<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1999
REGISTRATION NO. 333-82781
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
PRE-EFFECTIVE AMENDMENT
NO. 1 TO
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 of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification Number)
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)
JOHN FLAVIO
VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL 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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.............. 4,600,000(2) $12.00 $55,200,000 $15,346(3)
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes 600,000 shares subject to the underwriters' over-allotment option.
(3) A fee of $11,120 was previously paid by the Registrant pursuant to Rule
457(o) promulgated under the Securities Act in connection with the
Registration Statement on July 13, 1999. Pursuant to Rule 457(b) of the
Securities Act, such fee is credited against the registration fee, and
accordingly, an additional $4,226 is being paid in connection with the
filing of the Registration Statement.
------------------------------
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.
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<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 AUGUST 23, 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]
4,000,000 SHARES
COMMON STOCK
--------------
Keynote is offering 4,000,000 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 $10.00 and $12.00 per share.
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------------
<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 600,000 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 12 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................................................................................................ 7
Special Note Regarding Forward-Looking Statements........................................................... 20
Use of Proceeds............................................................................................. 21
Dividend Policy............................................................................................. 21
Capitalization.............................................................................................. 22
Dilution.................................................................................................... 23
Selected Financial Data..................................................................................... 24
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 25
Business.................................................................................................... 35
Management.................................................................................................. 50
Certain Transactions........................................................................................ 60
Principal Stockholders...................................................................................... 63
Description of Capital Stock................................................................................ 65
Shares Eligible for Future Sale............................................................................. 69
Underwriting................................................................................................ 72
Legal Matters............................................................................................... 75
Experts..................................................................................................... 75
Where You Can Find Additional Information................................................................... 75
Index to Financial Statements............................................................................... F-1
</TABLE>
------------------------
Keynote-Registered Trademark- is our registered trademark and
Perspective-TM-, Lifeline-TM-, The Internet Performance Authority-TM- and
AccuStat-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 largest 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 web sites face a different set of competitive challenges than those
faced by conventional "bricks and mortar" stores. In order to discourage
customers from "clicking away" to competing web sites, e-commerce web sites must
deliver fast page downloads, efficient transactions and high reliability of
access. 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 online
transactions.
OUR SERVICES
We currently offer two primary services, Keynote PERSPECTIVE and Keynote
LIFELINE. Both of these services measure web-site performance and availability,
including the time it takes for a user to download web pages. Keynote
PERSPECTIVE is targeted for e-commerce web sites with heavy levels of traffic.
Keynote PERSPECTIVE measures the performance and availability of web sites by
measuring the time it takes for pages and page components to be downloaded to a
user's personal computer. Keynote PERSPECTIVE also measures the time it takes to
complete a customer transaction on an e-commerce web site. With this service,
measurements can be taken from multiple geographic locations and from
three-minute to four-hour intervals.
Our Keynote LIFELINE service, which was introduced in July 1999, is targeted
for regionally oriented web sites and web sites with lower traffic levels. This
lower-priced service measures the time it takes to download web pages to one or
two locations in the United States. Measurements can be taken every 10 minutes
or once per hour.
In January 1999, we introduced our COMPETITIVE AUDIT and DIAGNOSTIC AUDIT
professional services offerings. With COMPETITIVE AUDIT, we measure the
performance of a customer's web site and evaluate its performance against other
web sites in the customer's industry. We also identify any bottlenecks or stress
points in the customer's web site or its connections to the Internet. In our
DIAGNOSTIC AUDIT, our consultants work with our customers to further evaluate
quality of service issues and provide specific recommendations to them as to how
they can improve their web site's quality of service.
The foundation of our services is an extensive network of strategically
located measurement computers connected to the major Internet backbones in
dozens of metropolitan areas worldwide. We also have an operations center for
collecting, analyzing and disseminating Internet performance and availability
data. We believe our customers can use our services to measure the performance
of their web sites and to ensure that their e-commerce web sites are not
experiencing performance problems such as outages, slow web page download speeds
or slow transaction processing times. With this information, the web sites can
improve their customer satisfaction and reduce support costs. In addition, it is
easy for customers to begin using our services. With only a web browser,
customers can try, purchase and immediately use our services.
4
<PAGE>
OUR STRATEGY
Our growth strategy is to expand our leadership in providing Internet
performance measurement and diagnostic services to e-commerce web sites.
To achieve this goal we intend to:
- extend our market penetration by promoting our LIFELINE service and
marketing additional services to LIFELINE customers as their e-commerce
web sites grow;
- increase awareness of Keynote as "THE INTERNET PERFORMANCE AUTHORITY-TM-"
through marketing programs;
- pursue marketing relationships with companies that sell products or
services complementary to our services;
- offer new features and services in order make our customers continually
aware of the importance of Keynote's services for measuring and ensuring
the quality of service of their web sites;
- expand our operations internationally; and
- expand our services to measure other aspects of quality of service other
Internet access methods and other new Internet technologies.
HOW WE SELL OUR SERVICES
We market and sell our services primarily through a direct telesales force
in the United States. We also market our services through Network Solutions and
VeriSign, which are companies that provide services complementary to ours. Our
customers include over 400 leading e-commerce companies. Our 10 largest
customers, based on revenues for the nine months ended June 30, 1999, consist of
Akamai, C--NET, Digex, DoubleClick, Exodus Communications, Hewlett-Packard,
Intel, Microsoft, Nasdaq-AMEX and Sandpiper Networks.
WE HAVE INCURRED SIGNIFICANT LOSSES AND WE MAY NOT BECOME PROFITABLE
We have incurred losses of $9.2 million since we were formed in June 1995.
In addition, we had a net loss of $3.7 million for the nine months ended June
30, 1999 and a net loss of $2.9 million for the 1998 fiscal year. We expect to
incur net losses for the foreseeable future. The market for Internet-related
products and services is highly competitive and we could face intense
competition in the future. Therefore, we may not achieve or sustain
profitability.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES:
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION;
- THE COMPLETION OF A 1 FOR 2 REVERSE STOCK SPLIT TO BE COMPLETED
IMMEDIATELY PRIOR TO THIS OFFERING;
- 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 OF A
SHARE OF COMMON STOCK; AND
- NO EXERCISE OF WARRANTS TO PURCHASE 643,478 SHARES OF OUR COMMON STOCK
PRIOR TO THE CLOSING OF THIS OFFERING.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Keynote.............. 4,000,000 shares
Common stock to be outstanding after the 22,648,667 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 1,710,915 shares of our common stock subject
to options and warrants outstanding as of June 30, 1999.
- This number includes all of our outstanding shares of preferred stock that
will be converted into an aggregate of 12,588,898 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 NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................................... $ 30 $ 81 $ 1,539 $ 948 $ 4,109
Loss from operations.............................................. (628) (2,018) (2,957) (1,902) (3,513)
Net loss.......................................................... (622) (2,049) (2,918) (1,878) (3,659)
NET LOSS PER SHARE:
Basic and diluted................................................. $ (0.23) $ (0.84) $ (1.10) $ (0.72) $ (0.91)
Weighted average shares--basic and diluted........................ 2,733 2,434 2,661 2,594 4,032
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 17,152 $ 17,152 $ 57,322
Working capital................................................................ 16,698 16,698 56,868
Total assets................................................................... 22,862 22,862 63,032
Notes payable, less current portion............................................ 2,853 2,853 2,853
Redeemable convertible preferred stock......................................... 23,381 -- --
Total stockholders' equity (deficit)........................................... (6,620) 16,761 56,931
</TABLE>
See note 2 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 balance sheet 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 balance sheet data give effect to the sale of the 4,000,000
shares of common stock that we are offering under this prospectus at an assumed
initial public offering price of $11.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses. See "Capitalization."
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 numbers at this location are (650) 522-1000 and
1-800-KEYNOTE. The information on our web site does not constitute a part of
this prospectus.
6
<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.
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 TO READ THESE DATA IN
CONNECTION WITH THE REST OF THE DISCLOSURE IN THIS DOCUMENT, PARTICULARLY THIS
"RISK FACTORS" SECTION.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY STAGE COMPANY WITH AN UNPROVEN BUSINESS MODEL WHICH MAKES IT
DIFFICULT TO EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS.
We have only a limited operating history upon which to base an evaluation of
our current business and future prospects. We began offering our Internet
performance measurement services in May 1997, we introduced the most recent
version of our PERSPECTIVE service in April 1999 and our LIFELINE service in
July 1999, and we formed our professional services organization in January 1999.
The revenue and income potential of our business and the related market are
unproven. In addition, because of our limited operating history and because the
market for Internet performance measurement and diagnostic services is
relatively new and rapidly evolving, we have limited insight into trends that
may emerge and affect our business. 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 such as Internet performance measurement.
WE HAVE INCURRED LOSSES, WE EXPECT TO INCUR FUTURE LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY.
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 $3.7 million for the nine months ended June 30, 1999, and
as of June 30, 1999, we had an accumulated deficit of $9.2 million. We believe
that our operating expenses will continue to increase as we grow our business.
As a result, although this offering will provide us with cash for our working
capital, we will need to significantly increase our revenues to achieve and
maintain profitability, as reflected in our financial statements. 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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE SUCCESS OF OUR BUSINESS DEPENDS ON CUSTOMERS RENEWING THEIR SUBSCRIPTIONS
FOR OUR SERVICES AND PURCHASING ADDITIONAL SERVICES.
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.
7
<PAGE>
In addition, initial sales of our services and subsequent customer follow-up
are conducted almost exclusively by telephone. A few customers have, in the
past, expressed a preference for more personal, face-to-face customer service.
Although we now offer personal, on-site follow-up service for our largest
customers, 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.
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.
As indicated in our "Quarterly Results of Operations" on page 30, our
results of operations could vary significantly from quarter to quarter,
depending on the number of customers subscribing to our services during any
quarter as well as total expenses for a particular period. We also 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. 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:
- the renewal rate of subscriptions to our Internet performance measurement
services;
- our ability to increase the number of web sites we measure for our
existing customers;
- our ability to attract new e-commerce web sites as customers;
- the number of our customers who elect to purchase our entry-level Keynote
LIFELINE service as compared with our more comprehensive Keynote
PERSPECTIVE service;
- the announcement or introduction of new services by us, such as our
introduction of Keynote LIFELINE in July 1999, 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 measurement computers and operations infrastructure,
including our planned international expansion; and
- the amount and timing of professional services revenues.
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.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE WIDESPREAD ADOPTION OF THE INTERNET
BY BUSINESS AND CONSUMERS 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
8
<PAGE>
evolving, it is difficult to predict the size of this market and its sustainable
growth rate. In addition, we believe that the use of the Internet for conducting
business transactions could be hindered for a number of reasons, including, but
not limited to:
- 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;
- 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 OPERATING RESULTS DEPEND ON SALES OF OUR KEYNOTE PERSPECTIVE SERVICE.
Because we have only recently begun to offer professional services and we
only recently introduced Keynote LIFELINE, the success of our business currently
depends, and for the immediate future will continue to substantially depend, on
the sale of our Keynote PERSPECTIVE service. Therefore, we believe that initial
sales and renewals of our Keynote PERSPECTIVE service will account for
substantially all of our revenues for the immediate future. A decline in the
price of, or fluctuation in the demand for, Keynote PERSPECTIVE, or our
inability to maintain or increase sales, would cause our revenues to decline.
IF ONE OF OUR COMPETITORS' INTERNET PERFORMANCE MEASUREMENT SERVICE IS ADOPTED
AS THE INDUSTRY STANDARD FOR MEASURING THE SPEED AND RELIABILITY OF WEB SITES,
WE MAY LOSE EXISTING CUSTOMERS OR ENCOUNTER DIFFICULTIES IN ATTRACTING NEW
CUSTOMERS.
To date, no Internet performance measurement service has been adopted as an
accepted industry standard for measuring the speed and reliability of web sites.
As a result, if one of our current or potential competitors develops an Internet
performance measurement service that is adopted as the industry standard, our
customers may turn to the services provided by these competitors. In addition,
it would be more difficult for us to attract the additional customers for our
Internet performance measurement services that are necessary for our business to
grow. If this were to occur, our business would be harmed.
IMPROVEMENTS TO THE INFRASTRUCTURE OF THE INTERNET COULD REDUCE OR ELIMINATE
DEMAND FOR OUR INTERNET PERFORMANCE MEASUREMENT SERVICES.
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. 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. If these
vendors and operators succeed in significantly improving the performance of the
Internet, which would result in corresponding improvements in the performance of
companies' web sites, demand for our services would likely decline.
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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 measurement computers if we
experience an increase in our customer base or if we expand our operations and
measurement capabilities on a worldwide basis. These computers 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. We currently measure the performance of between 5,000 and 6,000
web-site addresses for our customers. Based on the number of measurement
computers we currently have deployed and the communications capacity available
to these computers, we believe we are able to measure the performance of
approximately 7,000 web-site addresses. We are in the process of deploying
additional measurement computers and upgrading the underlying infrastructure so
that we will have the ability by the end of the year to measure in excess of
100,000 web-site addresses. With more measurement computers 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. In addition, if we experience increases in the number of our
customers prior to deploying additional measurement computers, our existing
infrastructure may not have the capacity to accommodate the additional
customers. This could result in outages, interruptions or slower response times,
any of which could impair our ability to retain and attract customers.
WE MAY FACE LIABILITY FOR SUPPLYING INACCURATE INFORMATION TO OUR CUSTOMERS OR
FROM OUR CUSTOMERS' USE OF THE DATA THAT 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,
although reported to customers at over a 99% level of accuracy, may contain
inaccuracies due to distortions and bottlenecks caused by inadequate network
capacity preventing our measurement computers from gaining access to all
requested measurements. 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 on such
theories as breach of contract, breach of warranty or negligence. Our general
insurance policy does not specifically cover liability for providing inaccurate
data.
Our customers are responsible for the manner in which they use the data that
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. For example, a company could use our
comparative performance data, which evaluates the relative performance of the
company's web site against web sites in an industry, and make claims to assert
that their service is superior to those of their competitors or that their
competitors' services are inferior. As a result, a third party might initiate
litigation against one of our customers on such theories as defamation, trade
libel or unfair competition relating to the customer's use of the information
that we provided to them. Even if the information that we provided were
accurate, 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.
WE MAY FACE LIABILITY FOR PUBLISHING INDICES THAT EVALUATE AND RANK THE RELATIVE
INTERNET PERFORMANCE OF WEB SITES.
We periodically publish indices that evaluate and rate the relative
performance of various e-commerce web sites in a particular market segment. Some
companies whose web sites have performed poorly in our published 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
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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 against us on such theories as
defamation, trade libel or unfair competition.
THE INABILITY OF OUR SERVICES TO PERFORM PROPERLY 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 may not perform as we expect. We have
given credits to a limited number of customers as a result of past problems with
our service, though we do not believe that any customers failed to renew their
subscription to our services due to these problems. Despite our testing, our
existing or future services may not perform as expected due to unforeseen
problems, including those related to the year 2000, 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 costs.
These problems 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, we
could be required to pay damages.
IF WE DO NOT CONTINUALLY IMPROVE OUR SERVICES IN RESPONSE TO TECHNOLOGICAL
CHANGES, INCLUDING CHANGES TO THE INTERNET, WE MAY ENCOUNTER DIFFICULTIES
RETAINING EXISTING CUSTOMERS AND ATTRACTING NEW CUSTOMERS.
The ongoing evolution of the Internet requires us to continually improve the
functionality, features and reliability of our Internet performance measurement
and diagnostic services, particularly in response to competitive offerings. If
we do not succeed in developing and marketing new services that respond to
competitive and technological developments and changing customer needs, we may
encounter difficulties retaining existing customers and attracting new
customers. 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. 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.
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. Our efforts to build our brand 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 NEW KEYNOTE LIFELINE SERVICE, OUR
REVENUES MAY FALL SHORT OF OUR EXPECTATIONS.
We introduced our Keynote LIFELINE service in July 1999, and, as a result,
we have currently sold this service to only a limited number of customers. 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
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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 significantly grow our revenues. We may not succeed in selling our
Keynote LIFELINE service.
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
Freshwater Software, Internet Resources Group, Inverse Network Technology and
Service Metrics. 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. While the free
services are not as comprehensive as ours, as they only take measurements from
one location, they do not measure the speed of transactions and they only
measure simple download time, customers could still choose to use these less
comprehensive services.
If we 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
- 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 nine months ended June 30, 1999, 10 customers accounted for
approximately 32% of our total revenues, with two of those customers, Microsoft
Corporation and Digex Incorporated, accounting for 16% of our total revenues,
and this trend may continue in the future. 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. If we lose a major customer, our revenues could
decline.
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.
In order to increase sales of our Internet performance measurement and
diagnostic services worldwide, we must complement our direct sales force with
relationships with companies to market and sell our services
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to their customers. If we are unable to maintain our existing contractual
marketing and distribution 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 revenues from
customer referrals and other co-marketing benefits. Our success depends in part
on the ultimate success of these relationships and the ability of these
companies to market and sell our services. Our existing relationships do not,
and any future relationships may not, afford us any exclusive marketing or
distribution rights. Therefore, they could reduce their commitment to us at any
time in the future. Many of these companies have multiple relationships and they
may not regard us as significant for their business. In addition, these
companies 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
obtain domestic and international resellers, distributors and integrators who
will market and sell our services on our behalf. In the future, we intend to
increase our indirect distribution channels through distribution arrangements.
We may not be successful in establishing relationships with these companies, 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, namely our management team and
experienced engineers, 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 experience in the Internet industry, a
complex industry that requires a unique knowledge base. In addition, there is
significant competition for qualified employees in the Internet industry. Umang
Gupta, our chief executive officer, is our only key employee with whom we have
entered into an employment agreement. Our other key employees are not bound by
employment agreements that could prevent them from terminating their employment
at any time.
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. Our
ability to deliver our services also depends 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 employees,
including sales and operations personnel, our business could be harmed.
IF OUR PROFESSIONAL SERVICES ARE NOT ACCEPTED BY THE MARKET, OUR RESULTS OF
OPERATIONS COULD BE HARMED.
We formed our professional services organization in January 1999. As a
result, we have little experience in delivering consulting services and we may
not be able to successfully introduce additional consulting services. We will
also need to successfully market these services to potential customers. Because
we do not have an established reputation for delivering consulting services, and
due to our general inexperience in delivering consulting services, we may not
succeed in selling these services.
IF WE ARE UNABLE TO ATTRACT, EDUCATE AND RETAIN QUALIFIED PROFESSIONAL SERVICE
PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND OUR PROFESSIONAL SERVICES
ORGANIZATION.
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 for each of the first two quarters of 1999. Competition for highly
qualified professional services personnel with knowledge of our
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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.
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 web sites on the Internet
to upgrade their infrastructures. Our ability to increase the speed with which
we provide services to our customers 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 are expanding, and we intend to continue to expand, our operations by
deploying additional measurement computers, both domestically and
internationally, hiring new personnel and implementing and integrating new
accounting and control systems to manage this expansion. We may encounter
difficulties in managing this growth. 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 may not succeed in these efforts and a disruption could
impair our ability to retain existing customers or attract new customers.
OUR NETWORK INFRASTRUCTURE COULD BE DISRUPTED BY A NUMBER OF DIFFERENT
OCCURRENCES, WHICH COULD IMPAIR OUR ABILITY TO RETAIN EXISTING CUSTOMERS OR
ATTRACT NEW CUSTOMERS.
All data collected from our measurement computers 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 measurement computers 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 operations 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. If our
operations center is damaged, causing a disruption in our services, this could
impair our ability to retain existing customers or attract new customers.
If our computer infrastructure is not functioning properly, we may not be
able to deliver our services in a timely or accurate manner. We have
occasionally experienced outages of our service in the past, the last of which
occurred approximately two months ago. The outages that we have experienced have
lasted no more than a few hours, with the longest outage that occurred in the
fall of 1998 having lasted approximately 12 hours. These outages have been
caused by a variety of factors including operator error, the failure of a
back-up computer to operate when the primary computer ceased functioning and
power outages due to our previous facility's being inadequately equipped to
house our operations center. Although we do not believe we have lost any
customers due to these prior outages, any outage for any period of time could
cause us to lose customers.
Hackers, or individuals who attempt to breach our network security, could,
if successful, misappropriate proprietary information or cause interruptions in
our services. Although we have not yet experienced any breaches of our network
security or sabotage, we might be required to expend significant capital and
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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 breach 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.
OUR MEASUREMENT COMPUTERS 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 measurement computers are located at facilities that are not owned by us
or our customers. Instead, these computers are installed at locations near
various Internet access points worldwide. Because we do not own or operate these
facilities, we have little control over how these computers are maintained on a
day-to-day basis. We do not have long-term contractual relationships with the
companies that operate the facilities where our measurement computers are
located. We may have to find new locations for these computers if we are unable
to maintain or develop relationships with these companies. In addition, if our
measurement computers 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
measurement computers. Our ability to collect data in a timely manner could be
impaired if we are unable to maintain and repair our computers should
performance problems arise.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO PROTECT AND ENFORCE OUR
INTELLECTUAL PROPERTY RIGHTS.
The intellectual property we use in our business is important to us. We have
trademarks, service marks and two patent applications with respect to our
Internet performance measurement technology, and we have also developed
proprietary software that we use to deliver our services to our customers.
Despite our efforts, we may be unable to prevent others 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, others. 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 they may 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. Although we are not currently engaged in litigation,
we may in the future need to initiate a lawsuit to enforce our intellectual
property rights and to protect our patents, if issued, trademarks and
copyrights. Any litigation could result in substantial costs and diversion of
resources and could seriously harm our business. For a description of our
intellectual property, see "Business--Intellectual Property."
