred twenty (120) days after the Scheduled Commencement Date,
either party, by written notice to the other party given within ten (10) days
after the expiration of such one hundred twenty (120) day period, may
terminate the Lease without any liability to the other party.
Initials:
Landlord
Tenant
<PAGE>
EXHIBIT C
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF NOVEMBER 17, 1992
BETWEEN
CAMPUS DRIVE INVESTMENT COMPANY, AS LANDLORD,
AND
ELECTRONICS FOR IMAGING, AS TENANT ("LEASE")
RENT RIDER
1. The Base Rent for the forty-two (42) month term of the Lease shall
be $1.30 per rentable square foot per month and commence on December 16, 1992.
2. Base Rent and other sums payable to Landlord under the Lease shall
be paid at the following address:
CAMPUS DRIVE INVESTMENT COMPANY
2929 Campus Drive, Suite 450
San Mateo, CA 94403
ATTN: PROPERTY MANAGER
Initials:
Landlord
Tenant
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EXHIBIT D
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF NOVEMBER 17, 1992
BETWEEN
CAMPUS DRIVE INVESTMENT COMPANY, AS LANDLORD,
AND
ELECTRONICS FOR IMAGING, AS TENANT ("LEASE")
BUILDING RULES
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. USE OF COMMON AREAS. Tenant will not obstruct the sidewalks,
halls, passages, exits, entrances, elevators or stairways of the Building
("Common Areas"), and Tenant will not use the Common Areas for any purpose
other than ingress and egress to and from the Premises. The Common Areas,
except for the sidewalks, are not open to the general public and Landlord
reserves the right to control and prevent access to the Common areas of any
person whose presence, in Landlord's opinion, would be prejudicial to the
safety, reputation and interests of the Building and its tenants.
2. NO ACCESS TO ROOF. Tenant has no right of access to the roof of
the Building and will not install, repair or replace any antenna, aerial,
aerial wires, fan, air-conditioner or other device on the roof of the
Building, without the prior written consent of Landlord. Any such device
installed without such written consent is subject to removal at Tenant's
expense without notice at any time. In any event Tenant will be liable for
any damages or repairs incurred or required as a result of its installation,
use, repair, maintenance or removal of such devices on the
<PAGE>
roof and agrees to indemnify and hold harmless Landlord from any liability,
loss, damage, cost or expense, including reasonable attorneys/ fees, arising
from any activities of Tenant or of Tenant's Representatives on the roof of
the Building.
3. SIGNAGE. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the Premises will be inscribed, painted, affixed
or otherwise displayed by Tenant on or in any part of the Building without
the prior written consent of Landlord. Landlord reserves the right to adopt
and furnish Tenant with general guidelines relating to signs in or on the
Building. All approved signage will be inscribed, painted or affixed at
Tenant's expense by a person approved by Landlord, which approval will not be
unreasonably withheld.
4. PROHIBITED USES. The Premises will not be used for manufacturing,
for the storage of merchandise held for sale to the general public, for
lodging or for the sale of goods to the general public. Tenant will not
permit any food preparation on the Premises except that Tenant may use
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages so long as such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
5. JANITORIAL SERVICES. Tenant will not employ any person for the
purpose of cleaning the Premises or permit any person to enter the Building
for such purpose other than the Landlord's janitorial service, except with
Landlord's prior written consent. Tenant will not necessitate, and will be
liable for the cost of, any undue amount of janitorial labor by reason of
Tenant's carelessness in or indifference to the preservation of good order
and cleanliness in the Premises. Janitorial service will not be furnished to
areas in the Premises on nights when such
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areas are occupied after 9:30 p.m., unless such service is extended by
written agreement to a later hour in specifically designated areas of the
Premises.
6. KEYS AND LOCKS. Landlord will furnish Tenant, free of charge, two
keys to each door or lock in the Premises. Landlord may make a reasonable
charge for any additional or replacement keys. Tenant will not duplicate any
keys, alter any locks or install any new or additional lock or bolt on any
door of its Premises or on any other part of the Building without the prior
written consent of Landlord and, in any event, Tenant will provide Landlord
with a key for any such lock. On the termination of the Lease, tenant will
deliver to Landlord all keys to any locks or doors in the Building which have
been obtained by Tenant.
7. FREIGHT. Upon not less than twenty-four hours prior notice to
Landlord, which notice may be verbal, an elevator will be made available for
Tenant's use for transportation of freight, subject to such scheduling as
Landlord in its discretion deems appropriate. Tenant shall not transport
freight in loads exceeding the weight limitations of such elevator. Landlord
reserves the right to prescribe the weight, size and position of all
equipment, materials, furniture or other property brought into the Building,
and no property will be received in the Building or carried up or down the
freight elevator or stairs except during such hours and along such routes and
by such persons as may be designated by Landlord. Landlord reserves the
right to require that heavy objects will stand on wood strips of such length
and thickness as is necessary to properly distribute the weight. Landlord
will not be responsible for loss of or damage to any such property from any
cause, and Tenant will be liable for all damage or injuries caused by moving
or maintaining such property.
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8. NUISANCES AND DANGEROUS SUBSTANCES. Tenant will not conduct
itself or permit its agents, employees, contractors or invitees to conduct
themselves, in the Premises or anywhere on or in the Property in a manner
which is offensive or unduly annoying to any other Tenant or Landlord's
property managers. Tenant will not install or operate any phonograph, radio
receiver, musical instrument, or television or other similar device in any
part of the Common Areas and shall not operate any such device installed in
the Premises in such manner as to disturb or annoy other tenants of the
Building. Tenant will not use or keep in the Premises or the Property any
kerosene, gasoline or other combustible fluid or material other than limited
quantities thereof reasonably necessary for the maintenance of office
equipment, or, without Landlord's prior written approval, use any method of
heating or air conditioning other than that supplied by Landlord. Tenant
will not use or keep any foul or noxious gas or substance in the Premises or
permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of
noise, odors or vibrations, or interfere in any way with other tenants or
those having business therein. Tenant will not bring or keep any animals in
or about the Premises or the Property.
9. BUILDING NAME AND ADDRESS. Without Landlord's prior written
consent, Tenant will not use the name of the Building in connection with or
in promoting or advertising Tenant's business except as Tenant's address.
10. BUILDING DIRECTORY. A directory for the Building will be provided
for the display of the name and location of tenants. Landlord reserves the
right to approve any additional names Tenant desires to place in the
directory and, if so approved, Landlord may assess a reasonable charge for
adding such additional names.
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11. WINDOW COVERINGS. No curtains, draperies, blinds, shutters,
shades, awnings, screens or other coverings, window ventilators, hangings,
decorations or similar equipment shall be attached to, hung or placed in, or
used in or with any window of the Building without the prior written consent
of Landlord, and Landlord shall have the right to control all lighting within
the Premises that may be visible from the exterior of the Building.
12. FLOOR COVERINGS. Tenant will not lay or otherwise affix linoleum,
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for
the cost of repair of any damage resulting from the violation of this rule or
the removal of any floor covering by Tenant or its contractors, employees or
invitees.
13. ELECTRICAL INSTALLATIONS. Landlord will direct Tenant's
electricians as to where and how telephone, telegraph and electrical wires
are to be installed. No boring or cutting for wires will be allowed without
the prior written consent of Landlord. The location of burglar alarms, smoke
detectors, telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the written approval of Landlord.
14. OFFICE CLOSING PROCEDURES. Tenant will see that the doors of the
Premises are closed and locked and that all water faucets, water apparatus
and utilities are shut off before Tenant or its employees leave the Premises,
so as to prevent waste or damage. Tenant will be liable for all damage or
injuries sustained by other tenants or occupants of the Building or Landlord
resulting from Tenant's carelessness in this regard or violation of this
rule. Tenant will keep the doors to the Building corridors closed at all
times except for ingress and egress.
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15. PLUMBING FACILITIES. The toilet rooms, toilets, urinals, wash
bowls and other apparatus shall not be used for any purpose other than that
for which they were constructed and no foreign substance of any kind
whatsoever shall be disposed of therein. Tenant will be liable for any
breakage, stoppage or damage resulting from the violation of this rule by the
Tenant, its employees or invitees.
16. USE OF HAND TRUCKS. Tenant will not use or permit to be used in
the Premises or in the Common Areas any hand trucks, carts or dollies except
those equipped with rubber tires and side guards or such other equipment as
Landlord may approve.
17. REFUSE. Tenant will store all its trash and garbage within the
Premises. No material will be placed in the trash boxes or receptacles if
such material may not be disposed of in the ordinary and customary manner of
removing and disposing of trash and garbage in the city in which the Building
is located without being in violation of any law or ordinance governing such
disposal. All trash and garbage removal will be only through such Common
Areas provided for such purposes and at such times as Landlord may designate.
18. SOLICITING. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.
19. PARKING. Tenant will use, and will cause its agents, employees,
contractors and invitees to use, the parking spaces to which it is entitled
under the Lease in a manner consistent with Landlord's directional signs and
markings in the Parking Facility. Specifically, but without limitation, Tenant
will not park, or permit its agents, employees, contractors or invitees to park,
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in a manner that impedes access to and from the Building or the Parking
Facility or that violates space reservations for handicapped drivers
registered as such with the California Department of Motor Vehicles. Landlord
may use such reasonable means as may be necessary to enforce the directional
signs and markings in the Parking Facility, including but not limited to
towing services, and Landlord will not be liable for any damage to vehicles
towed as a result of non-compliance with such parking regulations.
20. FIRE, SECURITY AND SAFETY REGULATIONS. Tenant will comply with
all safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
21. RESPONSIBILITY FOR THEFT. Tenant assumes any and all
responsibility for protecting the Premises from theft, robbery and pilferage,
which includes keeping doors locked and other means of entry to the Premises
closed.
22. SALES AND AUCTIONS. Tenant will not display or sell merchandise
outside the exterior walls and doorways of the Premises nor use such areas
for storage. Tenant will not install any exterior lighting, amplifiers or
similar devices or use in or about the Premises an advertising medium which
may be heard or seen outside the Premises, including flashing lights,
searchlights, loudspeakers, phonographs or radio broadcasts. Tenant will not
conduct or permit to be conducted any sale by auction in, upon or from the
Premises or elsewhere in the Property, whether said auction be voluntary,
involuntary, pursuant to any assignment for the payment of creditors or
pursuant to any bankruptcy or other insolvency proceeding.