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 services overlap with competitive offerings.
These claims, even if not meritorious, could be expensive and divert
management's attention from operating our
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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 services
that contain the infringing intellectual property. We may be unable to develop
noninfringing technology or to obtain a license on commercially reasonable
terms, if at all.
WE DEPEND ON TECHNOLOGIES LICENSED FROM OTHER COMPANIES FOR PORTIONS OF OUR
SERVICES.
We cannot assure you that our 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. We license statistical, graphical,
database and other technologies from third parties to operate our services. 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.
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, which were less than 10% of our total revenues for the nine months
ended June 30, 1999 and our prior periods. In addition, we intend to deploy
additional measurement computers worldwide, which would require us to maintain
and service computers over larger distances.
The Internet may not be used as widely in other countries and the adoption
of e-commerce may evolve slowly or may not evolve at all. As a result, we may
not be successful in selling our services to customers in markets outside the
United States.
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.
Our information technology systems could be impaired or cease to operate due
to computer systems or software products being unable to distinguish between
20th and 21st century dates, which is known as the year 2000 problem. If our
Keynote PERSPECTIVE and LIFELINE services and our network of measurement
computers fail to accurately measure, process and assess web-site performance
data due to the year 2000 problem, we could lose customers. We also 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, because the Internet is
comprised of numerous computers and communications lines, it may fail to
function properly or at all, causing unavailablity or disruption of Internet
services. If either of these occurred, we may be unable to measure Internet
performance which would cause our revenues to decline.
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. Although
there are no users of non-year 2000 compliant versions of our services, we may
face liability in the future for any unknown or unforeseen errors or faults
relating to the year 2000. Although we have insurance covering liability arising
from year 2000 claims this insurance policy has a low coverage limit.
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We currently have limited contingency plans with respect to the year 2000
problem, and these consist of our having established connections with other
Internet service providers to provide service if our primary Internet service
provider fails. If we experience other year 2000 issues, we may not be able to
react quickly.
WE MAY FACE DIFFICULTIES ASSIMILATING AND MAY INCUR COSTS ASSOCIATED WITH ANY
FUTURE ACQUISITIONS.
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 and
technologies;
- unanticipated costs associated with the acquisition;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with resellers of our
service and our 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, 14,664,091 shares of our common stock, which in
the aggregate will represent approximately 63.9% 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
- the election and removal of directors and
- 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. For a further discussion of the stock ownership of
our officers, directors and 5% or greater stockholders, please see "Principal
Stockholders."
PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DELAY OR PREVENT A TAKEOVER OF US, EVEN IF THE TAKEOVER WOULD BENEFIT OUR
STOCKHOLDERS.
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.
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
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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.
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 Internet performance measurement 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, notably our management team and
experienced engineers;
- 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.
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 22,648,667 shares of common stock. Of these
shares, the 4,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless the
shares are purchased by our "affiliates."
The remaining 18,648,667 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 who hold a total of 18,549,460 shares, or approximately 93%, of the
total outstanding shares of our common stock 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
18
<PAGE>
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. As of June 30, 1999 there were outstanding options and warrants to purchase
1,710,915 shares of our common stock.
Assuming the cash exercise of these warrants and options outstanding as of
June 30, 1999, the remaining 20,359,582 shares of our common stock will become
eligible for public sale as follows:
- 0 shares as of the date of this prospectus;
- 15,910,352 shares as of 181 days after the date of this prospectus;
- 4,449,230 shares as of one year after the date of this prospectus; and
- 0 shares as of two years after the date of this prospectus.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS.
We may need to raise funds in the future to meet our working capital and
capital expenditure needs. However, we may not be successful in raising
additional funds at all or on terms that are favorable to us. 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 additional funds 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.
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
$8.49 per share, based on the number of outstanding shares as of June 30, 1999
and an assumed initial public offering price of $11.00 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.
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.
19
<PAGE>
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," "might," "could," "will," "should," "expect,"
"plan," "intend," "forecast," "anticipate," "believe," "estimate," "predict,"
"foreseeable," "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.
20
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock that we are offering will be approximately $40.2 million, at an
assumed initial public offering price of $11.00 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 $46.3 million.
The principal purposes of this offering are to obtain additional capital, to
create a public market for our common stock and to facilitate future access to
public equity markets. We intend to use the proceeds for working capital,
capital expenditures and other general corporate purposes. In addition, we may
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 agreements prevent us from paying cash
dividends.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 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 4,000,000 shares
of common stock that we are offering at an assumed initial public offering price
of $11.00 per share after deducting estimated underwriting discounts and
commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------
PRO
ACTUAL FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Notes payable, less current portion............................................ $ 2,853 $ 2,853 $ 2,853
--------- --------- -----------
Redeemable convertible preferred stock, $0.001 par value; 50,000,000 shares
authorized, 12,588,898 shares issued and outstanding, actual; 50,000,000
shares authorized, no shares issued and outstanding, pro forma and as
adjusted..................................................................... 23,381 -- --
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; 50,000,000 shares authorized, 6,059,769
shares issued and outstanding, actual; 50,000,000 shares authorized,
18,648,667 shares issued and outstanding, pro forma; 50,000,000 shares
authorized, 22,648,667 shares issued and outstanding, as adjusted........... 6 19 23
Additional paid-in capital................................................... 3,920 27,288 67,454
Deferred stock-based compensation............................................ (906) (906) (906)
Notes receivable from stockholders........................................... (403) (403) (403)
Accumulated deficit.......................................................... (9,237) (9,237) (9,237)
--------- --------- -----------
Total stockholders' equity (deficit)....................................... (6,620) 16,761 56,931
--------- --------- -----------
Total capitalization..................................................... $ 19,614 $ 19,614 $ 59,784
--------- --------- -----------
--------- --------- -----------
</TABLE>
The share numbers above exclude:
- 1,067,437 shares issuable upon the exercise of outstanding stock options
as of June 30, 1999, at a weighted average exercise price of $3.20 per
share;
- 410,379 shares available as of June 30, 1999, for future grant under our
current stock plans described in this prospectus; and
- 643,478 shares issuable upon the exercise of warrants outstanding as of
June 30, 1999, at a weighted average exercise price of $1.18 per share.
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.
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $16.8 million
or $0.90 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 $11.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses, our pro
forma net tangible book value as of June 30, 1999 would have been approximately
$56.9 million, or $2.51 per share. This represents an immediate increase in pro
forma net tangible book value of $1.61 per share to existing stockholders and an
immediate dilution of $8.49 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...................... $ 11.00
Pro forma net tangible book value per share as of June 30, 1999.... $ 0.90
Increase per share attributable to new investors................... 1.61
---------
Pro forma net tangible book value per share after offering........... 2.51
---------
Dilution per share to new investors.................................. $ 8.49
---------
---------
</TABLE>
The following table summarizes as of June 30, 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................................. 18,648,667 82.3% $ 26,152,000 37.3% $ 1.40
New investors......................................... 4,000,000 17.7 44,000,000 62.7 11.00
------------ ----- ------------- -----
Total................................................. 22,648,667 100% $ 70,152,000 100%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
As of June 30, 1999, there were options and warrants outstanding to purchase
a total of 1,710,915 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 to our financial statements.
23
<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 for the nine months ended June 30, 1999
and the balance sheet data as of September 30, 1997 and 1998 and June 30, 1999
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 nine months ended June 30,
1998 is 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 NINE MONTHS ENDED
(INCEPTION) TO YEARS ENDED SEPTEMBER 30, JUNE 30,
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 $ 948 $ 4,026
Consulting services............................ 28 30 -- -- -- 83
----- --------- --------- --------- --------- ---------
Total revenues............................... 28 30 81 1,539 948 4,109
----- --------- --------- --------- --------- ---------
Expenses:
Cost of subscription services.................. -- -- 209 580 330 975
Cost of consulting services.................... -- -- -- -- -- 254
Research and development....................... -- 392 732 1,226 838 1,297
Sales and marketing............................ -- 186 817 1,529 931 2,989
Operations..................................... -- -- 63 514 292 1,024
General and administrative..................... 16 80 278 647 459 1,083
----- --------- --------- --------- --------- ---------
Total expenses............................... 16 658 2,099 4,496 2,850 7,622
----- --------- --------- --------- --------- ---------
Income (loss) from operations................ 12 (628) (2,018) (2,957) (1,902) (3,513)
Interest income (expense), net................... (1) 6 (31) 39 24 (146)
----- --------- --------- --------- --------- ---------
Net income (loss)............................ $ 11 $ (622) $ (2,049) $ (2,918) $ (1,878) $ (3,659)
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
Net income (loss) per share:
Basic and diluted.............................. $ 0.03 $ (0.23) $ (0.84) $ (1.10) $ (0.72) $ (0.91)
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
Weighted average shares........................ 322 2,733 2,434 2,661 2,594 4,032
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------------ AS OF JUNE
1995 1996 1997 1998 30, 1999
--------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 10 $ 545 $ 1,150 $ 2,293 $ 17,152
Working capital.................................................. 22 551 1,007 2,164 16,698
Total assets..................................................... 39 711 1,670 3,918 22,862
Notes payable, less current portion.............................. -- -- 199 303 2,853
Redeemable convertible preferred stock........................... -- 1,262 3,828 8,529 23,381
Total stockholders' equity (deficit)............................. 35 (567) (2,588) (5,552) (6,620)
</TABLE>
24
<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 the information derived from our measurement results. In April
1997, we began to sell Keynote PERSPECTIVE, a service that measures the
performance and availability of web file downloads. In September 1997, we
released and updated all existing customers to 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 the performance of
entire web pages, including text and graphics. Our most recent release of
Keynote PERSPECTIVE, in April 1999, included our TRANSACTION feature, 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.
In July 1999, we introduced our Keynote LIFELINE service. In January 1999, we
began offering consulting services, which are designed to assist our customers
in evaluating, interpreting and improving 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, in addition to using our service as a
diagnostic tool in their own operations, also sell or bundle our services to
part of their customer base as a value-added service to these customers. We have
begun to market our products through, VeriSign and Network Solutions, which are
companies that provide services complementary to ours.
We derive and expect to continue to derive all of our subscription revenues
from the sale of our Internet performance measurement, consulting and diagnostic
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. Subscription 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 unearned revenue
is recorded as deferred revenue on our balance sheet. As of June 30, 1999, we
had recorded $935,000 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 $4.1 million for the nine months ended June 30, 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 $3.7 million for the nine months ended June 30, 1999. We
expect to incur significant losses in the future.
25
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES
Our revenues were $948,000 for the nine months ended June 30, 1998 and $4.1
million for the nine months ended June 30, 1999, representing an increase of
$3.2 million, or 338%. Subscription services represented 100% of total revenues
for the nine months ended June 30, 1998 and 98% of total revenues for the nine
months ended June 30, 1999. The increase in total revenues was attributable to
the increase in both the number of customers and the revenue per customer. For
the nine months ended June 30, 1998, one customer, Digex, accounted for
approximately 18% of total revenues. For the nine months ended June 30, 1999, no
single customer accounted for more than 10% of total revenues.
EXPENSES
COST OF SUBSCRIPTION SERVICES. Cost of subscription services consists of
connection fees to Internet service providers for deployment of our measurement
computers around the world and depreciation, maintenance and other equipment
charges for our measurement infrastructure. Our cost of subscription services
was $330,000 for the nine months ended June 30, 1998 and $975,000 for the nine
months ended June 30, 1999, representing an increase of $645,000, or 195%. This
increase was primarily due to the greater number of measurement computers
deployed, resulting in higher connection fees and more depreciation and
equipment charges. Cost of subscription services was 35% of subscription
services for the nine months ended June 30, 1998 and 24% of subscription
services for the nine months ended June 30, 1999.
COST OF CONSULTING SERVICES. Cost of consulting services consists of
compensation expenses for consulting personnel and related costs. Our cost of
consulting services was $0 for the nine months ended June 30, 1998 and $254,000
for the nine months ended June 30, 1999. Cost of consulting services exceeded
consulting services revenue for the nine months ended June 30, 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 revenues.
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
$838,000 for the nine months ended June 30, 1998 and $1.3 million for the nine
months ended June 30, 1999, representing an increase of $462,000, or 55%. This
increase was primarily related to the increase in software engineers, 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 research and development
expenses are likely to increase in the foreseeable future.
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 $931,000 for the nine months ended June 30, 1998 and
$3.0 million for the nine months ended June 30, 1999, representing an increase
of $2.1 million or 226%. This increase reflects our investment in additional
personnel in our sales and marketing organization 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 sales and marketing expenses will increase in the foreseeable
future.
26
<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 $292,000
for the nine months ended June 30, 1998 and $1.0 million for the nine months
ended June 30, 1999, representing an increase of $708,000, or 242%. 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. Accordingly, we anticipate that operations costs will increase in
the foreseeable future.
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 $459,000 for the nine months ended June
30, 1998 and $1.1 million for the nine months ended June 30, 1999, representing
an increase of $641,000, or 140%. 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 in general and
administrative, expenses of $153,000 for the nine months ended June 30, 1999
relating to the amortization of deferred compensation expense and had an
aggregate of $906,000 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 options. We expect amortization of approximately $66,000
in the three months ending September 30, 1999, and $265,000 in fiscal 2000,
$265,000 in fiscal 2001, $265,000 in fiscal 2002 and $45,000 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 INCOME (EXPENSE), NET
Net interest income (expense) was $24,000 for the nine months ended June 30,
1998 and $(146,000) for the nine months ended March 31, 1999, representing a
decrease of $170,000. This decrease was primarily due 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.
As of June 30, 1999, we had net operating loss carryforwards for federal
income tax reporting purposes of approximately $8,193,000 available to reduce
future income subject to income taxes. As of June 30, 1999, we had net operating
loss carryforwards for state income tax purposes of approximately $4,941,000
available to reduce future income subject to income taxes. The federal net
operating loss carryforwards expire in various periods through 2019. State net
loss carryforwards expire in various periods through 2004. In addition, as of
June 30, 1999, we had federal research and development tax credit carryforwards
of approximately $148,000. The federal credit carryforwards expire in various
periods through 2019. As of
27
<PAGE>
June 30, 1999, we had California research and development tax credit
carryforwards of approximately $110,000. 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.
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 $1.4 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.
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 connection fees to Internet service providers for
our measurement computers 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
$468,000, or 64% from fiscal 1997 to fiscal 1998. The increases from fiscal 1996
through fiscal 1998 were primarily related to the increase in the number of
software engineers, 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 $683,000, or
84%, 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
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1996 through fiscal 1998 were primarily the result of increased compensation and
related employee expenses for additional finance and administrative personnel to
support the growth of our business during these periods.
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.
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.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited statement of operations data for
the eight quarters ended June 30, 1999. The data have 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)%
----- ----- ----- --------- --------- --------- -----------
----- ----- ----- --------- --------- --------- -----------
<CAPTION>
JUNE 30,
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscription services.............. 1,862
Consulting services................ 57
---------
Total revenues................... 1,919
---------
Expenses:
Cost of subscription services...... 522
Cost of consulting services........ 167
Research and development........... 634
Sales and marketing................ 1,426
Operations......................... 475
General and administrative......... 494
---------
Total expenses................... 3,718
---------
Loss from operations............. (1,799)
Interest income (expense), net....... 3
---------
Net loss......................... $ (1,796)
---------
---------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Subscription services.............. 97%
Consulting services................ 3
---------
Total revenues................... 100
---------
Expenses:
Cost of subscription services...... 27
Cost of consulting services........ 9
Research and development........... 33
Sales and marketing................ 74
Operations......................... 25
General and administrative......... 26
---------
Total expenses................... 194
---------
Loss from operations............. (94)
Interest income (expense), net....... (0)
---------
Net loss......................... (94)%
---------
---------
</TABLE>
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During the eight quarters ended June 30, 1999, our subscription revenues
consistently grew as a result of increased demand for Internet performance
measurement and diagnostic services. In addition, beginning in the first quarter
of fiscal 1999, we created a new consulting services organization to help
customers to maximize the value of the information they receive to improve their
web-site performance.
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 eight quarters ended June 30, 1999. In general, expenses
increased significantly as a result of:
- increased personnel;
- increased depreciation and other equipment costs for our expanding
measurement computers infrastructure;
- increased spending for marketing and promotional activities;
- higher recruiting and related hiring expenses for additional senior
management and other personnel;
- increased co-location fees for our measurement computers; and
- increased use of independent contractors and other outside services for
continued research and development activities.
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 $25.8 million, net of offering costs, from the sale of common
stock and preferred stock. In addition, we financed our operations through
subordinated and other debt, equipment loans and a capital lease. The principal
balance outstanding at June 30, 1999 for these loans and leases was
approximately $4.4 million. At June 30, 1999, we had approximately $17.2 million
in cash and cash equivalents.
Net cash used in operating activities was $591,000 in fiscal 1996, $1.8
million in fiscal 1997, $2.7 million in fiscal 1998, $1.8 million in the nine
months ended June 30, 1998 and $4.1 million in the nine months ended June 30,
1999. For all of these periods, net cash used in operating activities was
primarily the result 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 $718,000 for the nine months
ended June 30, 1998 and $1.7 million for the nine months ended June 30, 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 $4.9 million in the nine
months ended June 30, 1998 and $20.6 million in the nine months ended June 30,
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 nine months ended June
30, 1998, we received $4.7 million in net proceeds in connection with the sale
of our Series C redeemable convertible preferred stock. During the nine months
ended June 30, 1999, we received $17.2 million in net proceeds in connection
with the sale of stock. Of these proceeds, we received $14.8 million from the
sale of Series D redeemable
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convertible preferred stock and $877,000 from the sale of common stock. The
balance of these proceeds was due to option and warrant exercises. In addition,
we received $3.6 million in proceeds from equipment and other loans which was
slightly offset by $227,000 in loan repayments.
As of June 30, 1999, our principal commitments consisted of $4.4 million in
loans and capital leases. We have granted a security interest in substantially
all of our assets to secure these loans. The interest rate on our loans in the
form of equipment notes ranged from 5.60% to 10.25% per year and the interest
rate on the loans in the form of a promissory note bore interest at a rate of
8.25% per year. As of June 30, 1999, we also had commitments of $1.0 million in
future lease payments for our headquarters facility. We had no material
commitments for capital expenditures as of June 30, 1999. Because we expect to
increase the number of our measurement computers and increase their measurement
capacity 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.
After that time, 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 many 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 have completed 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.
Our services rely on a combination of our proprietary software and
commercial software distributed by vendors such as Microsoft, Oracle and Sun
Microsystems. We tested our service infrastructure in September 1998 and August
1999 and found no unremediated year 2000-related problems. The service
infrastructure consists of software needed to provide service, measure
performance, store measurement data and report results. 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 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. We have received written year 2000 representations from
all significant vendors and third parties. Nineteen vendors represented that
their products are year 2000 compliant; one is still testing and has indicated
that it will certify compliance before the end of 1999. We have not contacted
our web hosting and backbone providers, such as Digex, UUNET and Cable &
Wireless, which provide Internet connectivity to our remote measurement
computers.
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 not incurred material costs in connection with our year 2000 efforts to
date and do not expect to do so in the future, other than diversion of employee
time from other projects.
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 generally rely 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.
Although we have not been a party to any litigation or arbitration
proceeding to date about our services and 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
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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 service 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 June 30, 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 June 30, 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 largest 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
measurement computers 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 a subscription basis. Our customers include over 400
leading e-commerce companies, with our 10 largest customers based on revenues
for the nine months ended June 30, 1999 consisting of Akamai, C--NET, Digex,
DoubleClick, Exodus Communications, Hewlett-Packard, Intel, Microsoft,
Nasdaq-AMEX and Sandpiper Networks.
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, a key
differentiator for many businesses with online offerings can be 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 to the customer across
multiple Internet backbones and service providers along an often indirect path
that is determined as the information passes between backbones. 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
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Internet, many internal and external factors contribute to the e-commerce
quality of service problem. These factors include inadequate networking
hardware, servers and server software, poorly constructed applications,
inadequate communications capacity and poor interconnections between Internet
backbone providers. 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.
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 causes of the problem.
As a result, companies have been forced to rely upon anecdotal customer
complaints and limited 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 companies
objective information from around the world all the time to enable e-commerce
sites to measure, assure and improve e-commerce quality of service from the
perspective of their customers.
THE KEYNOTE SOLUTION
We are the largest 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. Key features of our solution
include:
INDEPENDENT THIRD PARTY. We do not sell web servers, web software,
networking equipment or web hosting services. Therefore, customers can be
assured that we do not have any incentive to report performance problems with
respect to particular types of equipment or service providers and that we
deliver unbiased Internet performance measurement and diagnostic services. Our
Internet performance indices of business and consumer web sites are regularly
published in leading publications such as BUSINESS WEEK, COMPUTERWORLD, SMART
MONEY, THE INDUSTRY STANDARD and USA TODAY. We believe that having our indices
appear in these national publications provides us with additional credibility as
an independent provider of performance measurement and diagnostic services.
COMPREHENSIVE GLOBAL MEASUREMENT INFRASTRUCTURE. Because performance
problems can occur at many different locations throughout the Internet, we have
deployed an extensive network of measurement computers and an operations center
for collecting and disseminating performance data. Our computers are deployed in
60 U.S. and 24 international locations and currently execute over 12 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.