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23. ENFORCEMENT. Landlord may waive any one or more of these Building
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent Landlord from thereafter enforcing these
Building Rules against any or all of the tenants of the Building.
24. EFFECT ON LEASE. These Building Rules are in addition to, and shall
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Building
Rules constitutes a failure to fully perform the provisions of the Lease, as
referred to in Section 16.1 - "Events of Default".
25. ADDITIONAL AND AMENDED RULES. Landlord reserves the right to
rescind or amend these Building Rules and/or adopt any other and reasonable
rules and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and for the preservation of good
order therein.
Initials:
Landlord
Tenant
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EXHIBIT E
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF NOVEMBER 17, 1992
BETWEEN
CAMPUS DRIVE INVESTMENT COMPANY, AS LANDLORD,
AND
ELECTRONICS FOR IMAGING, AS TENANT ("LEASE")
ADDITIONAL PROVISIONS RIDER
1. PARKING.
(a) Landlord shall provide Tenant, on an unassigned, non-exclusive
and unlabelled basis, five (5) parking spaces in the Parking Facility; provided,
however, that ten percent (10%) of such spaces may be designated by Landlord as
Building visitors' parking. If Tenant leases additional office space pursuant
to this Lease, Landlord shall provide Tenant, also on an unassigned,
non-exclusive and unlabelled basis, one (1) additional parking space in the
Parking Facility for each Two Hundred and Fifty (250) rentable square feet of
additional office space leased to Tenant. Ten percent (10%) of such additional
parking spaces may also be designated by Landlord as Building visitors' parking.
(b) The parking spaces to be made available to Tenant hereunder
may contain a reasonable mix of spaces for compact cars. Landlord shall take
reasonable actions to ensure the availability of the parking spaces leased by
Tenant, but Landlord does not guarantee the availability of those spaces at all
times against the actions of other tenants of the Building and users of the
Parking Facility. Access to the monthly parking spaces to be made available to
Tenant shall, at Landlord's option, be by card, pass, bumper sticker, decal or
other appropriate identification issued by Landlord.
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(c) In the event the Parking Facility is subject of a
"Condemnation," as defined in Section 14.1 - "Definitions" of the Lease, or is
damaged or destroyed, and the Lease is not terminated, and if in such event the
available number of parking spaces in the Parking Facility is permanently
reduced, then Tenant's rights to use parking spaces hereunder will thereafter be
reduced in proportion to the reduction of the total number of parking spaces in
the Parking Facility.
(d) ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions
of Section 15 - "Assignment and Subletting" hereof, Tenant shall not assign
its rights to the parking spaces or any interest therein, or sublease or
otherwise allow the use of all or any part of the parking spaces to or by any
other person, except with Landlord's prior written consent, which may be
granted or withheld by Landlord in its sole discretion. In the event of any
separate assignment or sublease of parking space rights that is approved by
Landlord, Landlord shall be entitled to receive, as Additional Rent
hereunder, one hundred percent (100%) of any profit received by Tenant in
connection with such assignment or sublease.
(e) CONDEMNATION, DAMAGE OR DESTRUCTION. In the event the Parking
Facility is the subject of a Condemnation, or is damaged or destroyed, and
this Lease is not terminated, and if in such event the available number of
parking spaces in the Parking Facility is permanently reduced, then Tenant's
rights to use parking spaces hereunder may, at the election of Landlord,
thereafter be reduced in proportion to the reduction of the total number of
parking spaces in the Parking Facility, and the Monthly Parking Rental
payable hereunder shall be reduced proportionately. In such event, Landlord
reserves the right to reduce the number of parking
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spaces to which Tenant is entitled or to relocate some or all of the parking
spaces to which Tenant is entitled to other areas in the Parking Facility.
2. RIGHT TO TERMINATE.
Tenant shall have the right to terminate this Lease anytime after
the end of the first twelve (12) months of this Lease upon satisfaction of the
following conditions:
(i) To exercise this right, tenant shall deliver to Landlord by no
later than six (6) months prior to the termination date, written notice (the
"Termination Notice") stating in substance that Tenant is exercising its right
to terminate this Lease pursuant to this Section 2.
(ii) Tenant shall not be in default of any term or provision of
this Lease on the date it so delivers the Termination Notice or at any time
thereafter during the remaining term hereof.
If Tenant is in default, as stated in (ii) above, Landlord, at its sole option,
may cancel Tenant's right to terminate this Lease under this Section 2, in which
event this Section 2 and any Termination Notice (as hereinafter defined) shall
be cancelled and of no further force or effect.
Initials:
Landlord
Tenant
<PAGE>
SECOND ADDENDUM TO LEASE
This Second Addendum to Lease ("Second Addendum") is dated for references
purposes April 1, 1993, and is made between the Joseph Pell and Eda Pell
Revocable Trust ("Landlord") and Electronics for Imaging ("Tenant") to be a
part of that certain Agreement of Lease ("Lease") dated July 30, 1992.
Landlord and Tenant agree that the Lease and First Addendum to Lease are
modified and supplemented by this Second Addendum as follows:
1. PREMISES. The Premises shall be increased by 2,536 rentable square feet
(2,255 useable). ("Phase II Expansion") as shown on Exhibit A to the
Lease. The total Premises shall be increased from 32,863 rentable square
feet (31,254 useable) to 35,399 rentable square feet (33,509 useable). The
total square footage on the second floor of the building shall be 10,399
rentable square feet (9,245 useable).
2. TERM. The effective date of this expansion shall be April 1, 1993.
3. RENT. Tenant agrees to pay Landlord $1.44 per rentable square foot per
month for the Phase II Expansion ($3,651.84). The base monthly rent
payable for the entire Premises (including the Phase II Expansion) shall be
Fifty Thousand Nine Hundred Seventy Four and 00/100 Dollars ($50,974.00).
20. Rental Adjustment.
(b) Tenant's Share shall be Forty Six and 64/100 percent (46.64%).
Landlord Tenant
Joseph and Eda Pell Revocable Trust Electronics For Imaging
By: By:
---------------------------- ---------------------------
By:
----------------------------
Date: Date:
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<PAGE>
THIRD ADDENDUM TO LEASE
This Third Addendum to Lease ("Third Addendum") is dated for references purposes
May 20, 1993, and is made between the Joseph Pell and Eda Pell Revocable Trust
("Landlord") and Electronics for Imaging ("Tenant") to be a part of that certain
Agreement of Lease dated July 30, 1992. Landlord and Tenant agree that the
Agreement of Lease and the First and Second Addendums to the Lease ("Lease") are
modified and supplemented by this Third Addendum as follows:
1. PREMISES. The Premises shall be increased by 6,145 rentable square feet
(5,487 useable) ("Added Premises"). (This is essentially the addition of
the two end sections of the space formerly occupied by Concrete Form
Constructors as shown on Exhibit A.) The total Premises shall be
increased from 35,399 rentable square feet (33,509 useable) to 41,544
rentable square feet (38,996 useable) as shown on Exhibit A. The total
square footage on the second floor of the building shall be 16,544
rentable square feet (14,737 useable).
2. TERM. The term of this Lease shall be extended from 50 months to 56
months, ending on June 30, 1997. The term for the Added Premises shall be
48 months commencing on July 1, 1993 and ending on June 30, 1997.
3. RENT. Tenant agrees to pay Landlord $1.65 per rentable square foot per
month for the Added Premises referred to in this Addendum ($10,139.25 per
month). (The base rent for all other Premises remains $1.44 per rentable
square foot.) The monthly base rent payable for the entire Premises
(including the Added Premises) shall be Sixty-One Thousand One Hundred
Thirteen and 25/100 Dollars ($61,113.25).
6. REPAIRS AND ALTERATIONS. Notwithstanding anything to the contrary in the
Lease or First Addendum, after proper installations by Landlord's
contractor, Tenant shall be responsible for the operation, maintenance
and repair of all equipment in the kitchen/dining facility other than
standard building plumbing, electricity and HVAC.
20. RENTAL ADJUSTMENT.
(a) The Base Year for the Added Premises shall be 1994.
(b) Tenant's Share (with the Added Premises) shall be Fifty-five and
80/100 percent (55.80%).
39. BROKERS. Landlord and Tenant each warrants that it has bad no dealings
with any real estate brokers or agents in connection with the negotiation
of the lease of the Added Premises.
The First Addendum to Lease dated for reference purposes as of July 30, 1992,
made by and between Joseph and Eda Pell Revocable Trust ("Landlord") and
Electronics for Imaging ("Tenant") shall be modified and Amended as follows:
<PAGE>
1. COMMENCEMENT DATE. This entire paragraph shall not apply to the Added
Premises.
The term for the Added Premises and the payment of rent shall commence on
July 1, 1993 whether or not Landlord has substantially completed the
tenant improvements described in Exhibit B to this Third Addendum and
whether or not Tenant is able to occupy or take possession of all or any
part of the Added Premises by that date.
22. OPTIONS TO EXPAND.
D. EFFECT OF EXERCISE. All sections except Subsection 5 (see
Commencement Date above) of this paragraph shall apply to the Added
Premises including but not limited to the tenant improvement
allowance. (See Exhibit B attached hereto).
24. CANCELLATIONS. This paragraph shall be deleted.
25. MUST-TAKE OPTION. Tenant shall have a must-take option on 1,905 rentable
square feet (1,701 useable) on the second floor shown on Exhibit A. The
term on this must-take space shall commence no later than July 1,
1994. Promptly thereafter Landlord shall execute an amendment to this
Lease confirming the effective date of such expansion, the 6ase monthly
rent for the entire premises including the option space, the amount of
the tenant improvement allowance and the Tenant's share after the
must-take space is added. Landlord shall be permitted to lease this space
through July 1, 1994, however, Tenant may exercise its option in writing
prior to July 1, 1994 if the space is unoccupied.