SUBSCRIPTION SERVICE. Our customers purchase our Internet performance
measurement and diagnostic services on a subscription basis with an initial
three-month term. With only a web browser, customers can try, purchase and
immediately use our services 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.
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 software filters, sorts, summarizes
and presents the
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large 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 producing a detailed report on their e-commerce web-site
performance. Our customers often use these audits as formal, disinterested
performance reports to their own management and customers. To help our customers
to architect new web-site offerings, 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.
We will then seek to sell additional services to these entry-level customers,
such as our flagship Keynote PERSPECTIVE service. We also plan to continue to
promote, and seek to have published, our performance indices. We believe that if
these indices become well-publicized in the market, potential customers will be
more interested in measuring the performance of their web sites against these
indices and will therefore increase demand for our services. 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 intend to introduce new
features for our services so that our customers remain focused on their web
site's performance and our services in particular as their e-commerce web sites
grow. We currently offer daily performance reporting via email and intend to
offer additional reporting methods designed to keep our customers constantly
aware of their web site's performance. We also recently introduced bi-weekly
online training programs for our customers. We intend to develop and market
additional service components to add value to our customers' attempts to improve
the quality of service of their e-commerce web sites, similar to our recent
introduction of a service to measure the efficiency and success rates in
initiating and completing multi-page electronic transactions.
EXPAND OUR BRAND AWARENESS AS "THE INTERNET PERFORMANCE AUTHORITY-TM-". 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
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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 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 measurement computers
deployed internationally. We currently sell our services directly to
international customers, which include 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. To date, revenues from our international
customers have constituted less than 10% of our total revenues for each of our
fiscal years as well as the nine months ended June 30, 1999. 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 also intend to expand our service offerings by
measuring the speed with which a web site 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 selected by
the customer
- 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 is sold on a monthly subscription basis and Keynote
LIFELINE is sold only on an annual subscription basis.
We were founded in June 1995 and until we released our Keynote PERSPECTIVE
service in April 1997, we were engaged in market research and the design and
engineering of our services. We have introduced additional versions of this
service, most recently in April 1999, so that PERSPECTIVE now includes the
ability to measure web page download times, secure web page downloads and
multi-page transactions. In July 1999, we introduced our Keynote LIFELINE
service. Also, in January 1999, we formed our professional services
organization. In April 1997, we had deployed measurement computers in 18
locations, and the number of locations increased to 84 at June 30, 1999.
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KEYNOTE PERSPECTIVE AND KEYNOTE LIFELINE
The foundation of our services is a worldwide network of measurement
computers that run our proprietary measurement and data-collection software,
plus an operations center for storing and disseminating performance data. Our
measurement computers 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.
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
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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
competing sites selected by the customer and also against our performance
indices--the KEYNOTE BUSINESS 40 INDEX and the KEYNOTE WEB BROKER TRADING INDEX.
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 or Internet backbone provider. This data can also be
easily downloaded, archived and used in our customers' other applications.
CUSTOM MEASUREMENT COMPUTERS. For companies that implement extranets or
other private computer networks, we can deploy custom measurement computers to
measure the performance of these networks from specified locations and at
specified times. These measurement computers 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, as determined by the customer,
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.
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TECHNOLOGY AND ARCHITECTURE
We designed our Internet performance measurement infrastructure to allow us
to implement a flexible, scalable, inexpensive solution to e-commerce quality of
service problems. Our architecture consists of three key components: measurement
computers, our operations center and reporting and analysis tools.
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 "Measurement Computers." 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 measurement computers.
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)."]
MEASUREMENT COMPUTERS. Our measurement computers are Windows-based
computers that run our proprietary software to replicate the experience of a
user accessing web-sites through a standard web browser. We designed our
measurement-computer software to perform thousands of download measurements
concurrently without distorting or affecting the integrity of any single
measurement. The measurement computers are located at the facilities of 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.
These computers access a web-site to download web pages and execute
multi-page transactions, just like end users do, while taking measurements of
every component in the process. The computers 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 computers in
60 domestic and 24 international locations, with some locations having multiple
measurement computers in order to provide
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different types of measurements or to accommodate for higher measurement volume.
Our measurement computers currently execute more than 12 million performance
measurements each day. We intend to continue to expand the number of measurement
computers.
SCALABLE OPERATIONS CENTER. Our operations center is designed to be
scalable to support large numbers of measurement computers and to store, analyze
and manage large amounts of data from these computers. Our measurement computers
receive instructions from, 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 efficient in storing and
delivering measurement data with sub-second response times that are independent
of increases in capacity. We also employ many proprietary, high-performance
application server computers 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 web site 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 to
our operations center with a 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 our measurement data in their own software to
create custom data-analysis applications.
We have occasionally experienced outages of our service in the past caused
by a variety of factors, including operator error, the failure of a back-up
computer to operate when the primary computer ceased functioning and power
outages due to our previous facilities being inadequately equipped to house our
operations center. We have addressed this problem by moving to a new facility
which is designed to more easily support a larger number of computers. We also
have meetings subsequent to each outage to identify the cause of the outage to
ensure that the same problem does not occur in the future; other than power
outages in our previous facilities, we have not experienced multiple outages
caused by the same problem.
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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.
These are current customers of the Keynote PERSPECTIVE service and were selected
because we believe they provide representative examples of how 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. Akamai
accounted for approximately 2% of our revenues for the nine months ended June
30, 1999.
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 sites 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. Cisco accounted for less
than 1% of our revenues for the nine months ended June 30, 1999.
FLYCAST COMMUNICATIONS CORPORATION. Flycast is a leading provider of
response-oriented online advertising. 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 regularly reviews Keynote data to
ensure that Flycast achieves its goal of being the performance leader in its
industry. Flycast accounted for approximately 1% of our revenues for the nine
months ended June 30, 1999.
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. Microsoft accounted for approximately 9% of our revenues for the
nine months ended June 30, 1999.
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 computers 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 it
delivers an online banking service with performance equal or superior to the
competition. Wells Fargo accounted for less than 1% of our revenues for the nine
months ended June 30, 1999.
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SALES, MARKETING AND CUSTOMER SUPPORT
SALES
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 needs of our customers, to devote significant attention to
customer satisfaction and to quickly offer new services to our existing
customers. 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 the web-hosting and Internet service
providers Digex and Frontier GlobalCenter, which manage e-commerce web sites for
other companies. 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 VeriSign and Network
Solutions, which are companies that sell services complementary to ours.
MARKETING
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 rates 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 with a
Free Performance Appraisal. This no-charge trial 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.
CUSTOMER SUPPORT
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 high 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.
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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 nine months ended June 30,
1999 were $1.3 million, 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 we continually
improve our services, particularly in response to competing offerings. We must
also 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. In addition, other technological changes could render our existing
services obsolete or require us to make 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. These free
services are not as comprehensive as ours because they only measure simple
download time, not the speed of transactions, and they only take measurements
from one location.
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;
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- 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.
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 on developing and
protecting our intellectual property assets.
OUR INTELLECTUAL PROPERTY ASSETS
Our principal intellectual property assets consist of our trademarks, our
patent applications and the software we developed to provide our services.
Trademarks are important to our business because they represent our brand name
and we use them in our marketing and promotional activities as well as with
delivering our services. Our trademarks include our registered trademark
Keynote-Registered Trademark-. This trademark has not been registered as a
trademark outside of the United States. We have other trademarks which have not
been registered with the U.S. Patent and Trademark Office. These include
PERSPECTIVE,-TM- LIFELINE-TM-, THE INTERNET PERFORMANCE AUTHORITY-TM- and
ACCUSTAT-TM-.
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. The two U.S.
patent applications relate to our technology that measures the speed of Internet
transactions. 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.
Our proprietary software consists of the software we developed to store and
deliver our measurement data to customers. We also have developed software that
we use to process customer orders and billings.
HOW WE PROTECT OUR INTELLECTUAL PROPERTY
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.
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
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States.
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 and our measurement
data. In addition, we seek to avoid
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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.
IT IS POSSIBLE THAT WE COULD BECOME SUBJECT TO LITIGATION
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 to obtain a license on commercially reasonable
terms, if at all.
WE LICENSE TECHNOLOGY USED IN PROVIDING OUR SERVICES
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-- The success of our
business depends on our ability to protect and enforce our intellectual property
rights" and "--Others may bring infringement claims against us or our suppliers
that could harm our business."
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 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 August 15, 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 Public Services and Director
Roger Higgins.................. 56 Vice President of Worldwide Sales
Donald Aoki.................... 42 Vice President of Engineering
Lloyd Taylor................... 41 Vice President of Operations
James Salazar.................. 39 Vice President of Professional Services
John Flavio.................... 51 Vice President of Finance and Chief Financial Officer
Marlene Williamson............. 44 Vice President of Marketing
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 1980 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 1980, he held various sales and marketing positions at IBM. Mr. Gupta
holds a B.S. degree in chemical engineering from the Indian Institute of
Technology, Kanpur, India, and an M.B.A. degree from Kent State University.
EUGENE SHKLAR has served as our vice president of public services since
August 1999 and as one of our directors since September 1997. From August 1996
to August 1999, Mr. Shklar served as our vice president of marketing. 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,
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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.
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.
JAMES SALAZAR has served as our vice president of professional services
since March 1999. From October 1994 to March 1999, he served as president of the
San Mateo Division of Cohesive Technology Solutions, a network consulting
company recently acquired by Exodus Communications. Before this, Mr. Salazar
spent two years at Tandem Computers Inc. managing network support activities. He
began his career at Ungermann-Bass, Inc. in the consulting support organization.
Mr. Salazar holds a B.S. degree in business administration and an M.B.A. degree,
each from San Jose State University.
JOHN FLAVIO has served as our vice president of finance and chief financial
officer since 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 was recently acquired by Lucent
Technologies. Prior to joining Mosaix, Mr. Flavio worked for a number of
high-technology companies, including 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.
MARLENE WILLIAMSON has served as our vice president of marketing since
August 1999. From August 1997 to May 1999, she served as director of
communications for IBM, a personal computer manufacturer. From October 1994 to
August 1997, she served as vice president of marketing for Acer Inc., a personal
computer manufacturer. From 1987 to 1994, she held a variety of positions at
Apple Computer, Inc., most recently as manager of worldwide consumer marketing.
Prior to this, Ms. Williamson was the director of marketing communications and
sales promotions at Zenith Data Systems, a manufacturer of personal computers,
from 1984 to 1987. Ms. Williamson holds a B.S.J. degree in journalism from Ohio
University and an M.B.A. degree from DePaul University.
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.
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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. Mr. Cowan was appointed to our board under
the provisions of a stock purchase agreement among us, Bessemer Venture Partners
and investors in our Series C preferred stock. Mr. Sclavos was appointed to our
board under the terms of a stock purchase agreement among us, VeriSign and
investors in our Series D preferred stock. These provisions will terminate after
this offering.
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 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. Mr. Shklar will
be the Class I director, Messrs. Cowan and Sclavos will be the Class II
directors and Messrs. Gupta and Leslie will be the Class III directors. 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.
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<PAGE>
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
CASH COMPENSATION. Our directors do not receive cash compensation for their
services as directors, but are reimbursed for their reasonable expenses in
attending board and board committee meetings.
OPTION GRANTS. 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 50,000 shares of common stock under our 1999 Equity Incentive Plan, at
an exercise price to be equal to the fair market value of our common stock on
the date of grant, unless that director has previously received an option grant
before the effective date. 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 vest over three years.
One-third of the shares subject to these options will become exercisable on the
earlier of one year following the director's appointment to our board of
directors or the first annual meeting of our stockholders following the grant of
the option. The remaining shares subject to this option will vest ratably over
the two years from the date on which shares first become exercisable.
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 -- 1,750,000
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 public services, is currently compensated at an
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<PAGE>
annual salary of $125,000. Mr. Finlay was serving as our chief financial officer
as of September 30, 1998. Mr. Flavio is compensated at an annual salary of
$170,000 as our vice president of finance and chief financial officer.
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 2,346,400
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.................... 1,750,000 74.6% $ 0.20 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 $11.00 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
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<PAGE>
of grant and as to 2.083% of the shares each succeeding month. Mr. Gupta's
shares are no longer subject to 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
UNDERLYING UNEXERCISED VALUE OF 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................................. 1,797,989 $ 71,920 -- -- $ -- $ --
Roger Higgins............................... -- -- -- -- -- --
Donald Aoki................................. -- -- 5,000 15,000 54,750 164,250
Douglas Finlay.............................. -- -- 10,000 10,000 109,500 109,500
Eugene Shklar............................... -- -- 25,000 20,000 273,750 219,000
</TABLE>
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN
As of June 30, 1999, options to purchase 361,529 shares of common stock were
outstanding under the 1996 Stock Option Plan and 43,994 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 705,908 shares of common stock were
outstanding under the 1999 Stock Option Plan and 366,385 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.
SHARES RESERVED UNDER THE PLAN. 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
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<PAGE>
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.
In addition, on January 1, 2000 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.
TERM OF THE PLAN. 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.
If we are dissolved, liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee, the vesting of these
awards may accelerate upon one of these transactions.
ADMINISTRATION OF THE PLAN. 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.
TYPES OF AWARDS UNDER 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.
Our nonemployee directors are entitled to receive automatic annual grants of
fully vested options to purchase 50,000 shares of our common stock, as described
under "Management--Director Compensation."
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, other than nonqualified stock options, granted under the plan may
not be transferred in any manner other than by will or by the laws of descent
and distribution. The plan allows exceptions to this restriction with respect to
awards that are nonqualified stock options. They may be exercised during the
lifetime of the optionee only by the optionee. The compensation committee could
provide for differing
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provisions in individual award agreements, but only with respect to awards that
are not incentive stock options. Options granted under the plan generally may be
exercised for a period of time after the termination of the optionee's service
to us or a parent or subsidiary of us. Options will generally terminate three
months after the termination of employment or twelve months if the termination
is due to death or disability.
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.
1999 EMPLOYEE STOCK PURCHASE PLAN
The board intends to adopt the 1999 Employee Stock Purchase Plan prior to
the completion of this offering. 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.
SHARES RESERVED UNDER THE PLAN. 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.
ADMINISTRATION OF THE PLAN. The plan will be administered by our
compensation committee. Our compensation committee will have the authority to
construe and interpret the plan, and its decisions will be final and binding.
ELIGIBILITY TO PARTICIPATE. Employees generally will be eligible to
participate in the plan if they are employed 10 days before the beginning of the
applicable offering period and they are customarily employed by us, or our
parent or any subsidiaries that we designate, for more than 20 hours per week
and more than five months in a calendar year and are not, and would not become
as a result of being granted an option under the plan, 5% stockholders of us or
our designated parent or subsidiaries. Participation in the plan will end
automatically upon termination of employment for any reason.
HOW PURCHASES ARE MADE. 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.
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. 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.
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<PAGE>
TERM OF THE PLAN. 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. The plan will terminate 10 years from the date the plan was
adopted by our board, unless it is terminated earlier under the terms of the
plan. The board 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.
AMENDMENTS TO THE PLAN. Except for the automatic annual increase of shares
described above, stockholder approval is required to increase the number of
shares that may be issued or to change the terms of eligibility under the plan.
The board may make amendments to the plan as it determines to be advisable if
the financial accounting treatment for the plan is different from the financial
accounting treatment in effect on the date the plan was adopted by the board.
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.
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
1,750,000 shares of common stock at an exercise price of $0.20 per share. This
option was immediately exercisable, subject to our right to repurchase the
shares of common stock upon termination of his employment. Mr. Gupta exercised
this option in April 1998. Our right of repurchase has now lapsed as to all of
these shares.
WARRANT. Under this agreement, Mr. Gupta was granted a warrant to purchase
265,000 shares of common stock at a purchase price of $1.30 per share. This
warrant will expire upon the earlier of the closing of this offering or December
9, 2000.
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 earlier of December 31, 2001 or the date on
which a successor chief executive officer commences employment with us.
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<PAGE>
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.
We are not 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.
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<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 3,039,222 shares of Series A
preferred stock at a purchase price of $0.42 per share. In July 1997, Eugene
Shklar purchased 74,937 shares of Series A preferred stock from a purchaser of
the Series A preferred stock at a purchase price of $1.10 per share. In July
1997, we sold a total of 2,333,420 shares of Series B preferred stock at a
purchase price of $1.10 per share. In March 1998, we sold a total of 3,848,986
shares of Series C preferred stock at a purchase price of $1.30 per share. In
April and May 1999, we sold a total of 3,367,272 shares of Series D preferred
stock at a purchase price of $4.42 per share and a total of 438,480 shares of
common stock at a purchase price of $4.42 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 AGGREGATE
PREFERRED PREFERRED PREFERRED PREFERRED COMMON CONSIDERATION
STOCKHOLDER STOCK STOCK STOCK STOCK STOCK PAID
- -------------------------------------- --------- --------- ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
VeriSign, Inc......................... -- -- -- 1,263,200 438,480 $ 7,521,427.81
GE Capital Equity Investments, Inc.... -- -- -- 1,583,710 -- 7,000,000.41
Entities associated with Bessemer
Venture Partners, L.P............... -- -- 2,446,153 226,244 -- 4,000,000.94
Entities and individuals associated
with Applewood Associates, L.P...... 595,238 715,532 407,692 -- -- 1,537,085.86
Umang Gupta........................... -- 90,909 -- -- -- 100,000.45
Eugene Shklar......................... 74,937 565,773 611,538 113,122 -- 1,948,823.24
</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 81,092 shares of common stock at a purchase
price of $0.05 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 12,816 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 70,000 shares of
common stock at a purchase price of $0.05 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 265,000
shares of common stock at a purchase price of $1.30 per share. This warrant will
expire December 31, 2001.
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<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 AND DIRECTORS
UMANG GUPTA. In September and December 1997, we granted to Umang Gupta
options to purchase a total of 1,797,989 shares of common stock at an exercise
price of $0.20 per share. Mr. Gupta exercised these options in April 1998.
EUGENE SHKLAR. In August 1996 and June 1997, we granted to Eugene Shklar
options to purchase a total of 431,100 shares of common stock at an exercise
price of $0.05 per share. In July 1997, 25,000 of these 431,100 shares were
canceled. In July 1997, we granted Mr. Shklar an option to purchase a total of
45,000 shares of common stock at an exercise price of $0.20 per share. In
February 1999, a total of 2,500 of these 45,000 shares were canceled. Mr. Shklar
exercised his options as to the remaining 448,600 shares in September 1996, June
1997 and January 1999.
ROGER HIGGINS. In February and June 1997, we granted to Roger Higgins
options to purchase a total of 207,859 shares of common stock at an exercise
price of $0.05 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 193,513 shares of common stock at an exercise price of $0.05
per share. Mr. Aoki exercised these options in June 1997 and December 1998. In
June 1999, we granted Mr. Aoki options to purchase 50,000 shares of common stock
at an exercise price of $8.00 per share.
LLOYD TAYLOR. In January 1999, we granted to Lloyd Taylor an option to
purchase 150,000 shares of common stock at an exercise price of $0.50 per share.
Mr. Taylor immediately exercised this option. In June 1999, Mr. Taylor was
granted an option to purchase 50,000 shares of common stock at an exercise price
of $8.00 per share.
JAMES SALAZAR. In March 1999, we granted James Salazar an option to
purchase 112,500 shares of common stock at an exercise price of $1.60 per share.
JOHN FLAVIO. In June 1999, we granted John Flavio an option to purchase
205,000 shares of common stock at an exercise price of $8.00 per share.
MARLENE WILLIAMSON. In August 1999, we granted Marlene Williamson an option
to purchase 150,000 shares of common stock at an exercise price of $9.00 per
share.
MARK LESLIE. In June 1999, we granted Mark Leslie an option to purchase
50,000 shares of common stock at an exercise price of $8.00 per share. Mr.
Leslie exercised this option with respect to 30,000 shares in June 1999.
61
<PAGE>
MEMORANDUM OF UNDERSTANDING WITH VERISIGN, INC.
In February 1999, we entered into a memorandum of understanding with
VeriSign, Inc. Mr. Stratton Sclavos, a member of our board of directors, is the
chief executive officer and a director of VeriSign. Under the agreement, Keynote
granted VeriSign a non-exclusive license to sell two different customized
versions of Keynote PERSPECTIVE and a one-year subscription to Keynote LIFELINE
to VeriSign's customers as an integrated part of VeriSign's product offerings.
In order to implement the product offerings subject to the agreement, Keynote
agreed to construct a network of 50 measurement computers in 25 domestic and
international cities. To help cover the costs of Keynote's initial expenditures,
VeriSign made a $250,000 advance available to Keynote prior to the commencement
of the joint marketing and distribution program. VeriSign also agreed to promote
Keynote's services as part of its regular communications with customers, such as
quarterly newsletters, and through a VeriSign web site that focuses on
security-related issues.
The customized versions of PERSPECTIVE that VeriSign may sell under the
agreement are each one month in duration and offer measurements from either:
- 10 different cities of the customer's choice, including up to two
international locations, or
- 25 different cities of the customer's choice, including up to four
international locations.
The agreement provides that if VeriSign is generating at least 500
introductory PERSPECTIVE sales per month within six months from the beginning of
the program, then VeriSign will make available to Keynote an additional $250,000
advance. If the program is not generating 500 of these sales per month within
six months from the beginning of the program, then Keynote may reduce the number
of measurement computers deployed under the agreement. If the program is not
generating 100 introductory PERSPECTIVE sales per month within six months from
the beginning of the program, then either Keynote or VeriSign may terminate the
agreement by providing 60 days' advance written notice to the other party, with
VeriSign entitled to recover the balance of the money it advanced to Keynote
ratably over the remainder of the term of the agreement.