Landlord Tenant
Joseph and Eda Pell Revocable Trust Electronics For Imaging
By: By:
-------------------------------- --------------------------
By:
--------------------------------
Date: Date:
-------------------------------- --------------------------
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EXHIBIT A
[CHART]
<PAGE>
EXHIBIT B TO THE THIRD ADDENDUM
TENANT IMPROVEMENTS
1. Landlord shall, construct the improvements to the Added Premises
described in, and in accordance with, those certain plans and specifications for
the Added Premises (the "Final Plans") dated 1993, by Fee, Munson, Ebert.
Subject to any Tenant Delays, as hereinafter defined, Landlord estimates the
construction period to substantially complete the tenant improvements to be 60
days from the date of issuance of the permit for the tenant improvements (said
completion date is hereinafter referred to as the "estimated completion date"),
and Landlord win use its best efforts and due diligence to obtain such permit at
the earliest date reasonably possible and complete the tenant improvements by
the estimated completion date. The Commencement Date for the Added Premises
shall be July 1, 1993, regardless of whether the space is substantially
completed and regardless of whether Tenant is actually able to occupy or take
possession of the Premises by that date. However, for each day of delay in the
construction fully in the control of and caused by Landlord, Tenant shall be
provided one day free rent. The free rent shall be credited to Tenant in the
first full month after occupancy by Tenant. Landlord shall provide Tenant with
access to the premises for the purpose of installing modular office cubicles,
computer and telephone wires, other cabling and kitchen equipment, no later than
three weeks prior to the estimated completion date. Landlord shall have no
responsibility for coordinating or installing such cubicles, wires, cables or
equipment. Tenant shall be solely responsible for the cost of acquisition and
installation of its telephone and computer equipment, and all of Tenant's
furnishings, personal property and kitchen equipment.
2. Landlord shall provide a $15.00 per rentable square foot allowance
for the tenant improvements. In addition Landlord shall provide an allowance of
$1.00 per rentable square foot for architectural fees. All costs exceeding these
allowances shall be paid by Tenant within ten (10) days of receipt of invoice
from Landlord. Landlord shall provide Tenant with a construction cost breakdown
for the improvements shown in the Final Plans and Tenant shall provide Landlord
with written authorization to proceed based upon that budget.
3. Tenant may by written instructions or drawings issued to Landlord
(a "Change Order Request") make changes in the Final Plans, including with
limitation, requiring additional work, directing the omission of work previously
ordered, or changing the quantity or type of any materials, equipment or
services. Promptly upon receipt of a Change Order Request Landlord will provide
Tenant with a statement in detail setting forth the cost of said change
(including a breakdown of costs attributable to labor and materials,
construction equipment exclusively necessary for the change, and preparation or
amendment to shop drawings resulting from the change) and any time delays
anticipated to result from the change, prior to Tenant's final authorization
thereof. Tenant will have two (2) business days after receipt of such statement
in which to confirm the Change Order Request and authorize in writing the work
to be performed pursuant thereto, or to withdraw such request. Change Orders
will be signed by Landlord and Tenant in advance of any Change Order work.
Landlord will not unreasonably withhold its consent to any such Change Order
provided the changes do not, in Landlord's reasonable opinion, adversely affect
the Building's structure, systems, equipment or appearance. No
<PAGE>
changes to the Final Plans will be made except pursuant to a written Change
Order signed by Tenant. The cost of all Change Orders which adds cost over
the tenant improvements shown on the Final Plans shall be paid by Tenant
after substantial completion of such Change Order work and within ten (10)
days of its receipt of an invoice from Landlord.
4. Landlord warrants that all tenant improvements to be constructed by
Landlord as initial tenant improvements shall be constructed in a good and
workmanlike manner using materials of good quality in accordance with the Final
Plans and with an applicable laws. Within thirty (30) days after occupancy,
Tenant shall make an inspection of the premises and prepare a punchlist of items
needing additional work by Landlord. Landlord's contractor shall complete all
punchlist items reasonably identified by Tenant within thirty (30) days after
the inspection or as soon as practicable thereafter.
5. The carpet from the existing space shall be reused in all areas
except the kitchen area. There shall be adequate HVAC provided so as to prevent
odors travelling into the rest of the building from the food service,
6. Upon termination of the Lease, all of the tenant improvements shall
remain in the premises unless Landlord shall consent in writing to the removal
thereof by Tenant.
7. Tenant acknowledges that Landlord will make no independent review
of the Final Plans and that Landlord does not warrant either expressly or
impliedly, the adequacy of the Final Plans, the tenant improvements or Tenant's
equipment for Tenant's intended purpose, other than a Warranty that the tenant
improvements have been constructed according to the Final Plans in a good and
workmanlike manner, and in accordance with applicable laws
Landlord Initials
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Tenant Initials
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FOURTH ADDENDUM TO LEASE
This Fourth Addendum to Lease ("Fourth Addendum") is dated for references
purposes May 25, 1993, and is made between the Joseph Pell and Eda Pell
Revocable Trust ("Landlord") and Electronics for Imaging ("Tenant") to be a part
of that certain Agreement of Lease dated July 30, 1992. Landlord and Tenant
agree that the Agreement of Lease and the First, Second and Third Addendums to
the Lease ("Lease") are modified and supplemented by this Fourth Addendum as
follows:
1. PREMISES. The Premises shall be increased by 2,912 rentable square feet
(2,600 useable) ("Added Premises"). (This is essentially the addition of
the space formerly occupied by Cochran and Harvath as shown on Exhibit A
attached hereto). The total Premises shall be increased from 41,544
rentable square feet (36,109 useable) to 44,456 rentable square feet
(41,596 useable). The total square footage on the second floor of the
building shall be 19,456 rentable square feet (17,337 useable).
2. TERM. The term for the Added Premises referred to in this Addendum shall
be 47 months commencing on August 1, 1993 and ending on June 30, 1997.
3. RENT. Tenant agrees to pay Landlord $1.44 per rentable square foot per
month for the Added Premises referred to in this Addendum ($4,193.28 per
month). The base monthly rent payable for the entire Premises (including
the Added Premises) shall be Sixty-Five Thousand Three Hundred and Six
and 53/100 Dollars ($65,306.53).
20. RENTAL ADJUSTMENT.
(a) The base year for the Added Premises shall be 1994.
(b) Tenant's Share (with the Added Premises) shall be Fifty-Nine and
70/100 percent (59.70%).
39. BROKERS. Landlord and Tenant each warrants that it has had no dealings
with any real estate brokers or agents in connection with the negotiation
of the lease of the Added Premises.
The First Addendum to Lease dated for reference purposes as of July 30, 1992,
made by and between Joseph and Eda Pell Revocable Trust ("Landlord") and
Electronics for Imaging ("Tenant") shall be modified and Amended as follows:
1. COMMENCEMENT DATE. This entire paragraph shall not apply to the Added
Premises.
The term for the Added Premises and the payment of rent shall commence on
August 1, 1993 whether or not Landlord has substantially completed the
tenant improvements described in Exhibit B to this Fourth Addendum and
whether or not Tenant is able to occupy or take possession of all or any
part of the Added Premises by that date.
<PAGE>
22. OPTIONS TO EXPAND.
D. EFFECT OF EXERCISE. All sections except Subsection 5 (see
Commencement Date above) of this paragraph shall apply to the Added
Premises including but not limited to the tenant improvement
allowance. (See Exhibit B attached hereto).
Landlord Tenant
Joseph and Eda Pell Revocable Trust Electronics For Imaging
By: By:
-------------------------------- ------------------------
By:
--------------------------------
Date: Date:
------------------------------ ------------------------
<PAGE>
EXHIBIT A TO FOURTH ADDENDUM
[CHART]
<PAGE>
EXHIBIT B TO THE FOURTH ADDENDUM
TENANT IMPROVEMENTS
1. Landlord shall, construct the improvements to the Added Premises
described in, and in accordance with, those certain plans and specifications
for the Added Premises (the "Final Plans") dated ____________, 1993, by Fee,
Munson, Ebert. Subject to any Tenant Delays, as hereinafter defined,
Landlord estimates the construction period to substantially complete the
tenant improvements to be 60 days from the date of issuance of the permit for
the tenant improvements (said completion date is hereinafter referred to as
the "estimated completion date"), and Landlord will use its best efforts and
due diligence to obtain such permit at the earliest date reasonably possible
and complete the tenant improvements by the estimated completion date. The
Commencement Date for the Added Premises shall be August 1, 1993, regardless
of whether the space is substantially completed and regardless of whether
Tenant is actually able to occupy or take possession of the Premises by that
date. However, for each day of delay in the construction fully in the
control of and caused by Landlord, Tenant shall be provided one day free
rent. The free rent shall be credited to Tenant in the first full month
after occupancy by Tenant. Landlord shall provide Tenant with access to the
premises for the purpose of installing modular office cubicles, computer and
telephone wires, other cabling and kitchen equipment, no later than three
weeks prior to the estimated completion date. Landlord shall have no
responsibility for coordinating or installing such cubicles, wires, cables or
equipment. Tenant shall be solely responsible for the cost of acquisition
and installation of its telephone and computer equipment, and all of Tenant's
furnishings, personal property and kitchen equipment.
2. Landlord shall provide a $15.00 per rentable square foot
allowance for the tenant improvements. In addition Landlord shall provide an
allowance of $1.00 per rentable square foot for architectural fees. All
costs exceeding these allowances shall be paid by Tenant within ten (10) days
of receipt of invoice from Landlord. Landlord shall provide Tenant with a
construction cost breakdown for the improvements shown in the Final Plans and
Tenant shall provide Landlord with written authorization to proceed based
upon that budget.
3. Tenant may by written instructions or drawings issued to Landlord
(a "Change Order Request") make changes in the Final Plans, including with
limitation, requiring additional work, directing the omission of work
previously ordered, or changing the quantity or type of any materials,
equipment or services. Promptly upon receipt of a Change Order Request
Landlord will provide Tenant with a statement in detail setting forth the
cost of said change (including a breakdown of costs attributable to labor and
materials, construction equipment exclusively necessary for the change, and
preparation or amendment to shop drawings resulting from the change) and any
time delays anticipated to result from the change, prior to Tenant's final
authorization thereof. Tenant will have two (2) business days after receipt
of such statement in which to confirm the Change Order Request and authorize
in writing the work to be performed pursuant thereto, or to withdraw such
request. Change Orders will be signed by Landlord and Tenant in advance of
any Change Order work. Landlord will not unreasonably withhold its consent to
any such Change Order provided the changes do not, in Landlord's reasonable
opinion, adversely affect the Building's structure, systems, equipment or
appearance. No
<PAGE>
changes to the Final Plans will be made except pursuant to a written Change
Order signed by Tenant. The cost of all Change Orders which adds cost over
the tenant improvements shown on the Final Plans shall be paid by Tenant
after substantial completion of such Change Order work and within ten (10)
days of its receipt of an invoice from Landlord.