The memorandum of understanding provides that VeriSign is entitled to offer
the 10-city and 25-city versions of the introductory PERSPECTIVE service as an
integrated part of its product offerings. All of the fees that VeriSign pays to
Keynote for the subscriptions VeriSign sells to its customers are deducted from
the funds that it advanced to Keynote until such advance is repaid, with a
maximum of $10,417 in fees per month to be deducted from the advance. Any fees
per month in excess of $10,417 are retained by Keynote. In the event that
Keynote converts the introductory PERSPECTIVE customer into a paying PERSPECTIVE
customer during the life of the VeriSign-bundled introductory PERSPECTIVE
subscription or within 30 days after this period, Keynote will pay VeriSign a
one-time conversion bounty.
VeriSign also has the right to sell a one-year subscription to LIFELINE,
with VeriSign receiving a discount to this service. This discount may change
based upon the amount of revenues per month VeriSign is paying to Keynote after
the agreement has been in effect for six months. If Keynote converts the
LIFELINE customer into a paying PERSPECTIVE customer during the life of the
VeriSign-bundled LIFELINE subscription or within 30 days after this period,
Keynote will pay VeriSign a one-time conversion bounty. In addition, if a
program generates leads for PERSPECTIVE, Keynote will pay VeriSign for each lead
which turns into a paying customer within 90 days of receipt of the lead.
The agreement provides that if Keynote makes available a similar service
with better terms to any customer, Keynote will provide VeriSign with the same
superior terms for the remainder of the term of the agreement. Keynote also
agreed not to enter into a similar agreement involving the bundling of its
services with certain competitors of VeriSign.
The initial term of the memorandum of understanding is two years, unless the
parties enter into a formal marketing and services agreement prior to that time
which supersedes the agreement. The agreement will continue for a series of
one-year extensions subsequent to the initial two-year term unless either party
provides written notice to the other of its intent not to renew the agreement.
Keynote believes that the terms of the memorandum of understanding, taken as
a whole, were no less favorable to Keynote than Keynote could have obtained from
unaffiliated third parties.
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<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
18,648,667 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.................................. 2,821,381 15.1% 12.4%
Entities associated with Bessemer
Venture Partners, L.P. (2)
535 Middlefield Road
Menlo Park, California 94025................................ 2,672,397 14.3 11.8
VeriSign, Inc.
1350 Charleston Road
Mountain View, California 94043............................. 1,701,680 9.1 7.5
GE Capital Equity Investments, Inc. (3)
120 Long Ridge Road
Stamford, Connecticut 06927................................. 1,583,710 8.5 7.0
Umang Gupta (4)............................................... 2,667,231 14.1 11.6
Eugene Shklar (5)............................................. 2,023,139 10.8 8.9
Douglas Finlay (6)............................................ 343,181 1.8 1.5
Roger Higgins (7)............................................. 332,859 1.8 1.5
Donald Aoki (8)............................................... 318,513 1.7 1.4
David Cowan (9)............................................... 2,672,397 14.3 11.8
Mark Leslie (10).............................................. 50,000 0.3 0.2
Stratton Sclavos (11)......................................... 1,701,680 9.1 7.5
All 11 directors and executive officers as a group (12)....... 10,259,000 52.7 44.8
</TABLE>
- ------------------------
(1) Includes 150,000 shares held by Brookwood Partners, L.P., 349,601 shares
held by Woodland Partners, L.P., 499,601 shares held by Irwin Lieber and
22,624 shares held by Barry Fingerhut. Includes 81,092 shares issuable upon
exercise of warrants held by some of the entities and individuals
exercisable within 60 days of June 30, 1999.
63
<PAGE>
(2) Includes 995,048 shares held by Bessec Ventures IV L.P. and 244,615 shares
held by Bessemer Venture Investors IV L.P.
(3) GE Capital Equity Investments, Inc., a wholly-owned subsidiary of General
Electric Capital Corporation, shares beneficial ownership with General
Electrical Capital Corporation with respect to all of the shares held of
record by GE Capital Equity Investments, Inc.
(4) Includes 80,000 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 265,000
shares issuable upon exercise of a warrant exercisable within 60 days of
June 30, 1999.
(5) Of the shares held by Mr. Shklar, 143,891 remained subject to our right of
repurchase as of June 30, 1999.
(6) Of the shares held by Mr. Finlay, 82,256 remained subject to our right of
repurchase as of June 30, 1999.
(7) Includes 125,000 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, 82,821 remained subject to our right of
repurchase as of June 30, 1999.
(8) Of the shares held by Mr. Aoki, 90,529 remained subject to our right of
repurchase as of June 30, 1999.
(9) Represents 995,048 shares held by Bessec Ventures IV L.P., 244,615 shares
held by Bessemer Venture Investors IV L.P. and 1,432,734 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.
(10) Includes 20,000 shares issuable upon exercise of an immediately exercisable
option, none of which are subject to our right of repurchase.
(11) Represents 1,701,680 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.
(12) Includes 549,497 shares subject to our right of repurchase as of June 30,
1999; 265,000 shares issuable upon exercise of a warrant exercisable within
sixty days of June 30, 1999; and 20,000 shares issuable upon exercise of an
immediately exercisable option, none of which are subject to our right of
repurchase.
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<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
18,648,667 shares of common stock held of record by approximately 108
stockholders, options to purchase 1,067,437 shares of common stock and warrants
to purchase 643,478 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 note 7
to our financial statements for a description of this preferred stock.
We are authorized to issue preferred stock in one or more series. We can
also establish the number of shares to be included in each series, to fix the
rights, preferences and privileges of the shares of each 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; or
- 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.
65
<PAGE>
WARRANTS
As of June 30, 1999, we had outstanding the following warrants to purchase
our common stock:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES SUBJECT EXERCISE PRICE
TO WARRANTS PER SHARE EXPIRATION DATE
- --------------- --------------- --------------------------------------------------
<C> <C> <S>
106,346 $ 0.05 January 21, 2002
36,363 1.10 December 31, 2002
36,363 1.10 June 30, 2003
265,000 1.30 December 31, 2001
35,876 1.30 June 30, 2004
16,307 1.30 3 years after this offering
147,221 1.80 3 years after this offering
</TABLE>
REGISTRATION RIGHTS
The holders of approximately 13,027,378 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. They also have the right
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 have the right to demand
that we file a registration statement. The aggregate amount of securities to be
sold under the registration statement must exceed $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 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 that
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.
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." A business combination includes a merger or sale of more than 10%
of the corporation's assets with any "interested stockholder." An interested
stockholder is a stockholder who owns 15% or more of a corporation's outstanding
voting stock, as well as affiliates and associates. Under this section, for
three years following the date that the stockholder became an "interested
stockholder," an interested stockholder cannot enter into a business combination
with the corporation unless:
- the transaction is approved by the board prior to the date the "interested
stockholder" attained that status; or
- 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. However, we have not
done so. 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 provides 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
67
<PAGE>
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.
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 American Stock
Transfer and Trust Company. The address of our transfer agent and registrar is
1825 Lawrence Street, Suite 444, Denver, Colorado, and its telephone number at
this location is (303) 298-5370.
LISTING
We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading symbol "KEYN."
68
<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 24,359,582 shares
of common stock, assuming the cash exercise of outstanding warrants to purchase
643,478 shares of common stock and the exercise of options to purchase 1,067,437
shares of common stock, as of June 30, 1999, and assuming no exercise of the
underwriters' over-allotment option. Of these shares, the 4,000,000 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
ADDITIONAL 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 15,910,352 Underwriter's lock-up released. These shares may be
prospectus sold under Rule 144, 144(k) or 701
April 26, 2000 3,403,791 Restricted securities held for at least one year may
be sold under Rule 144
April 30, 2000 322,413 Restricted securities held for at least one year may
be sold under Rule 144
May 11, 2000 79,548 Restricted securities held for at least one year may
be sold under Rule 144
One year after the date of this 643,478 Restricted securities held for at least one year may
prospectus 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 243,596 shares immediately after this offering; or
69
<PAGE>
- 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.
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 13,027,378 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 1,067,437 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 1,067,437
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 643,478 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 537,132 shares of common stock contain
70
<PAGE>
"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.
71
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc. ("Robertson Stephens"), 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................................................................... 4,000,000
----------------
----------------
</TABLE>
Generally, we have agreed to indemnify each underwriter against liability
arising out of any untrue statement contained in the registration statement, any
preliminary prospectus or the final prospectus, or the omission of a material
fact required to be stated in the registration statement or such prospectus
necessary to make the statements in the registration statement or such
prospectus not misleading. In addition, we have agreed to indemnify each
underwriter against liability arising out of violations of laws or regulations
of foreign jurisdictions where reserved shares have been offered. The
underwriters have agreed to indemnify us against liability with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the registration statement, any preliminary prospectus or the final
prospectus in reliance upon and in conformity with written information furnished
to us by that underwriter through Robertson Stephens expressly for use in the
registration statement, such preliminary prospectus or the prospectus. For more
detailed information on the terms of indemnification contained in the
underwriting agreement, please see Exhibit 1.01 to the registration statement.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of various legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
this offer and to reject orders in whole or in part.
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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 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 4,000,000 shares in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the 4,000,000 shares are being sold.
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,
72
<PAGE>
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 will be determined through
negotiations among us and the representatives of the underwriters. The primary
considerations in determining the offering price are expected to be 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.
COMMISSIONS AND DISCOUNTS. The representatives of the underwriters have
advised us that the underwriters propose initially to offer the shares of common
stock to the public at the initial public offering price set forth on the cover
page of this prospectus, and to certain dealers at that price less a concession
not in excess of $ per share of common stock. The underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share of common stock to certain other dealers. After the initial public
offering, the public offering price, concession and discount may change.
73
<PAGE>
The following table shows the per share and total underwriting discount to
be paid by us to the underwriters and the proceeds before expenses to us. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- --------- ---------
<S> <C> <C> <C>
Public offering price............................................................... $ $ $
Underwriting discount............................................................... $ $ $
Proceeds, before expenses, to Keynote............................................... $ $ $
</TABLE>
The underwriting fee will be an amount equal to the offering price per share
to the public of the common stock, less the amount paid by the underwriters to
Keynote per share of common stock. The underwriting fee is currently expected to
be approximately 7% of the initial public offering price. The expenses of the
offering, exclusive of the underwriting discount, are estimated at $750,000 and
are payable entirely by us.
RESERVED SHARES. At our request, the underwriters have reserved for sale,
at the initial public offering price, up to nine percent of the shares offered
hereby to be sold to people associated with us or our directors, officers or
employees, such as vendors, suppliers, existing stockholders and other persons
that have relationships with or are interested in us. No shares have been
reserved for our directors or officers. Indications of interest will be sought
by means of a written solicitation, which conforms to Rule 134, accompanied by a
copy of this prospectus. The number of shares of our common stock available for
sale to the general public will be reduced to the extent that those persons
purchase the reserved shares. Any reserved shares which are not confirmed for
purchase will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
74
<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 63,461 shares of our common stock.
EXPERTS
The financial statements of Keynote as of September 30, 1997 and 1998 and
June 30, 1999, and for each of the years in the three-year period ended
September 30, 1998 and for the nine months ended June 30, 1999, have been
included in this prospectus 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 and 1996 audits 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.
75
<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 June 30, 1999........................................ F-3
Statements of Operations for the years ended September 30, 1996, 1997 and 1998, and for the nine months
ended June 30, 1998 (unaudited) and June 30, 1999........................................................ F-4
Statements of Stockholders' Equity (Deficit) for the years ended September 30, 1996, 1997 and 1998, and for
the nine months ended June 30, 1999...................................................................... F-5
Statements of Cash Flows for the years ended September 30, 1996, 1997 and 1998, and for the nine months
ended June 30, 1998 (unaudited) and June 30, 1999........................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
When the events referred to in note 12(c) 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 June 30, 1999, 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 and the
nine-month period ended June 30, 1999. 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 June 30, 1999, and the results of its
operations and its cash flows for each of the years in the three-year period
ended September 30, 1998 and the nine-month period ended June 30, 1999, in
conformity with generally accepted accounting principles.
Mountain View, California
August 6, 1999 except as to Note 12(c),
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, JUNE 30, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,150 $ 2,293 $ 17,152 $ 17,152
Accounts receivable, less allowance for doubtful
accounts of $10, $22, and $76, as of September 30,
1997 and 1998 and June 30, 1999..................... 55 454 1,691 1,691
Prepaids and other current assets.................... 32 55 816 816
--------- --------- --------- -----------
Total current assets............................... 1,237 2,802 19,659 19,659
Property and equipment, net............................ 431 1,105 2,709 2,709
Loans to related parties............................... -- -- 450 450
Other assets........................................... 2 11 44 44
--------- --------- --------- -----------
$ 1,670 $ 3,918 $ 22,862 $ 22,862
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable..................... $ 83 $ 194 $ 1,097 $ 1,097
Current portion of capital lease obligation.......... -- -- 131 131
Accounts payable and accrued expenses................ 79 206 798 798
Deferred revenue..................................... 69 238 935 935
--------- --------- --------- -----------
Total current liabilities.......................... 231 638 2,961 2,961
Notes payable, less current portion.................... 199 303 2,853 2,853
Capital lease obligation, less current portion......... -- -- 287 287
--------- --------- --------- -----------
Total liabilities.................................. 430 941 6,101 6,101
--------- --------- --------- -----------
Commitments
Redeemable convertible preferred stock, $0.001 par
value; actual--21,781,478, 39,781,478 and 50,000,000
shares authorized as of September 30, 1997 and 1998,
and June 30, 1999, respectively; 10,745,285,
18,443,251, and 24,742,068 shares issued and
outstanding as September 30, 1997 and 1998, and June
30, 1999 respectively; aggregate liquidation
preference of $3,843, $8,564 and $23,447 as of
September 30, 1997 and 1998, and June 30, 1999,
respectively; pro forma-- 50,000,000 shares
authorized; no shares issued and outstanding......... 3,828 8,529 23,381 --
Stockholders' equity (deficit):
Common stock, $0.001 par value; 50,000,000 shares
authorized; actual--3,595,498, 4,927,301 and
6,059,769 shares issued and outstanding as of
September 30, 1997 and 1998, and June 30, 1999,
respectively; pro forma--50,000,000 shares
authorized; 18,430,803 shares issued and
outstanding......................................... 4 5 6 19
Additional paid-in capital........................... 102 347 3,920 27,288
Deferred stock-based compensation.................... -- -- (906) (906)
Stockholder notes receivable......................... (34) (326) (403) (403)
Accumulated deficit.................................. (2,660) (5,578) (9,237) (9,237)
--------- --------- --------- -----------
Total stockholders' equity (deficit)............. (2,588) (5,552) (6,620) 16,761
--------- --------- --------- -----------
$ 1,670 $ 3,918 $ 22,862 $ 22,862
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
KEYNOTE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription services..................................... $ -- $ 81 $ 1,539 $ 948 $ 4,026
Consulting services....................................... 30 -- -- -- 83
--------- --------- --------- ----------- ---------
Total revenues.......................................... 30 81 1,539 948 4,109
--------- --------- --------- ----------- ---------
Expenses:
Cost of subscription services............................. -- 209 580 330 975
Cost of consulting services............................... -- -- -- -- 254
Research and development.................................. 392 732 1,226 838 1,297
Sales and marketing....................................... 186 817 1,529 931 2,989
Operations................................................ -- 63 514 292 1,024
General and administrative................................ 80 278 647 459 1,083
--------- --------- --------- ----------- ---------
Total expenses.......................................... 658 2,099 4,496 2,850 7,622
--------- --------- --------- ----------- ---------
Loss from operations.................................... (628) (2,018) (2,957) (1,902) (3,513)
Interest income (expense), net.............................. 6 (31) 39 24 (146)
--------- --------- --------- ----------- ---------
Net loss................................................ $ (622) $ (2,049) $ (2,918) $ (1,878) $ (3,659)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Basic and diluted net loss per share........................ $ (0.23) $ (0.84) $ (1.10) $ (0.72) $ (0.91)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Shares used in computing basic and diluted net loss per
share..................................................... 2,733 2,434 2,661 2,594 4,032
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</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........................ 1,929,048 $ 2 $ 21 $ -- $ -- $ 11 $ 34
Issuance of common stock
pursuant to exercise of
stock options for cash and
notes and purchase of
restricted shares with
notes....................... 1,440,952 1 69 -- (16) -- 54
Repurchase of common stock.... (666,667) -- (33) -- -- -- (33)
Net loss...................... -- -- -- -- -- (622) (622)
---------- ------- ---------- ------ ----- ----------- -------
Balances as of September 30,
1996........................ 2,703,333 3 57 -- (16) (611) (567)
Issuance of common stock
pursuant to exercise of
stock options for cash and
notes and purchase of
restricted shares with
notes....................... 902,165 1 46 -- (32) -- 15
Repurchase of common stock.... (10,000) -- (1) -- -- -- (1)
Repayment of stockholder note
receivable.................. -- -- -- -- 14 -- 14
Net loss...................... -- -- -- -- -- (2,049) (2,049)
---------- ------- ---------- ------ ----- ----------- -------
Balances as of September 30,
1997........................ 3,595,498 4 102 -- (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....................... 1,845,116 2 365 -- (294) -- 73
Repurchase of common stock.... (513,313) (1) (120) -- -- -- (121)
Repayment of stockholder note
receivable.................. -- -- -- -- 2 -- 2
Net loss...................... -- -- -- -- -- (2,918) (2,918)
---------- ------- ---------- ------ ----- ----------- -------
Balances as of September 30,
1998........................ 4,927,301 5 347 -- (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....................... 1,153,249 1 2,434 -- (79) -- 2,356
Deferred compensation related
to stock option grants...... -- -- 1,059 (1,059) -- -- --
Amortization of stock-based
compensation................ -- -- -- 153 -- -- 153
Compensation related to
performance based stock
options..................... -- -- 81 -- -- -- 81
Repurchase of common stock.... (20,781) -- (1) -- -- -- (1)
Repayment of shareholder
note........................ -- -- -- -- 2 -- 2
Net loss...................... -- -- -- -- -- (3,659) (3,659)
---------- ------- ---------- ------ ----- ----------- -------
Balances as of June 30,
1999........................ 6,059,769 $ 6 $3,920 $(906) $(403) $(9,237) $(6,620)
---------- ------- ---------- ------ ----- ----------- -------
---------- ------- ---------- ------ ----- ----------- -------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
KEYNOTE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (622) $ (2,049) $ (2,918) $ (1,878) $ (3,659)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization................. 27 133 336 210 523
Amortization of discount on notes............. -- 2 10 6 35
Amortization of stock-based compensation...... -- -- -- -- 153
Compensation related to performance based
stock options................................ -- -- -- -- 81
Changes in operating assets and liabilities:
Accounts receivable......................... 14 (55) (399) (217) (1,237)
Prepaids and other assets................... (23) (9) (32) (25) (1,244)
Accounts payable and accrued expenses....... 13 61 128 53 592
Deferred revenue............................ -- 69 169 18 696
--------- --------- --------- --------- ---------
Net cash used for operating activities.... (591) (1,848) (2,706) (1,833) (4,060)
--------- --------- --------- --------- ---------
Cash flows used for investing activities--
Purchases of property and equipment............. (157) (423) (1,011) (718) (1,708)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Repayments of notes payable................... -- (38) (134) (95) (227)
Proceeds from issuance of notes payable....... -- 320 338 346 3,646
Issuance of warrants to purchase preferred
stock in connection with notes............... -- 16 41 33 50
Net proceeds from issuance of preferred
stock........................................ 1,262 1,650 4,661 4,661 14,801
Proceeds from bridge financing................ -- 900 -- -- --
Proceeds from issuance of common stock........ 54 15 73 71 2,356
Repurchase of common stock.................... (33) (1) (121) (120) (1)
Repayments of stockholder notes............... -- 14 2 -- 2
--------- --------- --------- --------- ---------
Net cash provided by financing activities... 1,283 2,876 4,860 4,896 20,627
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents......... 535 605 1,143 2,345 14,859
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 $ 3,495 $ 17,152
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Noncash financing activities:
Conversion of bridge financing to preferred
stock........................................ $ -- $ 900 $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Issuance of common stock for stockholder notes
receivable................................... $ 16 $ 32 $ 294 $ 294 $ 79
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred compensation related to stock option
grants....................................... $ -- $ -- $ -- $ -- $ 1,059
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Purchase of property and equipment through
capital leases............................... $ -- $ -- $ -- $ -- $ 418
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 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 revenue consists of fees from subscriptions to the
Company's Internet measurement and diagnostic services. Subscription revenues
are deferred upon the customer's invoicing and are recognized ratably over the
service period, generally ranging from one to twelve months. Deferred revenue is
comprised entirely of deferred subscription revenue. Revenue from consulting
services 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 connection 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 June 30, 1999.
F-7
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 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 June 30, 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.
Equipment under capital leases is amortized over the shorter of the useful life
of the equipment or the lease term. 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 period
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 JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 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 service offerings have
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 and equity securities as
available-for-sale. Available-for-sale securities are carried at fair market
value, which approximates amortized cost. As of September 30, 1997 and 1998 and
June 30, 1999, the Company had no investments in debt or equity securities.