4. Landlord warrants that all tenant improvements to be constructed by
Landlord as initial tenant improvements shall be constructed in a good and
workmanlike manner using materials of good quality in accordance with the Final
Plans and with an applicable laws. Within thirty (30) days after occupancy,
Tenant shall make an inspection of the premises and prepare a punchlist of items
needing additional work by Landlord. Landlord's contractor shall complete all
punchlist items reasonably identified by Tenant within thirty (30) days after
the inspection or as soon as practicable thereafter.
5. Upon termination of the Lease, all of the tenant improvements shall
remain in the premises unless Landlord shall consent in writing to the removal
thereof by Tenant.
6. Tenant acknowledges that Landlord will make no independent review
of the Final Plans and that Landlord does not warrant either expressly or
impliedly, the adequacy of the Final Plans, the tenant improvements or
Tenant's equipment for Tenant's intended purpose, other than a Warranty that
the tenant improvements have been constructed according to the Final Plans in
a good and workmanlike manner, and in accordance with applicable laws.
Landlord Initials
-----
-----
Tenant Initials
-----
<PAGE>
FIFTH ADDENDUM TO LEASE
This Fifth Addendum to Lease ("Fifth Addendum") is dated for references
purposes July 12, 1994, and is made between the Joseph Pell and Eda Pell
Revocable Trust ("Landlord") and Electronics for Imaging ("Tenant") to be a
part of that certain Agreement of Lease dated July 30, 1992. Landlord and
Tenant agree that this Lease is modified and supplemented by this Fifth
Addendum.
1. PREMISES. The premises shall be increased by 1,905 rentable square
feet (1,701 useable square feet) ("Must-take Premises"). The total
Premises shall be increased from 44,456 rentable square feet (36,109
useable square feet) to 46,361 rentable square feet (43,279 useable
square feet).
2. TERM. The term for the Must-take Premises shall be for 36 months
commencing on July 1, 1994 and ending on June 30, 1997.
3. RENT. Tenant agrees to pay Landlord $1.65 per rentable square foot for
the Must-take Premises ($3,143.25). The total rent payable for the
entire Premises (including the Must-take Premises) shall be $68,449.78
per month.
20. RENTAL ADJUSTMENT.
(a) The base year for the Must-take Premises shall be 1994.
(3) Tenant's Share shall increase from 59.7% to 62.3%.
The First Addendum to Lease dated for reference purposes as of July 30, 1992,
made by and between Joseph and Eda Pell Revocable Trust ("Landlord") and
Electronics for Imaging ("Tenant") shall be modified and Amended as follows:
1. COMMENCEMENT DATE. This entire paragraph shall not apply to the Added
Premises.
22. OPTIONS TO EXPAND.
D. EFFECT OF EXERCISE.
Subsection 5 to Paragraph 22(D) shall not apply to the Must-take
Premises. (See Paragraph 2 above.)
24. CANCELLATIONS. This paragraph shall be deleted as it applies to the
Must-take Premises.
Landlord Tenant
------------------------------ ------------------------------
Joseph Pell
2
<PAGE>
SIXTH ADDENDUM TO LEASE
This Sixth Addendum to Lease ("Sixth Addendum") is dated for references
purposes January 19, 1995, and is made between the Joseph Pell and Eda Pell
Revocable Trust ("Landlord") and Electronics for Imaging ("Tenant") to be a
part of that certain Agreement of Lease dated July 30, 1992, and the First
through Fifth Addendums. Landlord and Tenant agree that this Lease is
modified and supplemented by this Sixth Addendum.
1. PREMISE. The premises shall be increased by 3,418 rentable square feet
(3,101 useable square feet) ("Additional Premises"). The total
Premises shall be increased from 46,361 rentable square feet (43,297
useable square feet) to 49,779 rentable square feet (46,398 useable
square feet).
2. TERM. The term for the Additional Premises shall be for 27 months
commencing on April 1, 1995 and ending on June 30, 1997. The
Commencement Date will be adjusted to the date the current tenant
vacates the space.
3. RENT. Tenant agrees to pay Landlord $1.75 per rentable square foot for
the Additional Premises ($5,981.50). The total base rent payable for
the entire Premises (including the Additional Premises) shall be
$74,431.28 per month.
20. RENTAL ADJUSTMENT.
(a) The base year for the Additional Premises shall be 1995.
(3) Tenant's Share shall increase from 62.3% to 65.6%.