(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 results of
operations and its cash flows for the nine months ended June 30, 1998. 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 JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 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>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock
options............................ 75 297 742 570 1,067
Shares of restricted stock subject to
repurchase......................... 370 1,028 2,036 2,222 912
Shares issuable pursuant to warrants
to purchase:
convertible preferred stock........ -- 36 390 374 537
common stock....................... -- 110 110 110 106
Shares of convertible preferred stock
on an "as-if" converted basis...... 3,039 5,373 9,222 9,222 12,589
</TABLE>
The weighted-average exercise price of outstanding stock options was $0.05
$0.13, $0.21, $0.18, and $3.20 for the years ended September 30, 1996, 1997 and
1998, and for the nine months ended June 30, 1998 and 1999, respectively. The
weighted-average purchase price of restricted stock was $0.06, $0.06, $0.16,
$0.16, and $0.26 for the years ended September 30, 1996, 1997 and 1998, and for
the nine months ended June 30, 1998 and 1999, respectively. The weighted-average
exercise price of the convertible preferred stock warrants was $1.10, $1.26,
$1.26, and $1.40 for the years ended September 30, 1997 and 1998, and for the
nine months ended June 30, 1998 and 1999, respectively. The weighted average
exercise price of common stock warrants was $0.05 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 JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Computer equipment and software............................... $ 553 $ 1,536 $ 3,574
Furniture and fixtures........................................ 24 52 140
Leasehold improvements........................................ 16 16 16
--------- --------- -----------
593 1,604 3,730
Less accumulated depreciation and amortization................ (162) (499) (1,021)
--------- --------- -----------
$ 431 $ 1,105 $ 2,709
--------- --------- -----------
--------- --------- -----------
</TABLE>
(5) NOTES PAYABLE
Notes payable comprised the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
--------------- -----------
<S> <C> <C>
Equipment notes at an annual interest rate of between 5.60% and
10.25% payable in monthly installments, aggregating approximately
$123,000 monthly through April 2002.............................. $ 542 $ 3,270
Promissory note at an annual interest rate of 8.25% payable in
February 2002.................................................... -- 750
Discount........................................................... (45) (70)
----- -----------
497 3,950
Less current portion............................................... 194 1,097
----- -----------
$ 303 $ 2,853
----- -----------
----- -----------
</TABLE>
As of June 30, 1999, the aggregate maturities of notes payable for the years
ending June 30, 2000, 2001 and 2002 are as follows: $1,097,000, $1,394,000 and
$1,529,000, 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 June 30, 1999, 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 value of the warrants recorded in each of the
years ended September 30, 1997 and 1998 and the nine months ended June 30, 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 JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 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
180,000 common shares. The warrants are exercisable at $0.05 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 73,654 shares of common stock were exercised and warrants to purchase
106,346 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, which is now convertible into 530,000 shares of Series C
preferred stock, expires on the earlier of December 9, 2000 or the closing of an
underwritten initial public offering.
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock outstanding as of June 30, 1999, 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........................................ 8,138,476 7,262,238 4,735,923
Series C1....................................... 8,138,476 -- --
Series D........................................ 8,000,000 6,734,545 14,801,013
------------ ------------ --------------
46,058,430 24,742,068 $ 23,381,097
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The issuance costs associated with the issuance of Series A, B, C and D
redeemable convertible preferred stock was approximately $15,000, $16,000,
$60,000 and $82,000, respectively.
The rights and preferences of Series A, B, C and D redeemable convertible
preferred stock are as follows:
- Each share of preferred stock is convertible into 0.5 of a 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, except for Series C which is convertible into 0.53 of a
share of common stock.
- 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 $6.50 per share.
F-12
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
- In the event of any liquidation, dissolution, or winding up of the
Company, holders of Series A, B, C and D preferred stock are entitled to
receive, in preference to holders of common stock, the amount of $0.21,
$0.55, $0.65 and $2.21 per share, respectively, plus all declared but
unpaid dividends prior to any 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, C and D preferred stock are entitled to
receive noncumulative dividends at an annual rate of $0.02, $0.06, $0.07
and $0.22 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, C and
D 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 June 30, 1999, the Company is authorized to issue up to 5.1 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 June 30, 1999, the Company has issued shares under the
Plans, of which 912,000 million are subject to repurchase at a weighted-average
price of $0.26 per share. Certain of these restricted shares were issued to
officers and employees 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.
F-13
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(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 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
$1,059,000 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, NINE MONTHS
------------------------------- ENDED JUNE 30,
1996 1997 1998 1999
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Net loss (in thouands):
As reported................................... $ (622) $ (2,049) $ (2,918) $ (3,659)
--------- --------- --------- -------
--------- --------- --------- -------
Pro forma..................................... $ (622) $ (2,051) $ (2,934) $ (4,167)
--------- --------- --------- -------
--------- --------- --------- -------
Basic and diluted net loss per share:
As reported................................... $ (0.23) $ (0.84) $ (1.10) $ (0.91)
--------- --------- --------- -------
--------- --------- --------- -------
Pro forma..................................... $ (0.23) $ (0.84) $ (1.10) $ (1.03)
--------- --------- --------- -------
--------- --------- --------- -------
</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%, 5.55% and 5.16% for fiscal
1996, 1997 and 1998 and for the nine months ended June 30, 1999, respectively,
and expected life of 3.77, 3.17, 2.84 and 2.51 years for fiscal 1996, 1997 and
1998 and for the nine months ended June 30, 1999, respectively.
F-14
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 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>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------
NINE MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
------------------ ----------------- ----------------- -----------------
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........................... -- $ -- 75 $ 0.05 297 $ 0.14 742 $ 0.21
Granted............................ 370 0.05 1,106 0.07 2,346 0.21 1,132 3.34
Exercised.......................... (290) 0.05 (832) 0.05 (1,845) 0.20 (711) 0.70
Canceled........................... (5) 0.05 (52) 0.05 (56) 0.13 (96) 0.35
------ ------ ------ ------
Outstanding at end of period....... 75 0.05 297 0.14 742 0.21 1,067 3.20
------ ------ ------ ------
------ ------ ------ ------
Options exercisable at end of
period........................... 30 0.05 185 0.13 642 0.21 654 1.32
------ ------ ------ ------
------ ------ ------ ------
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 0.03 0.91
Weighted-average fair value of
options granted during the period
with exercise prices less than
fair value at date of grant...... -- -- -- 1.65
</TABLE>
F-15
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes information about stock options outstanding
as of June 30, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING REMAINING WEIGHTED-AVG. OUTSTANDING WEIGHTED-AVG.
EXERCISE PRICES AT 6/30/99 CONTRACTUAL LIFE EXERCISE PRICE AT 6/30/99 EXERCISE PRICE
- --------------------------------------- ----------- ----------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$0.03 43,353 7.78 $ 0.03 43,103 $ 0.03
From $0.10 to $0.12 187,677 8.89 0.12 182,677 0.12
From $0.25 to $0.30 132,500 9.49 0.26 112,500 0.25
$0.80 275,384 10.00 0.80 250,384 0.80
$1.60 56,400 10.00 1.60 1,250 1.60
$2.21 84,000 10.00 2.21 42,500 2.21
$4.00 288,125 10.00 4.00 21,250 4.00
----------- ----- ----- ----------- -----
From $0.03 to $4.00 1,067,439 9.65 $ 1.60 653,664 $ 0.66
----------- ----- ----- ----------- -----
----------- ----- ----- ----------- -----
</TABLE>
The Company has granted approximately 85,000 performance-based stock options
to various employees. The Company has accounted for the options in accordance
with APB 25. As a result, the Company recorded a compensation charge of $81,000
during the nine-month period ended June 30, 1999.
(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,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Deferred start-up costs...................................... $ 300 $ 235 $ 186
Net operating loss carryforwards............................. 710 1,832 3,075
Tax credit carryforwards..................................... 56 141 221
Other........................................................ 11 21 180
--------- --------- -----------
Total deferred tax assets.................................... 1,077 2,229 3,662
Valuation allowance.......................................... (1,077) (2,229) (3,662)
--------- --------- -----------
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.
F-16
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(9) INCOME TAXES (CONTINUED)
As of June 30, 1999 the Company had net operating loss carryforwards for
federal income tax reporting purposes of approximately $8,193,000 available to
reduce future income subject to income taxes. As of June 30, 1999, the Company
had net operating loss carryforwards for state income tax purposes of
approximately $4,941,000 available to reduce future income subject to income
taxes. The federal net operating loss carryforwards expire in various periods
through 2019. State net loss carryforwards expire in various periods through
2004. In addition, as of June 30, 1999, the Company had federal research and
development tax credit carryforwards of approximately $148,000. The federal
credit carryforwards expire in various periods through 2019. As of June 30,
1999, the Company had California research and development tax credit
carryforwards of approximately $110,000. 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.
Additionally, the Company has recorded equipment under capital lease. At June
30, 1999, future minimum payments under the leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, OPERATING CAPITAL
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
1999..................................................................... $ 241 $ 39
2000..................................................................... 726 154
2001..................................................................... - 154
2002..................................................................... - 116
----------- ---------
$ 967 463
-----------
-----------
Less amount representing interest........................................ 45
---------
Present value of minimum lease payments.................................. 418
Current portion of capital lease obligation.............................. 131
---------
Capital lease obligation, less current portion........................... $ 287
---------
---------
</TABLE>
Rent expense for the years ended September 30, 1996, 1997 and 1998 and for
the nine months ended June 30, 1998 and 1999 was approximately $21,000, $84,000,
$115,000, $86,000 and $310,000, respectively.
(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
F-17
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(11) GEOGRAPHIC, SEGMENT, AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
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 selling services to measure, assure and improve the quality of
service of web sites.
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
------------------------------------------
NINE MONTHS PERCENT OF
YEARS ENDED SEPTEMBER TOTAL ACCOUNTS RECEIVABLE
30, ENDED JUNE 30, ----------------------------
------------------------ --------------- SEPTEMBER 30, JUNE 30,
1996 1997 1998 1998 1999 1998 1999
------ ------ ------ ------ ------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Customer A.................... -- 11% 1% 1% -- -- --
Customer B.................... -- 1% 15% 18% 7% 10% 10%
</TABLE>
(12) SUBSEQUENT EVENTS
(a) 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.
(b) 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 on January 1 of each calendar year 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 defer an amount not to exceed 10% of the
employee's compensation, as defined in the Purchase Plan, to purchase common
stock of the Company. The purchase price per share will be 85% of the lesser of
the fair market value of the common stock on the first day of the applicable
offering period and the last day of each purchase period. The Purchase Plan will
be intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code.
(c) REINCORPORATION AND STOCK SPLIT
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,
F-18
<PAGE>
KEYNOTE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997 AND 1998, AND JUNE 30, 1998 AND 1999
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(12) SUBSEQUENT EVENTS (CONTINUED)
the Company's common stock had no par value. The accompanying financial
statements have been retroactively restated to give effect to the $0.001 par
value. On August 18, 1999, the Company's Board of Directors approved a 1-for-2
reverse stock split of its common stock. The accompanying financial statements
have been retroactively restated to give effect to the 1-for-2 reverse stock
split.
F-19
<PAGE>
[KEYNOTE LOGO]
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 23, 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]
4,000,000 SHARES
COMMON STOCK
--------------
Keynote is offering 4,000,000 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 $10.00 and $12.00 per share.
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------------
<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 600,000 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. ("Robertson Stephens"), 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>
Generally, we have agreed to indemnify each underwriter against liability
arising out of any untrue statement contained in the registration statement, any
preliminary prospectus or the final prospectus, or the omission of a material
fact required to be stated in the registration statement or such prospectus
necessary to make the statements in the registration statement or such
prospectus not misleading. In addition, we have agreed to indemnify each
underwriter against liability arising out of violations of laws or regulations
of foreign jurisdictions where reserved shares have been offered. The
underwriters have agreed to indemnify us against liability with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the registration statement, any preliminary prospectus or the final
prospectus in reliance upon and in conformity with written information furnished
to us by that underwriter through Robertson Stephens expressly for use in the
registration statement, such preliminary prospectus or the prospectus. For more
detailed information on the terms of indemnification contained in the
underwriting agreement, please see Exhibit 1.01 to the registration statement.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of various legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
this offer and to reject orders in whole or in part.
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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 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
72
<PAGE>
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the 4,000,000 shares in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the 4,000,000 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 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 will be determined through
negotiations among us and the representatives of the underwriters. The primary
considerations in determining the offering price are expected to be 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.
COMMISSIONS AND DISCOUNTS. The representatives of the underwriters have
advised us that the underwriters propose initially to offer the shares of common
stock to the public at the initial public offering
73
<PAGE>
price set forth on the cover page of this prospectus, and to certain dealers at
that price less a concession not in excess of $ per share of common
stock. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may change.
The following table shows the per share and total underwriting discount to
be paid by us to the underwriters and the proceeds before expenses to us. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------------- ------------- -------------
<S> <C> <C> <C>
Public offering price............................................................... $ $ $
Underwriting discount............................................................... $ $ $
Proceeds, before expenses, to Keynote............................................... $ $ $
</TABLE>
The underwriting fee will be an amount equal to the offering price per share
to the public of the common stock, less the amount paid by the underwriters to
Keynote per share of common stock. The underwriting fee is currently expected to
be approximately 7% of the initial public offering price. The expenses of the
offering, exclusive of the underwriting discount, are estimated at $
and are payable entirely by us.
RESERVED SHARES. At our request, the underwriters have reserved for sale,
at the initial public offering price, up to nine percent of the shares offered
hereby to be sold to people associated with us or our directors, officers or
employees, such as vendors, suppliers, existing stockholders and other persons
that have relationships with or are interested in us. No shares have been
reserved for our directors or officers. Indications of interest will be sought
by means of a written solicitation accompanied by a copy of this prospectus. The
number of shares of our common stock available for sale to the general public
will be reduced to the extent that those persons purchase the reserved shares.
Any reserved shares which are not confirmed for purchase will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.
74
<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.
75
<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...................................... 250,000
Legal fees and expenses........................................... 250,000
Road show expenses................................................ 30,000
Printing and engraving expenses................................... 125,000
Blue sky fees and expenses........................................ 5,000
Transfer agent and registrar fees and expenses.................... 15,000
Miscellaneous..................................................... 54,380
---------
Total......................................................... $ 750,000
---------
---------
</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........................................... 3.02
Registrant's Bylaws................................................................. 3.04
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 issued and sold the following securities:
1. We granted direct issuances or stock options to purchase 9,908,929
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 12,119,539
shares of our common stock to employees, consultants, directors, other service
providers and VeriSign, Inc. 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. All sales of common stock made
pursuant to the exercise of stock options were made in reliance on Rule 701
under the Securities Act and/or on Section 4(2) of the Securities Act.
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. This sale of common stock was made
in reliance on Section 4(2) and/or Rule 506 of Regulation D under the Securities
Act.
II-2
<PAGE>
4. On January 21, 1997, in connection with a bridge loan that converted
into Series B preferred stock, we issued warrants to purchase shares of our
common stock at an exercise price of $0.025 per share as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
NAME WARRANT
- --------------------------------------------------------------------------- -----------------
<S> <C>
Applewood Partners......................................................... 110,920
Gerald S. Casilli.......................................................... 15,379
Gerald S. Casilli Trust.................................................... 1,538
Michelle A. Casilli Trust.................................................. 1,538
Casilli '95 Unitrust....................................................... 7,177
David E. Kratter........................................................... 7,308
Matthew R. Kratter......................................................... 1,476
Mark E. Kratter............................................................ 1,476
Irwin Lieber............................................................... 25,632
Magnuson Revocable Trust Dated January 14, 1994............................ 7,308
Glenn E. Penisten.......................................................... 7,308
Eugene Shklar.............................................................. 140,000
Samuel Urcis............................................................... 7,308
Woodland Partners.......................................................... 25,632
</TABLE>
On July 3, 1997, Eugene Shklar exercised the warrant held by him, described
above. On May 18, 1999 the Magnuson Revocable Trust dated January 14, 1994,
exercised the warrant held by it, described above.
5. On April 11, 1997, in connection with an equipment lease, we issued a
warrant to Western Technologies Investments, Inc., an equipment lessor, to
purchase 65,454 shares of our Series B preferred stock and a warrant to Robert
A. Kingsbrook to purchase 7,273 shares of our Series B preferred stock, each 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. This sale of common stock was made in reliance on
Section 4(2) and/or Rule 506 of Regulation D under the Securities Act.
7. On December 9, 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. On December 23, 1997, in connection with an equipment lease, we issued
two warrants to Western Technologies Investments, Inc., an equipment lessor, to
purchase an aggregate of 65,454 shares of our Series B preferred stock, and a
warrant to Robert A. Kingsbrook to purchase 7,273 shares of our Series B
preferred stock, each at an exercise price of $0.55 per share.
9. 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. This sale of common stock was made in reliance on Section
4(2) and/or Rule 506 of Regulation D under the Securities Act.
10. On June 24, 1998, in connection with an equipment lease, we issued two
warrants to Western Technologies Investments, Inc., an equipment lessor, to
purchase an aggregate of 67,692 shares of our Series C preferred stock at an
exercise price of $0.65 per share.
11. On August 21, 1998, in connection with an equipment lease, we issued a
warrant to Comdisco, Inc., an equipment lessor, to purchase 30,769 shares of our
Series C preferred stock at an exercise price of $0.65 per share.
12. On September 30, 1998, in connection with an equipment lease, we issued
a warrant to Comdisco, Inc., an equipment lessor, to purchase 277,777 shares of
our Series C preferred stock at an exercise price of $0.90 per share.
II-3
<PAGE>
13. 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. This sale of common stock was made in reliance on
Section 4(2) and/or Rule 506 of Regulation D under the Securities Act.
Immediately prior to this offering, we will effect a two for one reverse
split of our common stock. 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 0.50 shares of common stock and each
outstanding share of Series C preferred stock will convert into 0.53 shares of
common stock.
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 and related forms of stock option agreement and stock option exercise
agreement.
10.05 1999 Employee Stock Purchase Plan and related forms of enrollment form, subscription agreement, notice
of withdrawal and notice of suspension.
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.
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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.17 Warrant to purchase 15,379 shares of common stock of Registrant held by Gerald S. Casilli.
10.18 Warrant to purchase 1,538 shares of common stock of Registrant held by Gerald S. Casilli Trust.
10.19 Warrant to purchase 1,538 shares of common stock of Registrant held by Michelle A. Casilli Trust.
10.20 Warrant to purchase 7,177 shares of common stock of Registrant held by Casilli '95 Unitrust.
10.21 Warrant to purchase 7,308 shares of common stock of Registrant held by David E. Kratter.
10.22 Warrant to purchase 1,476 shares of common stock of Registrant held by Matthew R. Kratter.
10.23 Warrant to purchase 1,476 shares of common stock of Registrant held by Mark E. Kratter.
10.24 Warrant to purchase 7,308 shares of common stock of Registrant held by Glenn E. Penisten.
10.25 Warrant to purchase 7,308 shares of common stock of Registrant held by Samuel Urcis.
10.26 Warrant to purchase 65,454 shares of Series B preferred stock of Registrant held by Western
Technologies Investments, Inc. (formerly known as Venture Lending and Leasing, Inc.).
10.27 Warrant to purchase 7,273 shares of Series B preferred stock of Registrant held by Robert A.
Kingsbrook.
10.28 Warrant to purchase 19,636 shares of Series C preferred stock held by Western Technologies Investments,
Inc. (formerly known as Venture Lending and Leasing, Inc.)
10.29 Warrant to purchase 45,818 shares of Series B preferred stock of Registrant held by Western
Technologies Investments, Inc. (formerly known as Venture Lending and Leasing II, Inc.).
10.30 Warrant to purchase 7,273 shares of Series B preferred stock of Registrant held by Robert A.
Kingsbrook.
10.31 Warrant to purchase 20,308 shares of Series C preferred stock held by Western Technologies Investments,
Inc. (formerly known as Venture Lending and Leasing, Inc.).
10.32 Warrant to purchase 47,384 shares of Series C preferred stock of Registrant held by Western
Technologies Investments, Inc. (formerly known as Venture Lending and Leasing II, Inc.).
10.33 Warrant to purchase 30,769 shares of Series C preferred stock of Registrant held by Comdisco, Inc.
10.34 Warrant to purchase 277,777 shares of Series C preferred stock of Registrant held by Comdisco, Inc.
16.01 Letters from Arthur Andersen LLP, dated as of July 9, 1999, regarding change in certifying accountant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, independent accountants.
27.01 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
(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.
II-5
<PAGE>
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-6
<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 20th day of August, 1999.
<TABLE>
<S> <C> <C>
KEYNOTE SYSTEMS, INC.
By: /s/ UMANG GUPTA
-----------------------------------------
Umang Gupta
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
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 August 20, 1999
Umang Gupta and Director
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ JOHN FLAVIO Vice President of Finance
- ------------------------------ and Chief Financial August 20, 1999
John Flavio Officer
ADDITIONAL DIRECTORS:
/s/ EUGENE SHKLAR
- ------------------------------ Director August 20, 1999
Eugene Shklar
- ------------------------------ Director August , 1999
David Cowan
*
- ------------------------------ Director August 20, 1999
Mark Leslie
*
- ------------------------------ Director August 20, 1999
Stratton Sclavos
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ EUGENE SHKLAR Attorney-in-fact August 20, 1999
-------------------------
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered.
10.04 1999 Equity Incentive Plan and related forms of stock option agreement and stock option exercise
agreement.
10.05 1999 Employee Stock Purchase Plan and related forms of enrollment form, subscription agreement, notice
of withdrawal and notice of suspension.
10.07+ Memorandum of Understanding between Registrant and VeriSign, Inc. dated as of February 17, 1999.
10.12 Warrant to purchase 500,000 shares of Series C preferred stock of Registrant issued to Umang Gupta.
10.17 Warrant to purchase 15,379 shares of common stock of Registrant held by Gerald S. Casilli.
10.18 Warrant to purchase 1,538 shares of common stock of Registrant held by Gerald S. Casilli Trust.
10.19 Warrant to purchase 1,538 shares of common stock of Registrant held by Michelle A. Casilli Trust.
10.20 Warrant to purchase 7,177 shares of common stock of Registrant held by Casilli '95 Unitrust.
10.21 Warrant to purchase 7,308 shares of common stock of Registrant held by David E. Kratter.
10.22 Warrant to purchase 1,476 shares of common stock of Registrant held by Matthew R. Kratter.
10.23 Warrant to purchase 1,476 shares of common stock of Registrant held by Mark E. Kratter.
10.24 Warrant to purchase 7,308 shares of common stock of Registrant held by Glenn E. Penisten.
10.25 Warrant to purchase 7,308 shares of common stock of Registrant held by Samuel Urcis.
10.26 Warrant to purchase 65,454 shares of Series B preferred stock of Registrant held by Western Technologies
Investments, Inc. (formerly known as Venture Lending and Leasing, Inc.).
10.27 Warrant to purchase 7,273 shares of Series B preferred stock of Registrant held by Robert A. Kingsbrook.
10.28 Warrant to purchase 19,636 shares of Series C preferred stock held by Western Technologies Investments,
Inc. (formerly known as Venture Lending and Leasing, Inc.)
10.29 Warrant to purchase 45,818 shares of Series B preferred stock of Registrant held by Western Technologies
Investments, Inc. (formerly known as Venture Lending and Leasing II, Inc.).
10.30 Warrant to purchase 7,273 shares of Series B preferred stock of Registrant held by Robert A. Kingsbrook.
10.31 Warrant to purchase 20,308 shares of Series C preferred stock held by Western Technologies Investments,
Inc. (formerly known as Venture Lending and Leasing, Inc.).
10.32 Warrant to purchase 47,384 shares of Series C preferred stock of Registrant held by Western Technologies
Investments, Inc. (formerly known as Venture Lending and Leasing II, Inc.).
10.33 Warrant to purchase 30,769 shares of Series C preferred stock of Registrant held by Comdisco, Inc.
10.34 Warrant to purchase 277,777 shares of Series C preferred stock of Registrant held by Comdisco, Inc.
16.01 Letters from Arthur Andersen LLP, dated as of July 9, 1999, regarding change in certifying accountant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, independent accountants.
27.01 Financial Data Schedule.
</TABLE>
- ------------------------
+ Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 5.01
August 23, 1999
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-82781) (the "REGISTRATION STATEMENT") filed by you with the
Securities and Exchange Commission (the "COMMISSION") on or about July 13, as
subsequently amended, in connection with the registration under the
Securities Act of 1933, as amended, of an aggregate of 4,600,000 shares of
your Common Stock (the "STOCK").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the Exhibits filed as a part
thereof;
(2) the Prospectus prepared in connection with the Registration Statement;
(3) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of your predecessor, Keynote Systems
Incorporated, a California corporation ("KEYNOTE CALIFORNIA"), that
are in our possession;
(4) the stock records for both you and Keynote California that you have
provided to us (consisting of a list of stockholders and a list of
option and warrant holders respecting your capital and of any
rights to purchase capital stock that was prepared by you and dated
as of June 30, 1999 verifying the number of such issued and
outstanding securities); and
(5) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all
<PAGE>
Keynote Systems, Inc.
August 23, 1999
Page 2
natural persons executing the same and the lack of any undisclosed termination,
modification, waiver or amendment to any documents reviewed by us.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records referred to above. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; HOWEVER, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and the State of Delaware.
Based upon the foregoing, it is our opinion that the up to 4,600,000
shares of Stock to be issued and sold by you, when issued and sold in
accordance with the manner referred to in the relevant Prospectus associated
with the Registration Statement, will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof.
Very truly yours,
FENWICK & WEST LLP
By: /s/ Jeffrey R. Vetter
---------------------------
<PAGE>
Exhibit 10.04
KEYNOTE SYSTEMS INCORPORATED
1999 EQUITY INCENTIVE PLAN
As Adopted __________, 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 1996 Stock Option
Plan and the 1999 Stock Option Plan (the "PRIOR PLANS") on the Effective Date
(as defined below) and any shares issued under the Prior Plans that are
forfeited or repurchased by the Company or that are issuable upon exercise of
options granted pursuant to the Prior Plans that expire or become
unexercisable for any reason without having been exercised in full, will no
longer be available for grant and issuance under the Prior Plans, but will be
available for grant and issuance under this Plan. In addition, on January 1,
2000 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, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 ALL AWARDS OTHER THAN NQSO'S. All Awards other than NQSO's shall
be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
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11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO shall
be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.
12.1 VOTING AND DIVIDENDS. No Participant will have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; PROVIDED, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; PROVIDED, FURTHER, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 FINANCIAL STATEMENTS. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; PROVIDED, HOWEVER, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities delivered
under this Plan will be subject to such stock transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; PROVIDED, HOWEVER, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under
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the promissory note notwithstanding any pledge of the Participant's Shares or
other collateral. In connection with any pledge of the Shares, Participant will
be required to execute and deliver a written pledge agreement in such form as
the Committee will from time to time approve. The Shares purchased with the
promissory note may be released from the pledge on a pro rata basis as the
promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. 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
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Committee exercises such discretion with respect to Options, such Options will
become exercisable in full prior to the consummation of such event at such time
and on such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate at such time as determined by the Committee.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(EXCEPT that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
the date on which the registration statement filed by the Company with the SEC
under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; PROVIDED,
HOWEVER, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
PROVIDED, HOWEVER, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements
10
<PAGE>
as it may deem desirable, including, without limitation, the granting of stock
options and bonuses otherwise than under this Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Keynote Systems 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
11
<PAGE>
(e) if none of the foregoing is applicable, by the Committee in good
faith.
"FAMILY MEMBER" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person with
such relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(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;
12
<PAGE>
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Keynote Systems 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.
13
<PAGE>
NO.____
KEYNOTE SYSTEMS INCORPORATED
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "AGREEMENT") is made and entered into
as of the Date of Grant set forth below (the "DATE OF GRANT") by and between
Keynote Systems Incorporated, a Delaware corporation (the "COMPANY"), and the
Optionee named below ("OPTIONEE"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Company's 1999 Equity Incentive Plan
(the "PLAN").
OPTIONEE:
-------------------------------
SOCIAL SECURITY NUMBER:
-------------------------------
OPTIONEE'S ADDRESS:
-------------------------------
-------------------------------
TOTAL OPTION SHARES:
-------------------------------
EXERCISE PRICE PER SHARE:
-------------------------------
DATE OF GRANT:
-------------------------------
VESTING START DATE:
-------------------------------
EXPIRATION DATE:
-------------------------------
(unless earlier terminated under
Section 3 hereof)
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above as Total Option Shares (collectively, the "SHARES") at
the Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject to
all of the terms and conditions of this Agreement and the Plan. If designated as
an Incentive Stock Option above, this Option is intended to qualify as an
"incentive stock option" ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE"), to the extent permitted
under Code Section 422.
2. VESTING; EXERCISE PERIOD.
2.1 VESTING OF SHARES. This Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Agreement, this Option
shall vest and become exercisable as to portions of the Shares as follows: (a)
this Option shall not be exercisable with respect to any of the Shares until
_________________, 19___ (the "FIRST
<PAGE>
VESTING DATE"); (b) if Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, then on the First Vesting
Date, this Option shall become exercisable as to twenty-five percent (25%) of
the Shares; and (c) thereafter this Option shall become exercisable as to an
additional 2.08333% of the Shares on each monthly anniversary of the First
Vesting Date, provided that Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, at all times during the
relevant month. This Option shall cease to vest upon Optionee's Termination and
Optionee shall in no event be entitled under this Option to purchase a number of
shares of the Company's Common Stock greater than the "Total Option Shares."
2.2 VESTING OF OPTIONS. Shares that are vested pursuant to the schedule
set forth in Section 2.1 hereof are "Vested Shares." Shares that are not vested
pursuant to the schedule set forth in Section 2.1 hereof are "Unvested Shares."
2.3 EXPIRATION. This Option shall expire on the Expiration Date set
forth above and must be exercised, if at all, on or before the earlier of the
Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. TERMINATION.
3.1 TERMINATION FOR ANY REASON EXCEPT DEATH, DISABILITY OR CAUSE. If
Optionee is Terminated for any reason except Optionee's death, Disability or
Cause, then this Option, to the extent (and only to the extent) that it is
vested in accordance with the schedule set forth in Section 2.1 hereof on the
Termination Date, may be exercised by Optionee no later than three (3) months
after the Termination Date, but in any event no later than the Expiration Date.
3.2 TERMINATION BECAUSE OF DEATH OR DISABILITY. If Optionee is
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after Termination other than for Cause or because of
Disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 hereof on the Termination Date, may
be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date. Any exercise after three months
after the Termination Date when the Termination is for any reason other than
Optionee's death or disability, within the meaning of Code Section 22(e)(3),
shall be deemed to be the exercise of a nonqualified stock option.
3.3 TERMINATION FOR CAUSE. If Optionee is Terminated for Cause, this
Option will expire on the Optionee's date of Termination.
3.4 NO OBLIGATION TO EMPLOY. Nothing in the Plan or this Agreement
shall confer on Optionee any right to continue in the employ of, or 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 Optionee's employment or other relationship at any time,
with or without Cause.
2
<PAGE>
4. MANNER OF EXERCISE.
4.1 STOCK OPTION EXERCISE AGREEMENT. To exercise this Option, Optionee
(or in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must deliver to the Company
an executed stock option exercise agreement in the form attached hereto as
EXHIBIT A, or in such other form as may be approved by the Company from time to
time (the "EXERCISE AGREEMENT"), which shall set forth, INTER ALIA, Optionee's
election to exercise this Option, the number of shares being purchased, any
restrictions imposed on the Shares and any representations, warranties and
agreements regarding Optionee's investment intent and access to information as
may be required by the Company to comply with applicable securities laws. If
someone other than Optionee exercises this Option, then such person must submit
documentation reasonably acceptable to the Company that such person has the
right to exercise this Option.
4.2 LIMITATIONS ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with all applicable federal and state securities
laws, as they are in effect on the date of exercise. This Option may not be
exercised as to fewer than 100 Shares unless it is exercised as to all Shares as
to which this Option is then exercisable.
4.3 PAYMENT. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee 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
Optionee in the open public market; AND (3) are clear of all liens,
claims, encumbrances or security interests;
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD DEALER") whereby Optionee irrevocably elects to exercise this
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 Optionee and an
NASD Dealer whereby Optionee irrevocably elects to exercise this
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
3
<PAGE>
NASD Dealer irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company;
(f) by any combination of the foregoing.
4.4 TAX WITHHOLDING. Prior to the issuance of the Shares upon exercise
of this Option, Optionee must pay or provide for any applicable federal or state
withholding obligations of the Company. If the Committee permits, Optionee may
provide for payment of withholding taxes upon exercise of this Option by
requesting that the Company retain Shares with a Fair Market Value equal to the
minimum amount of taxes required to be withheld. In such case, the Company shall
issue the net number of Shares to the Optionee by deducting the Shares retained
from the Shares issuable upon exercise.
4.5 ISSUANCE OF SHARES. Provided that the Exercise Agreement and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Optionee, Optionee's
authorized assignee, or Optionee's legal representative, and shall deliver
certificates representing the Shares with the appropriate legends affixed
thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. To the extent this
Option is an ISO, if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option and
the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner other than under the terms and conditions of the Plan or by will or by
the laws of descent and distribution and may be exercised during the lifetime of
Optionee only by Optionee. The terms of this Option shall be binding upon the
executors, administrators, successors and assigns of Optionee.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the date the
Board adopted the Plan of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
4
<PAGE>
8.1 EXERCISE OF INCENTIVE STOCK OPTION. To the extent this Option
qualifies as an ISO, there will be no regular federal income tax liability upon
the exercise of this Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as a tax preference item for federal income tax purposes and may subject
the Optionee to the alternative minimum tax in the year of exercise.
8.2 EXERCISE OF NONQUALIFIED STOCK OPTION. To the extent this Option
does not qualify as an ISO, there may be a regular federal income tax liability
upon the exercise of this Option. Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Shares on the date of exercise over the
Exercise Price. The Company may be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
8.3 DISPOSITION OF SHARES. The following tax consequences may apply
upon disposition of the Shares.
a. INCENTIVE STOCK OPTIONS. If the Shares are held for more than
twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of an ISO and are disposed of more than two (2) years after the
Date of Grant, any gain realized on disposition of the Shares will be treated
as capital gain for federal income tax purposes. If Shares purchased under an
ISO are disposed of within the applicable one (1) year or two (2) year
period, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if
any, of the fair market value of the Shares on the date of exercise over the
Exercise Price.
b. NONQUALIFIED STOCK OPTIONS. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant
to the exercise of an NQSO, any gain realized on disposition of the Shares
will be treated as long-term capital gain.
c. WITHHOLDING. The Company may be required to withhold from
Optionee's compensation or collect from the Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
9. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and
5
<PAGE>
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
12. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without regard to
that body of law pertaining to choice of law or conflict of law.
15. ACCEPTANCE. Optionee hereby acknowledges receipt of a copy of the
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Optionee has
executed this Agreement in duplicate as of the Date of Grant.
KEYNOTE SYSTEMS INCORPORATED OPTIONEE
By:
----------------------------------- -----------------------------------
(Signature)
- -------------------------------------- -----------------------------------
(Please print name) (Please print name)
- -----------------------------------
(Please print title)
7
<PAGE>
EXHIBIT A
KEYNOTE SYSTEMS INCORPORATED
1999 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of
KEYNOTE SYSTEMS INCORPORATED (the "COMPANY") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee Number of Shares Purchased:
------------------------------------- --------------------------
Social Security Number: Purchase Price per Share:
---------------------- ----------------------------
Address: Aggregate Purchase Price:
------------------------------------- ----------------------------
Date of Option Agreement:
------------------------------------- ----------------------------
Exact Name of Title to Shares:
------------------------------------- -----------------------
-----------------------------------------------------
</TABLE>
Type of Option: [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"OPTION AGREEMENT") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $_____________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________ ;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement constitute
the entire agreement and understanding of the parties and supersede in their
entirety all prior understandings and agreements of the Company and Optionee
with respect to the subject matter hereof, and are governed by California law
except for that body of law pertaining to choice of law or conflict of law.
Date:
------------------------------------- ----------------------------------
SIGNATURE OF OPTIONEE
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "AGREEMENT") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Keynote Systems Incorporated purchased thereunder (the
"SHARES") and any interest I may have in such Shares are subject to all the
provisions of the Agreement. I will take no action at any time to hinder
operation of the Agreement on these Shares or any interest I may have in or to
them.
---------------------------------- Date:
SIGNATURE OF OPTIONEE'S SPOUSE -------------
----------------------------------
SPOUSE'S NAME - TYPED OR PRINTED
-----------------------------------
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
NO. ___
KEYNOTE SYSTEMS INCORPORATED
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(For Non-Employee Directors)
This Stock Option Agreement (this "AGREEMENT") is made and entered into as
of the Date of Grant set forth below (the "DATE OF GRANT") by and between
Keynote Systems Incorporated, a Delaware corporation (the "COMPANY"), and the
Optionee named below ("OPTIONEE"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Company's 1999 Equity Incentive Plan
(the "PLAN").
OPTIONEE:
----------------------------------
SOCIAL SECURITY NUMBER:
----------------------------------
OPTIONEE'S ADDRESS:
----------------------------------
----------------------------------
TOTAL OPTION SHARES: 10,000
----------------------------------
EXERCISE PRICE PER SHARE:
----------------------------------
DATE OF GRANT:
----------------------------------
EXPIRATION DATE:
----------------------------------
(unless earlier terminated under Section 3 hereof)
TYPE OF STOCK OPTION: NONQUALIFIED STOCK OPTION
----------------------------------
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "SHARES")
at the Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject
to all of the terms and conditions of this Agreement and the Plan.
2. VESTING; EXERCISE PERIOD.
2.1 VESTING OF SHARES. Subject to the terms and conditions of the Plan
and this Agreement, this Option shall be 100% vested and exercisable as to the
Shares as of the Date of Grant.
2.2 EXPIRATION. This Option shall expire on the Expiration Date set
forth above and must be exercised, if at all, on or before the earlier of the
Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. TERMINATION. Except as provided below in this Section, this Option shall
terminate and may not be exercised if Optionee ceases to be a member of the
Board of Directors
<PAGE>
of the Company ("BOARD MEMBER"). The date on which Optionee ceases to be a Board
Member shall be referred to as the "TERMINATION DATE."
3.1 TERMINATION FOR ANY REASON EXCEPT DEATH OR DISABILITY. If Optionee
ceases to be a Board Member for any reason except Death or Disability, then this
Option may be exercised by Optionee no later than three (3) months after the
Termination Date, but in any event no later than the Expiration Date.
3.2 TERMINATION BECAUSE OF DEATH OR DISABILITY. If Optionee ceases to
be a Board Member for any reason except Death or Disability, then this Option
may be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date.
4. MANNER OF EXERCISE.
4.1 STOCK OPTION EXERCISE AGREEMENT. To exercise this Option,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as EXHIBIT A, or in such other form as may be approved by the Company
from time to time (the "EXERCISE AGREEMENT"), which shall set forth, INTER ALIA,
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then such
person must submit documentation reasonably acceptable to the Company that such
person has the right to exercise this Option.
4.2 LIMITATIONS ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with all applicable federal and state securities
laws, as they are in effect on the date of exercise. This Option may not be
exercised as to fewer than 100 Shares unless it is exercised as to all Shares as
to which this Option is then exercisable.
4.3 PAYMENT. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee 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
Optionee in the open public market; AND (3) are clear of all liens,
claims, encumbrances or security interests;
2
<PAGE>
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD DEALER") whereby Optionee irrevocably elects to exercise this
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 Optionee and an
NASD Dealer whereby Optionee irrevocably elects to exercise this
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;
(f) by any combination of the foregoing.
4.4 TAX WITHHOLDING. Prior to the issuance of the Shares upon exercise
of this Option, Optionee must pay or provide for any applicable federal or state
withholding obligations of the Company. If the Committee permits, Optionee may
provide for payment of withholding taxes upon exercise of this Option by
requesting that the Company retain Shares with a Fair Market Value equal to the
minimum amount of taxes required to be withheld. In such case, the Company shall
issue the net number of Shares to the Optionee by deducting the Shares retained
from the Shares issuable upon exercise.
4.5 ISSUANCE OF SHARES. Provided that the Exercise Agreement and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Optionee, Optionee's
authorized assignee, or Optionee's legal representative, and shall deliver
certificates representing the Shares with the appropriate legends affixed
thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option and
the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner other than under the terms and conditions of the Plan or by will or by
the laws of descent and distribution and may be exercised during the lifetime of
Optionee only by Optionee. The
3
<PAGE>
terms of this Option shall be binding upon the executors, administrators,
successors and assigns of Optionee.
7. TAX CONSEQUENCES. Set forth below is a brief summary as of the date the
Board adopted the Plan of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
7.1 EXERCISE OF NONQUALIFIED STOCK OPTION. To the extent this Option
does not qualify as an ISO, there may be a regular federal income tax liability
upon the exercise of this Option. Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Shares on the date of exercise over the
Exercise Price. The Company may be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
7.2 DISPOSITION OF SHARES. The following tax consequences may apply
upon disposition of the Shares.
a. NONQUALIFIED STOCK OPTIONS. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of an NQSO, any gain realized on disposition of the Shares will be
treated as long-term capital gain.
b. WITHHOLDING. The Company may be required to withhold from Optionee's
compensation or collect from the Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to
Optionee.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
10. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
11. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to
4
<PAGE>
Optionee shall be in writing and addressed to Optionee at the address indicated
above or to such other address as such party may designate in writing from time
to time to the Company. All notices shall be deemed to have been given or
delivered upon: personal delivery; three (3) days after deposit in the United
States mail by certified or registered mail (return receipt requested); one (1)
business day after deposit with any return receipt express courier (prepaid); or
one (1) business day after transmission by facsimile.
12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the Company. Subject to the restrictions on
transfer set forth herein, this Agreement shall be binding upon Optionee and
Optionee's heirs, executors, administrators, legal representatives, successors
and assigns.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without regard to
that body of law pertaining to choice of law or conflict of law.
14. ACCEPTANCE. Optionee hereby acknowledges receipt of a copy of the Plan
and this Agreement. Optionee has read and understands the terms and provisions
thereof, and accepts this Option subject to all the terms and conditions of the
Plan and this Agreement. Optionee acknowledges that there may be adverse tax
consequences upon exercise of this Option or disposition of the Shares and that
the Company has advised Optionee to consult a tax advisor prior to such exercise
or disposition.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Optionee has
executed this Agreement in duplicate as of the Date of Grant.