The First Addendum to Lease dated for reference purposes as of July 30, 1992,
made by and between Joseph and Eda Pell Revocable Trust ("Landlord") and
Electronics for Imaging ("Tenant") shall be modified and Amended as follows:
1. COMMENCEMENT DATE. This entire paragraph shall not apply to the
Additional Premises.
22. OPTIONS TO EXPAND.
D. Effect of Exercise.
4. Landlord shall provide to Tenant an allowance for tenant
improvements to such Additional Premises in an amount equal to
$10.00 per useable square foot including architectural
services which shall not exceed $1.00 per useable square foot.
This allowance must be expended within the first six months of
possession and can only be used on these particular premises.
Subsection 5 to Paragraph 22(D) shall not apply to the Additional
Premises. (See Paragraph 2 above.)
<PAGE>
24. CANCELLATIONS. This paragraph shall be deleted as it applies to the
Additional Premises.
LANDLORD TENANT
Joseph and Eda Pell Electronics For Imaging
Revocable Trust
------------------------------- -------------------------------
Joseph Pell
Date: _________________________ Date: _________________________
2
<PAGE>
SEVENTH ADDENDUM TO LEASE
This Seventh Addendum to Lease ("Seventh Addendum") is dated for reference
purposes December 4, 1906, and in made between the Joseph Pell and Eda Pell
Revocable Trust ("Landlord") and Electronics for Imaging ("Tenant") to be a
part of that certain Agreement of Lease dated July 30, 1992, and the First
through Sixth Addendum. Landlord and Tenant agree that this Lease is
modified and supplemented by this Seventh Addendum.
Landlord and Tenant are parties to the Lease pursuant to which Landlord
leased to Tenant and Tenant leased from Landlord office space. Tenant wishes
to exercise is first option to extend the Lease as set forth in the First
Addendum to Lease dated July 30,1992. The Lease is hereby amended as
follows:
1. PREMISES. The existing premises of 49,779 rentable sq. ft. and 46,398
useable sq. ft. located on the first and second floors of the building
located at 2855 Campus Drive in San Mateo, California.
2. TERM. The term of the option period shall be three years commencing
July 1, 1997 and ending on June 30, 2000.
3. RENT. Tenant agrees to pay Landlord $2.60 per rentable square foot per
month for the Premises. The total Base Rent payable for the entire
Premises is $129,425.40 per month.
4. OVER-STANDARD ELECTRICAL. Landlord provides Tenant an electrical
service allowance of $.155 per rentable sq. ft. which is included in
the Base Rent.
Landlord and Tenant recognize that Tenant's electrical service shall
cost in excess of the $.155 allowance due to Tenant's heavy electrical
and air conditioning requirements. Therefore, Tenant agrees to pay for
all electrical charges over and above the monthly allowance provided
above, loss any over-standard charges to other tenants in the building
(any usage over the $.155 allowance provided to each Tenant).
Landlord shall charge Tenant $9,000.00 per month for the over-standard
electrical useage as a projected expense. This amount shall be paid
along with the monthly rent. At the end of the year, Landlord shall
prepare a PG&E invoice analysis showing the actual cost of
over-standard usage by Tenant. Landlord shall credit Tenant for any
costs in excess of the total projected sum paid by Tenant over the
year. If the amount of Tenant's credit is less than the actual cost,
then Tenant shall reimburse Landlord within thirty (30) of receipt of
an invoice. The monthly amount paid by Tenant for over-standard
electrical usage for each year shall be based on the previous year's
charges. A similar accounting between Landlord and Tenant will occur
annually.
5. Except as met forth herein, the Lease shall remain unmodified and in
full force and effect. Should there by any conflict between the terms
of the Lease and the terms of this Seventh Addendum, the terms of this
Seventh Addendum shall control.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Seventh Addendum to
Lease as of the date first written above.
The Joseph Pell and Eda Pell Revocable Trust
--------------------------------------------
Joseph Pell, Trustee
Electronics for Imaging, Inc.
By: ----------------------------------------
Its: ---------------------------------------
2
<PAGE>
EXHIBIT B
TO
SUBLEASE AGREEMENT
FLOOR PLAN
A floor plan generally depicting the Sublease Premises is attached
hereto.
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Keynote Systems, Inc.:
We consent to the use of our form of report dated July 2, 1999 except as to
Note 12(e), which is as of , 1999 included herein and to the
references to our firm under the captions "Experts" and "Selected Financial
Data" in the prospectus.
<TABLE>
<CAPTION>
<S> <C>
/s/ KPMG LLP
</TABLE>
Mountain View, California
July 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,546
<SECURITIES> 0
<RECEIVABLES> 808
<ALLOWANCES> 33
<INVENTORY> 0
<CURRENT-ASSETS> 4,552
<PP&E> 2,123
<DEPRECIATION> 789
<TOTAL-ASSETS> 6,058
<CURRENT-LIABILITIES> 1,604
<BONDS> 3,808
8,581
0
<COMMON> 11
<OTHER-SE> (7,150)
<TOTAL-LIABILITY-AND-EQUITY> 6,058
<SALES> 0
<TOTAL-REVENUES> 2,190
<CGS> 540
<TOTAL-COSTS> 3,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (149)
<INCOME-PRETAX> (1,863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,863)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
</TABLE>