KEYNOTE SYSTEMS INCORPORATED OPTIONEE
By:
--------------------------- ---------------------------
(Signature)
- ------------------------------- ---------------------------
(Please print name) (Please print name)
- -------------------------------
(Please print title)
6
<PAGE>
EXHIBIT A
KEYNOTE SYSTEMS INCORPORATED
1999 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
(For Non-Employee Directors)
I hereby elect to purchase the number of shares of Common Stock of
KEYNOTE SYSTEMS INCORPORATED (the "COMPANY") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee Number of Shares Purchased:
------------------------------------ -------------------------------
Social Security Number: Purchase Price per Share:
--------------------- --------------------------------
Address: Aggregate Purchase Price:
------------------------------------ ---------------------------------
------------------------------------ Date of Option Agreement:
------------------------------------ ---------------------------------
Type of Option: Nonqualified Stock Option Exact Name of Title to Shares:
----------------------------
----------------------------------------------------------
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"OPTION AGREEMENT") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $_____________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $_______________________________ ;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement constitute
the entire agreement and understanding of the parties and supersede in their
entirety all prior understandings and agreements of the Company and Optionee
with respect to the subject matter hereof, and are governed by California law
except for that body of law pertaining to choice of law or conflict of law.
Date:------------------------------- ----------------------------------
SIGNATURE OF OPTIONEE
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "AGREEMENT") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Keynote Systems Incorporated purchased thereunder (the
"SHARES") and any interest I may have in such Shares are subject to all the
provisions of the Agreement. I will take no action at any time to hinder
operation of the Agreement on these Shares or any interest I may have in or to
them.
Date:
---------------------------------- -------------
SIGNATURE OF OPTIONEE'S SPOUSE
----------------------------------
SPOUSE'S NAME - TYPED OR PRINTED
-----------------------------------
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
EXHIBIT 10.05
KEYNOTE SYSTEMS INCORPORATED
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted ______________, 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 [JULY 31, 2001.] 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.
2
<PAGE>
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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<PAGE>
(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-
4
<PAGE>
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.
6
<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 for
the Plan that is different from the financial accounting treatment in effect on
the date this Plan is adopted by the Board.
7
<PAGE>
KEYNOTE SYSTEMS INCORPORATED 1999 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
<TABLE>
<CAPTION>
<S> <C>
Check One: Complete:
[ ] New Enrollment or Re-enrollment Social Security No.
-------------------------------
[ ] Change Employee No.
--------------------------------------
[ ] Change in How Shares Are to Be Held in Account
[ ] Increase in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Decrease in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form)
[ ] Withdrawal (Attach Completed Withdrawal Form)
[ ] Beneficiary Change
1. Name of Participant
--------------------------
2. Shares purchased under the Plan should be held in account with the Plan
Broker in my name or in my name together with the name(s) indicated
below:
Name Social Security No.
--------------------------------- -------------------------------
Name Social Security No.
--------------------------------- ------------------------------
There may be tax consequences for naming individuals other than your
spouse on the account in which Shares purchased under the Plan are held.
If spouse (circle one): Joint Tenants/Community Property.
PLEASE NOTIFY THE PLAN BROKER DIRECTLY TO TRANSFER OR SELL YOUR STOCK.
3. Payroll Deduction Level (from 1% to 10% in whole
percentages):____________ (the percentage deduction will be made from
your W-2 compensation including base salary, commissions, overtime,
shift premiums, bonuses and draws against commissions)
4. I confirm my spouse's interest (if married) in the community property
herein, and I hereby designate the following person(s) as my
beneficiary(ies) to receive all payments and/or stock attributable to my
interest under the Plan:
<S> <C> <C>
NAME *To be divided ADDRESS
as follows:
- ------------------------------------------------- --------------- --------------------------------------------
Last First M.I. Number Street
- ------------------------------------------------- --------------- --------------------------------------------
Social Security No. Relationship City State Zip
- ------------------------------------------------- --------------- --------------------------------------------
Last First M.I. Number Street
- ------------------------------------------------- --------------- --------------------------------------------
Social Security No. Relationship City State Zip
* If more than one beneficiary: (1) insert "in equal shares", or (2)
insert percentage to be paid to each beneficiary.
5. The information provided on this Enrollment Form will remain in effect
unless and until I complete and submit to Keynote Systems Incorporated a
new enrollment form.
KEYNOTE SYSTEMS INCORPORATED OFFICE USE:
Signature: Date received by the :
------------------------ ----------------- -----
Name: Date entered into system:
----------------------------- --------------------
Date:
-----------------------------
PLEASE RETURN THIS COMPLETED FORM TO KEYNOTE SYSTEMS INCORPORATED
</TABLE>
<PAGE>
KEYNOTE SYSTEMS INCORPORATED
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I elect to participate in the Keynote Systems Incorporated (the
"COMPANY") 1999 Employee Stock Purchase Plan (the "PLAN") and to
subscribe to purchase shares of the Company's Common Stock (the
"SHARES") in accordance with this Subscription Agreement and the Plan.
2. I authorize payroll deductions from each of my paychecks in that
percentage of my base salary, commissions, overtime, shift premiums,
bonuses and draws against commissions as shown on my Enrollment Form, in
accordance with the Plan.
3. I understand that such payroll deductions shall be accumulated for the
purchase of Shares under the Plan at the applicable purchase price
determined in accordance with the Plan. I further understand that except
as otherwise set forth in the Plan, Shares will be purchased for me
automatically at the end of each Purchase Period unless I withdraw from
the Plan or otherwise become ineligible to participate in the Plan.
4. I understand that this Subscription Agreement will automatically
re-enroll me in all subsequent Offering Periods unless I withdraw from
the Plan or I become ineligible to participate in the Plan.
5. I acknowledge that I have a copy of and am familiar with the Company's
most recent Prospectus which describes the Plan. A copy of the complete
Plan and the Prospectus is on file with the Company. (In the case of the
initial Plan Purchase Period, the Prospectus will be on file on the
first day of the Offering Period.)
6. I understand that Shares purchased for me under the Plan will be held in
a personal account with the Plan Broker unless I request otherwise.
7. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
8. I have read and understood this Subscription Agreement.
Signature:
--------------------------------
Name:
-------------------------------------
Date:
-------------------------------------
PLEASE RETURN THIS COMPLETED FORM TO THE COMPANY.
9
<PAGE>
KEYNOTE SYSTEMS INCORPORATED
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, _________________________, the undersigned participant in the Offering Period
of the Keynote Systems Incorporated 1999 Employee Stock Purchase Plan (the
"PLAN") which began on _______________, hereby notify Keynote Systems
Incorporated (the "COMPANY") that I wish to withdraw from the Offering Period. I
direct the Company to pay to me as promptly as practicable all payroll
deductions credited to my account with respect to such Offering Period. I
understand and agree that my participation in the Plan will terminate and no
shares will be purchased for me at the end of the Purchase Period so long as I
submit this Notice of Withdrawal to the Company at least 15 days prior to the
end of the Purchase Period. I understand and agree that if I submit this Notice
of Withdrawal to the Company LESS than 15 days prior to the end of the Purchase
Period, shares will be purchased for me at the end of the Purchase Period, and
my participation in the Plan will end at the beginning of the next Purchase
Period or Offering Period, as the case may be. I further understand that no
additional payroll deductions will be made for the purchase of shares in the
current Offering Period, and I shall be eligible to participate in succeeding
Offering Periods only by timely delivering to the Company a new Subscription
Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
---------------------------------------------------------------------------
Street Address or P.O. Box:
-----------------------------------------------------
City, State ZIP:
----------------------------------------------------------------
- ------------------------------------- ------------------------------------
Signature Date
PLEASE RETURN THIS FORM TO THE COMPANY.
<PAGE>
KEYNOTE SYSTEMS INCORPORATED
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF SUSPENSION
I, _________________________, the undersigned participant in the Offering Period
of the Keynote Systems Incorporated 1999 Employee Stock Purchase Plan (the
"PLAN") which began on _______________, hereby notify Keynote Systems
Incorporated (the "COMPANY") that I wish to suspend my payroll deductions to the
Plan for the remainder of the Offering Period. I understand and agree that my
request will be effective beginning with the next payroll period commencing more
than 15 days after the Company receives this Notice of Suspension. I understand
and agree that payroll deductions credited to my account prior to the date this
Notice of Suspension is effective will be used to purchase shares on the next
Purchase Date. I further understand that no additional payroll deductions will
be made for the purchase of shares in the current Offering Period, and I will be
eligible to participate in succeeding Offering Periods only by timely delivering
to the Company a new Subscription Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
---------------------------------------------------------------------------
Street Address or P.O. Box:
-----------------------------------------------------
City, State ZIP:
----------------------------------------------------------------
- ------------------------------------- ------------------------------------
Signature Date
PLEASE RETURN THIS FORM TO THE COMPANY.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VeriSign
2593 COAST AVENUE
MOUNTAIN VIEW, CA 94043
PHONE: (415) 961-7500 FAX: (415) 961-7300
WEB: www.verisign.com
ISV MEMORANDUM OF UNDERSTANDING
- --------------------------------------------------------------------------------
MEMORANDUM OF UNDERSTANDING
- --------------------------------------------------------------------------------
This Memorandum of Understanding ("MOU") is entered into as of February 17, 1999
(the effective date) by VeriSign, Inc., a Delaware corporation with its
principal place of business at 1390 Shorebird Way, Mountain View, CA 94043
("VeriSign") and KeyNote Corporation ("Keynote"), a Delaware Corporation with
its principal place of business at Two West Fifth Avenue, San Mateo, CA 94402.
Collectively, all parties involved shall be referred to as the "Companies". This
MOU is the first step towards a Joint Marketing and Development Agreement
between the Companies. The purpose of the MOU and Joint Marketing and
Development Agreement is to formalize the relationship between the companies and
demonstrate a commitment to developing a structure for enabling the sales and
support of Keynote products to VeriSign customers, and for enabling the
marketing of Keynote Products through VeriSign sales channels.
1. Recitals
Whereas: VeriSign and Keynote both provide products and services for the web
commerce market, and
Whereas: VeriSign has an installed base of over 100,000 web commerce sites, and
has put in place a set of outbound marketing programs intended to generate an
additional 100,000 to 200,000 units in sales in 1999 and,
Whereas: Keynote has developed a performance monitoring service which could be
marketed to VeriSign Secure Server ID and Global Server ID customers
Whereas: VeriSign intends to introduce a set of tiered Value Packages in Q 1 of
1999 which are intended to provide value-added offerings to our higher end
customers and which are intended to result in incremental revenues for VeriSign
Whereas: VeriSign also has on-going communications with existing customers via
quarterly newsletters, lifecycle messages, and the soon-to-be established
Security Channel
Whereas: Keynote seeks access to VeriSign's customer base and seeks to avoid
duplicating the expense of developing direct outbound marketing campaigns to
customers
NOW THEREFORE, the Companies agree as follows:
2. TERM OF AGREEMENT
The term of this agreement will be for two years. Upon agreement of all parties,
this agreement will either: (1) continue with a series of one year extensions;
or (2) be terminated upon the signing of a Joint Marketing and Development
Agreement. All companies will work together in good faith to execute a Joint
Marketing an Development Agreement within two months of the signing of this MOU.
3. DEFINITIONS
3.1 PERSPECTIVE
The Keynote service which provides performance monitoring of a given URL from
multiple agents around the country and the world
- -------------------------------------------------------------------------------
Confidential ISV MOU 1
<PAGE>
3.2 LIFELINE
A Keynote service which provides performance monitoring of a given URL from a
single agent
3.3 TIERED VALUE PACKAGES:
Generic term for a VeriSign offering which includes a VeriSign Secure Server 1D
or Global Server ID and one or more value added offerings, such as NetSure,
training, expedited delivery, or Keynote Performance Monitoring
3.4 SECURITY CHANNEL:
Generic term for a VeriSign web site, promoted through Netscape/AOL, which is
expected to focus on security related issues and is expected to have a large
viewing audience.
4. Commitments
4.1 Products:
Keynote will grant VeriSign a non- exclusive license to re-sell a one-month
duration customized version of Keynote's 10 City Perspective and 25 City
Perspective products to VeriSign customers as an integrated part of a VeriSign
product offering.
The 10 cities from which measurements will be made in the Keynote 10 City
Introductory Perspective service can include up to 2 international locations,
the 25 City Introductory Perspective can include up to 4 international locations
Keynote will also grant VeriSign a non-exclusive right to re-sell Keynote
Lifeline, a single agent service sold in I -year subscriptions.
4.2 DIRECT SALES AS PART OF TIERED VALUE PACKAGE:
4.2.1 Tiered Value Package Offerings
VeriSign will resell Keynote services as a part of Tiered Value Packaged
offerings for VeriSign's Class 3 Secure Server and Global Server ID products.
VeriSign anticipates that at least one Tiered Value Package offering will
include the introductory version of 10 City Perspective and that at least one
Tiered Value Package offering will include an introductory version of 25 City
Perspective. VeriSign will not specify a particular price for the Keynote
portion of the Tiered Value Package offering to the customer. However, VeriSign
and Keynote will jointly assign a value to the Keynote portion of the offering
which is equal to Keynote's published list price.
4.2.2 Registration Mechanism
1. When selling Keynote products as part of the Tiered Value Package offering,
VeriSign will be responsible for educating, selling, and registering the
customer. Keynote will be responsible for establishing a customer account
upon receipt of appropriately formatted registration information from
VeriSign and for post-sales customer support.
2. All marketing initiatives enacted jointly by VeriSign and Keynote will be
co-branded. In addition, all regular monitoring reports sent to the
customers in the form of e-mails shall be jointly branded.
3. During the registration process, VeriSign will collect all information
necessary for establishing a customer for the Keynote services. In the
case of a lifeline customer, this shall include the following: 1) AII
contact information normally collected for the technical and billing
contacts for VeriSign Class 3 Services 2) The URL which the customer wishes
to have monitored 3) The customer's choice of a single city/agent 4) Up to
3 answers to jointly agreed upon demographic questions (e.g. size of
company, average number of website visitors, etc.).
4. In the case of a Perspective customer, collected information shall include
1) AII contact information normally collected for the technical and billing
contacts for VeriSign Class 3 Services 2) The URL which the customer wishes
to have monitored 3) answers to jointly agreed upon demographic questions
(e.g. size of company, average number of website visitors, etc.)
- -------------------------------------------------------------------------------
Confidential ISV MOU 2
<PAGE>
5. VeriSign will provide to Keynote new subscription reports, in an
appropriately defined format, which provides all information described
above. Within 2 business days of the receipt of that report, Keynote will
establish the customer account and deliver to the customer, via e-mail, a
user name and password for accessing the account
4.2.3 Sales Support
Keynote will create appropriate web pages to which customers can be directed to
view samples of the service.
Keynote will also provide 3 days of training to VeriSign's internet sales team.
One Keynote salesperson will be assigned to the VeriSign account.
4.2.4 Customer support
1. Keynote will provide VeriSign with appropriate customer support
documentation and FAQ's for use, at VeriSign's discretion, in supporting
customers with Keynote-related issues.
2. Keynote will establish a dedicated customer support line which shall be
available from 6:00 am to 6:00 pm PST Monday through Friday. VeriSign will
transfer customers with Keynote related concerns to that number. In
addition, VeriSign shall provide a link to that number as an option on
VeriSign's Automated Call Distribution (ACD) system.
3. Service Level Agreement: Keynote will ensure that VeriSign customers of
Keynote service enjoy service levels which are equal to or better than
those of Keynote's regular, commercial customers. At the time of the
writing of the contract, availability for Perspective customers is 90%, and
shall not drop below this level.
4.2.5 Warranty
In the event that a VeriSign customer requests a refund due to dissatisfaction
with Keynote Lifeline, VeriSign will offer that customer a refund of 100% of the
pro-rated remainder of the subscription cost of the offering. Keynote shall
repay VeriSign 5O% of this cost.
4.2.6 Subsequent Purchase by Keynote Customers
1. It is assumed that Keynote will attempt to up-sell Introductory Perspective
customers to the full service. Keynote will track all such purchases and
provide VeriSign with quarterly reports showing such sales and pay VeriSign
such fees as are defined in section 4.4.3. Any such campaigns must be
coordinated with VeriSign, and must include reasonable mechanisms for
protecting consumer privacy.
2. Keynote may also attempt to up-sell Lifeline customers to Perspective after
30 days. Keynote will track all such purchases and provide VeriSign with
quarterly reports showing such sales and pay VeriSign such fees as are
defined in section 4.4.2. Any such campaigns must be coordinated with
VeriSign, and must include reasonable mechanisms for protecting consumer
privacy.
3. VeriSign will renew for Lifeline when the annual-subscription expires.
4.3 OTHER SALES MECHANISMS
VeriSign will promote the Keynote product as part of regular communications with
customers (e.g. quarterly newsletters) and through the soon-to-be established
Security Channel. Such communications will result in leads for Keynote, which
will be directly tracked. Keynote will pay VeriSign for such leads according to
the fee schedule below. In such cases, Keynote will pay VeriSign directly for
the lead, but will assume all subsequent sales and support responsibility.
- -------------------------------------------------------------------------------
Confidential ISV MOU 3
<PAGE>
4.4 FEES
4.4.1 One-time recoverable set-up fees.
To implement the product offerings fundamental to this program, Keynote will
construct a network of 5O measurement agents in 25 cities in the USA and
International, and establish the management processes inherent in generating and
providing the measurements.
This implies that Keynote both has a substantial upfront expenditure to create
the network of agents and processes, and the need that the agents measure enough
customer URLs to cover their operating costs.
VeriSign will thus make available to Keynote a $250,000 advance prior to
activation of the program. Keynote will repay VeriSign by allocating 100% each
month of the revenue payments due from VeriSign to Keynote under 4.4.3 below, up
to a monthly maximum of $250,000 divided by 24 months - e.g. $10,417 per month.
If the program is generating at least 500 Introductory Perspective sales per
month within 6 months from inception, VeriSign will advance a further $25O,000
to Keynote, to be repaid by Keynote allowing VeriSign to deduct from its monthly
payments to Keynote the sum of $250,000 divided by the number of months
remaining in the contract. If it is not generating such volumes, Keynote
reserves the right to trim its agent infrastructure to ensure that its
measurement costs stay in line with usage.
In the event that the program is not generating at least 100 Introductory
Perspective sales per month within 6 months from inception, either of the
parties may elect to terminate this agreement, by providing 60 days advance
notice in writing to the other party. In the event of such termination,
VeriSign shall be entitled to recover the balance of the $250,000 ratably over
the remainder of the term.
4.4.2 Direct Sales of Lifeline
VeriSign has the right to resell a one-year subscription to Keynote Lifeline as
a standalone offering not included in a VeriSign Tiered Product offering. The
list price for a one-year subscription to Keynote Lifeline is $695. Keynote
will sell the one-year subscription to VeriSign for resale for [*] thereby
providing VeriSign with a [*] reseller discount. In the event that a Lifeline
customer renews through VeriSign for subsequent years, the [*] discount will
apply to the then current Keynote list price for Lifeline at the time of
renewal.
This progress on Lifeline sales will be reviewed after 6 months. If at that
time VeriSign is paying Keynote more than [*] per month in reseller
revenues for the Lifeline service the discount will be increased to [*]. If
VeriSign is paying Keynote less that [*] per month in reseller revenues for
the Lifeline service Keynote and VeriSign will in good faith renegotiate the
discount and or volume commitments.
4.4.3 Trial Sales of Perspective
To enable VeriSign to offer the Introductory Perspective product as part of the
tiered offering, VeriSign will pay Keynote the Keynote costs of [*] per 10 city
subscription and [*] per 25 city subscription to implement this offering.
In the event that Keynote converts this customer into a paying Perspective
customer during the life of the VeriSign-bundled introductory Perspective
subscription or within 30 days beyond, Keynote will pay VeriSign a onetime
conversion bounty of [*].
4.4.5 Most Favored Customer
If Keynote makes available a similar service with better terms to any customer,
Keynote shall provide VeriSign with such better terms on a going forward basis
for the remainder of the agreement period.
The current list price of a month Keynote 10 city Perspective is $295 and the
current list price for a one month 25 city Perspective Service is $495. Should
Keynote take actions to reduce the value of these services (e.g. by offering a
free one month trial directly on their site or through other channels), Keynote
and VeriSign will work together in good faith to preserve the value of the
VeriSign Tiered Value Packages by making available to VeriSign new services.
These new services will have values of [*] and [*], at a cost to VeriSign of
[*] and [*] respectively.
- -------------------------------------------------------------------------------
Confidential ISV MOU 4
[*] Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
4.4.6 In the event that Keynote converts a VeriSign-bundled Lifeline
customer into a paying Perspective customer during the life of the
VeriSign-bundled Webline subscription or within 30 days beyond, Keynote will pay
VeriSign a one-time conversion bounty of [*].
1. VeriSign and Keynote will work together to define a set of programs
(involving lifecycle messaging, use of the security channel, etc.) for
generating leads for Keynote.
2. In the event that a program generates leads for Perspective, Keynote will
pay VeriSign [*] for each lead which converts into a paying customer
within 90 days of receipt of the lead.
4.5 NON-COMPETE
For the term of this MOU, Keynote will not enter into a similar agreement
involving the bundling of Keynote services with PKI products and services with
other companies offering competitive Public Key Infrastructure (PKI) products
and services, such as:
[*]
4.6 OTHER COMMITMENTS
1. Each party shall bear its own expenses in connection with the preparation
of this MOU and the Marketing and Services Agreement, unless otherwise
expressly noted.
2. Keynote and VeriSign will engage in good-faith negotiations to extend the
agreement to VeriSign distribution partners, including ISPs and VeriSign
International partners, in a manner that meets the corporate business
objectives of both parties.
3. All Companies may assign this Agreement as part of a merger, acquisition,
or reorganization, or sale of all or substantially all its assets. Such
assignment shall require 30 days written notice to all parties to this
agreement.
4. The terms and conditions contained in the various Nondisclosure Agreements
entered into by the parties shall govern discussions between the parties
relating to this MOU.
5. Any notice required to be given shall be either (a) personally delivered;
(b) transmitted by postage prepaid certified mail, return receipt
requested; or (c) transmitted by nationally-recognized private express
courier to the addresses shown above (or new address provided in accordance
with this section), and shall be deemed to have been given on the date of
receipt of delivered personally, or two days after deposit in mail or
express courier.
6. This MOU shall be construed and governed in accordance with the laws of the
State of California.
7. This MOU will terminate on the occurrence of the earliest of the following:
(a) the parties enter into the Marketing and Services Agreement or (b) 2
years shall have passed from the effective date and one or more parties
have provided written notice of their intent not to exceed this agreement.
8. This MOU constitutes the entire agreement of the parties with respect to
its subject matter. No modification of this MOU will be binding on the
parties unless it is in writing and signed by authorized representatives of
both parties. Nothing herein contains shall be construed to create a joint
venture agency or partnership, or to authorize any party as an agent or
representative for the other party.
- -------------------------------------------------------------------------------
Confidential ISV MOU 5
[*] Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
IN WITNESS WHEREOF, the parties by their duly authorized officers, have executed
this Memorandum of Understanding as of the Effective Date.
VERSIGN:
VERISIGN, INC.
COMPANY
DELAWARE
STATE OF INCORPORATION
- -----------------------------
Signed Date
- -----------------------------
Title
KEYNOTE:
- -----------------------------
Company
- -----------------------------
State of Incorporation
- -----------------------------
Title
- -------------------------------------------------------------------------------
Confidential ISV MOU 6
<PAGE>
Exhibit 10.12
WARRANT TO PURCHASE
500,000 SHARES OF Series C PREFERRED STOCK
OF
Keynote Systems Incorporated
(Void after December 9, 2000)
Preferred Stock Warrant: PCW-001
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 Umang Gupta (the "Holder"), or assigns, for value
received, is entitled to purchase from Keynote Systems Incorporated, a
California corporation (the "Company"), subject to the terms set forth below, a
maximum of Five Hundred Thousand (500,000) fully paid and nonassessable shares
(subject to adjustment as provided herein) of the Company's Series C Preferred
Stock (the "Warrant Shares") for cash at a price of $0.65 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 Time) on the earliest of (i)
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 (the "Act"), the gross proceeds of which exceed $7,500,000, or (ii)
December 9, 2000, or (ii) the thirtieth day after a Voluntary Termination or
Termination For Cause (as such terms are defined in the Employment Agreement) of
Employee's status as Chairman of the Company, such earliest 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 upon 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 contingencies set forth in
this Warrant.
This Warrant is issued in connection with that certain Employment
Agreement, dated as of December 9, 1997, between the Company and Holder (the
"Employment Agreement"), and is subject to the following terms and conditions:
<PAGE>
1. EXERCISE, ISSUANCE OF CERTIFICATES, NET ISSUE EXERCISE.
1.1 GENERAL. Except as provided in Section 1.2, 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 1.2 or 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, from and after December 9, 1998 if the fair
market value of one share of Series C Preferred Stock 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 shares of Series C
Preferred Stock 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 shares of
Series C Preferred Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Series C
Preferred Stock to be issued to
Holder
Y = the number of shares of Series C
Preferred Stock 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
share of the Company's Series C
Preferred Stock (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, fair market value of one share of Series
C Preferred Stock 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 share of Series C
Preferred Stock 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 product of (i) the per share offering price to the public of
the Company's initial public offering, and (ii) the number of shares of Common
Stock into which each share of Series C Preferred Stock is convertible at the
time of such exercise.
1.3. WARRANT SHARE ADJUSTMENT. This Warrant shall become
exercisable for shares of the Company's Series C1 Preferred Stock rather than
shares of the Company's Series C Preferred Stock to the extent that the shares
of Series B Preferred Stock held by Holder are converted into shares of Series
B1 Preferred Stock.
2. SHARES TO BE FULLY PAID. The Company covenants and agrees
that all Warrant Shares, and all shares of Common Stock issuable upon
conversion of such 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 Series C Preferred 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 the Series C Preferred Stock of the Company 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
<PAGE>
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 Series C Preferred Stock shall be entitled to receive stock,
securities, or other assets or property, then, as a condition of such
Reclassification Event lawful and adequate provisions shall be made whereby the
Holder hereof shall thereafter have the right to purchase and receive (in lieu
of the shares of Series C Preferred Stock 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 of
such Series C Preferred Stock 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 by the
independent public accountants then auditing the books of the Company 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 dated as of March 6,
1998, as amended from time to time(the "Agreement") to which the Company and
holders of its Preferred Stock are parties and the Holder of this Warrant
shall be entitled to exercise the registration rights granted under the
Agreement. By its receipt of this Warrant, Holder agrees to be bound by the
terms and restrictions of the 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 stockholder of the Company on any
other matters or any rights whatsoever as a stockholder 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.
4
<PAGE>
6. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT;
DISPOSITION OF SHARES OF PREFERRED STOCK.
6.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this
Warrant, by acceptance hereof, agrees that this Warrant, the Warrant Shares to
be issued upon exercise hereof, and the shares of Common Stock issuable upon
conversion of the Warrant Shares are being acquired for investment and that it
will not offer, sell, or otherwise dispose of this Warrant, any Warrant Shares,
or any shares of Common Stock to be issued upon conversion of the Warrant Shares
except under circumstances which will not result in a violation of the Act or
any applicable state securities laws. This Warrant, all Warrant Shares, and all
shares of Common Stock issued upon conversion of the Warrant Shares (unless
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
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 AND COMMON STOCK. With
respect to any offer, sale, or other disposition of the Warrant, any Warrant
Shares, or of any shares of Common Stock issued upon conversion of the 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, Warrant Shares or Common Stock, as
the case may be, and indicating whether or not under the Act certificates for
such Warrant, Warrant Shares or Common Stock 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, Warrant
Shares or Common Stock, all in accordance with the terms of the
5
<PAGE>
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, Warrant Shares or Common Stock 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, Warrant Shares or Common
Stock 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 party against which enforcement of the
same is sought.
8. TERM; NOTICE OF EXPIRATION; NOTICES. This Warrant is
exercisable, in whole or in part, at any time and from time to time before
the Expiration Date. The Company shall give notice to Holder of the
expiration of this Warrant not less than twenty (20) days prior to the
Expiration Date. If the notice is not so given, the Expiration Date shall
automatically be extended until twenty (20) days after the date such notice
is delivered to Holder. Any notice, request, or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall
be in writing and shall be conclusively deemed effectively given upon
personal delivery or delivery by courier or five (5) days after deposit in
the U.S. mail, by certified or registered 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 cash dividend upon its
upon its Preferred Stock;
(2) the Company shall declare any dividend upon its Series C
Preferred Stock payable in stock or make any special dividend or other
distribution to the holders of its Series C Preferred Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Series B Preferred Stock any additional shares of stock of any
class or other rights;
(4) 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 corporation;
(5) there shall be a voluntary or involuntary dissolution,
liquidation, or
6
<PAGE>
winding-up of the Company; or
(6) 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 subscription
rights 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, distribution, or subscription rights,
the date on which the holders of Series C Preferred 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 Series C Preferred Stock shall be
entitled to exchange their Series C Preferred 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.
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.
7
<PAGE>
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 be enforceable by any such Holder.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized as of this 10th day of March,
1998.
Keynote Systems Incorporated
a California corporation
-------------------------------
Doug Finlay
Vice President and Chief Financial
Officer
Attest:
- ------------------------------
Matthew P. Quilter, Secretary
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
The undersigned, the holder of the attached Preferred Stock Warrant,
hereby irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, ____(1)_____________) shares of Series
C Preferred 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 Series C Preferred
Stock and any Common Stock issuable upon conversion of the Series C Preferred
Stock 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 (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Preferred Stock or any other stock or other securities or property or cash
which, pursuant to the adjustment provisions of the Warrant, may be deliverable
upon exercise.
10
<PAGE>
Exhibit 10.17
WARRANT TO PURCHASE 15,379
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-003
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, GERALD S.
CASILLI (the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 15,379 (FIFTEEN THOUSAND THREE HUNDRED SEVENTY NINE) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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).
<PAGE>
Exhibit 10.18
WARRANT TO PURCHASE 1,538
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-005
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, GERALD S.
CASILLI TRUST (the "Holder"), or assigns is entitled to purchase from KEYNOTE
SYSTEMS INCORPORATED, a California corporation (the "Company"), subject to the
terms set forth below, 1,538 (ONE THOUSAND FIVE HUNDRED THIRTY EIGHT) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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).
<PAGE>
Exhibit 10.19
WARRANT TO PURCHASE 1,538
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-006
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, MICHELLE A.
CASILLI TRUST (the "Holder"), or assigns is entitled to purchase from KEYNOTE
SYSTEMS INCORPORATED, a California corporation (the "Company"), subject to the
terms set forth below, 1,538 (ONE THOUSAND FIVE HUNDRED THIRTY EIGHT) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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).
<PAGE>
Exhibit 10.20
WARRANT TO PURCHASE 7,177
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-004
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, CASILLI `95
UNITRUST (the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 7,177 (SEVEN THOUSAND ONE HUNDRED SEVENTY SEVEN) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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).
<PAGE>
Exhibit 10.21
WARRANT TO PURCHASE 7,308
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-012
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, DAVID E. KRATTER
(the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 7,308 (SEVEN THOUSAND THREE HUNDRED EIGHT) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be
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).
<PAGE>
Exhibit 10.22
WARRANT TO PURCHASE 1,476
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-014
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, MATTHEW R.
KRATTER (the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 1,476 (ONE THOUSAND FOUR HUNDRED SEVENTY SIX) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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).
<PAGE>
WARRANT TO PURCHASE 1,476
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-013
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, MARK E. KRATTER
(the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 1,476 (ONE THOUSAND FOUR HUNDRED SEVENTY SIX) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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 7,308
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-008
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, GLENN E. PENISTEN (the
"Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS INCORPORATED,
a California corporation (the "Company"), subject to the terms set forth below,
7,308 (SEVEN THOUSAND THREE HUNDRED EIGHT) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be
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>
Exhibit 10.25
WARRANT TO PURCHASE 7,308
SHARES OF COMMON STOCK
OF
KEYNOTE SYSTEMS INCORPORATED
(Void after January 21, 2002)
Common Stock Warrant: C-009
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, SAMUEL URCIS
(the "Holder"), or assigns is entitled to purchase from KEYNOTE SYSTEMS
INCORPORATED, a California corporation (the "Company"), subject to the terms set
forth below, 7,308 (SEVEN THOUSAND THREE HUNDRED EIGHT) 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
<PAGE>
the Company's convertible promissory notes (the "Purchase Agreement"), and is
subject to the following terms and conditions:
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:
X = Y (A-B)
-------
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 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
3
<PAGE>
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:
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
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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 be 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:
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(Signature must conform in all respects to name of
Holder as specified on the face of the warrant)
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(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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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
SHARES OF SERIES B PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after December 31, 2002)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder") for value received, is entitled to
purchase from KEYNOTE SYSTEMS INCORPORATED a California corporation (the
"Company") fully paid and nonassessable shares of the Company's Series B
Preferred Stock ("Preferred Stock") for cash at a price per share equal to the
price per share at which the Company issues shares of its Series B Preferred
Stock (the "Stock Purchase Price") at any time or from time to time up to and
including 5:00 p.m. (Pacific time) on December 31, 2002 (the "Expiration Date")
upon surrender to the Company at its principal office at Two West Fifth Avenue,
San Mateo, CA 94402 (or at such other location as the Company may advise Holder
in writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
Initially, the number of shares to be exercised shall be equal to the quotient
of (i) 36,000 dollars, divided by (ii) the Stock Purchase Price. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of
this Section 1, this Warrant shall be exercisable at the option of the
Holder, at any time or from time to time, on or before the Expiration Date
for all or any portion of the shares of Preferred Stock (but not for a
fraction of a share) which may be purchased hereunder for the Stock Purchase
Price multiplied by the number of shares to be purchased. In the event,
however, that pursuant to the Company's Articles of Incorporation, as
amended, an event causing automatic conversion of the Company's Preferred
Stock shall have occurred prior to the exercise of this Warrant, in whole or
in part, then this Warrant shall be exercisable for the number of shares of
Common Stock of the Company into which the Preferred Stock not purchased upon
any prior exercise of the Warrant would have been so converted (and, where
the context requires, reference to "Preferred Stock" shall be deemed to
include such Common Stock) . The Company agrees that the shares of Preferred
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Stock purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and payment made for
such shares. Subject to the provisions of Section 2, certificates for the shares
of Preferred Stock 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 within a reasonable
time after the rights represented by this Warrant have been so exercised. Except
as provided in clause (b) of this Section 1, in case of a purchase of less than
all the shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Preferred Stock as
may be requested by the Holder hereof and shall be registered in the name of
such Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the
payment of the Stock Purchase Price pursuant to clause (a) of this Section 1,
may elect, at any time on or before the Expiration Date, to receive that
number of shares of Preferred Stock equal to the quotient of: (i) the
difference between (A) the Per Share Price (as hereinafter defined) of the
Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied
by the number of shares of Preferred Stock the Holder would otherwise have
been entitled to purchase hereunder pursuant to clause (a) of this Section 1
(or such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per
Share Price" means the product of: (i) the greater of (A) the average of the
closing bid and asked prices of the Company's Common Stock as quoted by
NASDAQ or listed on any exchange, whichever is applicable, as published in
the Western Edition of THE WALL STREET JOURNAL FOR the ten (10) trading days
prior to the date of the Holder's election hereunder or, (B) if applicable at
the time of or in connection with the exercise under clause (b) of this
Section 1, the gross sales price of one share of the Company's Common Stock
pursuant to a registered public offering or that amount which shareholders of
the Company will receive for each share of Common Stock pursuant to a merger,
reorganization or sale of assets; and (ii) that number of shares of Common
Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
Per Share Price of the Preferred Stock (or the equivalent number of shares of
Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as such price
shall be agreed upon by the Holder and the Company or, if agreement cannot be
reached written ten (10) business days of the Holder's election hereunder, as
such price shall be determined by a panel of three (3) appraisers, one (1) to
be chosen by the Company, one (1) to be chosen by the Holder and the third to
be chosen by the first two (2) appraisers. If the appraisers cannot reach
agreement within 30 days of the Holder's election hereunder, then each
appraiser shall deliver its appraisal and the appraisal which is neither the
highest nor the lowest shall constitute the Per Share Price. In the event
either party fails to choose an appraiser within 30 days of the Holder's
election hereunder,
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then the appraisal of the sole appraiser shall constitute the Per Share
Price. Each party shall bear the cost of the appraiser selected by such party
and the cost of the third appraiser shall be borne one-half by each party. In
the event either party fails to choose an appraiser, the cost of the sole
appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be
transferable except upon the conditions specified in this Section 2, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each holder of this Warrant or the Preferred Stock issuable
hereunder will cause any proposed transferee of the Warrant or Preferred
Stock to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii)
the Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any shareholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the
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Company will at all times beginning on the earlier of the closing of the
financing referred to in Section 4.8 or October 31, 1997, have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Preferred Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
The Company will take all such action as may be necessary to assure that such
shares of Preferred Stock may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which the Preferred Stock may be listed. The Company
will not take any action which would result in any adjustment of the Stock
Purchase Price (as defined in Section 4 hereof) (i) if the total number of
shares of Preferred Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Preferred Stock then
outstanding and all shares of Preferred Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Preferred Stock then authorized by
the Company's Articles of Incorporation, or (ii) if the total number of shares
of Common Stock issuable after such action upon the conversion of all such
shares of Preferred Stock together with all shares of Common Stock then
outstanding and then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise
of this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 4. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting
from such adjustment, the number of shares obtained by multiplying the Stock
Purchase 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 Stock Purchase Price resulting from
such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the
Company shall at any time subdivide its outstanding shares of Preferred Stock
into a greater number of shares, the Stock Purchase Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Preferred Stock of the Company
shall be combined into a smaller number of shares, the Stock Purchase Price
in effect immediately prior to such combination shall be proportionately
increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of
Preferred Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,
(a) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for
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Preferred Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
or
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any capital reorganization of the capital stock of the Company,
or any consolidation or merger of the Company with another corporation, or
the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Preferred Stock shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby the holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Preferred Stock
of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Preferred Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby. In any such case, 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 Stock Purchase Price
and of the number of shares purchasable and receivable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may be possible,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument, executed and mailed or delivered to the registered Holder
hereof at the last address of such Holder appearing on the books of the
Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company
shall at any time or from time to time issue or sell any of its Common Stock,
Preferred Stock, options to acquire (or rights to acquire such options), or
any other securities convertible into or exercisable for
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Common Stock, for a consideration per share less than the Stock Purchase Price
in effect immediately prior to the time of such issue or sale, the Stock
Purchase Price, then in effect and then applicable for any subsequent period or
periods shall be adjusted to a price determined by dividing (i) an amount equal
to the sum of (X) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Stock Purchase Price then in
effect and (y) the consideration, if any, received by the Company upon such
issue or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale. For purposes of this Section 4.4, all
shares of Common Stock issuable upon the exercise and/or conversion of all
outstanding warrants (including this Warrant) options and convertible securities
shall be deemed to be outstanding. The foregoing notwithstanding, no adjustment
shall be made pursuant to this Section 4.4 on account of a given sale to the
extent that (a) the Stock Purchase Price is adjusted pursuant to any other
Section of this Warrant, (b) the conversion price of the Preferred Stock is
decreased pursuant to the terms thereof, or (c) the issuance or sale does not
result in an adjustment for holders of the Company's Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price, and/or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant 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 signed by the Company's chief
financial officer and shall state the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its
Preferred Stock payable in stock or make any special dividend or other
distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to
the holders of its Preferred Stock any additional shares of stock of any
class or other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
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(f) the Company shall take or propose to take any other
action, notice of which is actually provided to holders of the Preferred
Stock;
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, (i) at least 20 day's 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 subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Preferred Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.
4.7 CERTAIN EVENTS. If any change in the outstanding
Preferred Stock of the Company or any other event occurs as to which the
other provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price and/or the application of such provisions, in accordance
with such essential intent and principles, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Stock Purchase Price the
total number, class and kind of shares as he would have owned had the Warrant
been exercised prior to the event and had he continued to hold such shares
until after the event requiring adjustment.
4.8 ISSUANCE OF SERIES B PREFERRED SHARES. If no round of
venture capital equity-financing of at least $1,000,000 closes prior to
October 51, 1997 then the Stock Purchase Price shall be the per share price
of such preferred stock in the Series A financing ($.21) and this Warrant may
be exercised for Series A shares instead of Series B shares.
5. ISSUE TAX. The issuance of certificates for shares of
Preferred Stock upon the exercise of the Warrant shall be made without charge
to the Holder of the Warrant for any issue tax in respect thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the then Holder of the Warrant
being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of any Warrant or of any shares of
Preferred Stock issued or issuable upon the exercise of any warrant in any
manner which interferes with the timely exercise of this Warrant.
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7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder hereof the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or 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. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Preferred Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its
creditors.
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder
of this Warrant consents thereto in writing, the Company shall not amend its
Articles of Incorporation after the issuance of its Series B Preferred Stock
and prior to the exercise of this Warrant if the Preferred Stock would be
adversely affected by such amendment in a manner different than other holders
of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled,
with respect to the shares of Preferred Stock issued upon exercise hereof or
the shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to all of the registration rights set
forth in the Investor Rights Agreement dated as of May 10, 1996 to the same
extent and on the same terms and conditions as possessed by the class of
Investors thereunder. The company shall take such action, as may be
reasonably necessary to assure that the granting of such registration rights
to the Holder does not violate the provisions of such agreement or any of the
Company's charter documents or rights of prior Grantees of registration
rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The
rights and obligations of the Company, of the Holder of this Warrant and of
the holder of shares of Preferred Stock issued upon exercise of this Warrant,
contained in Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is
sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three
business days after deposit in the US mail, with postage prepaid and
certified or registered, 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.
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13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Preferred Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to
the benefit of the successors and assign of the holder hereof. The Company
will, at the time of the exercise of this Warrant, in whole or in part, upon
request of the Holder hereof but at the Company's expense, acknowledge in
writing its continuing obligation to the Holder hereof in respect of any
rights (including, without limitation, any right to registration of the
shares of Common Stock) to which the holder hereof shall continue to be
entitled after such exercise in accordance with this Warrant; provided, that
the failure of the holder hereof to make any such request shall not affect
the continuing obligation of the Company to the Holder hereof in respect of
such rights.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense
will make and deliver a new warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. 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 multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant,
Holder represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and
investing in companies engaged in businesses similar to that of the Company;
it understands that investment in the Warrant involves substantial risks; it
has made detailed inquiries concerning the Company, its business and
services, its officers and its personnel; the officers of the Company have
made available to Holder any and all written information it has requested;
the officers of the Company have answered to Holder's satisfaction all
inquiries made by it; in making this investment it has relied upon
information made available to it by the Company; and it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Company and it is able
to bear the economic risk of that investment.
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17.2 INVESTMENT. It is acquiring the Warrant for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered under
the Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and perform
its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance and
sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the
Warrant and the issuance of Common Stock upon conversion of the Preferred Stock
will be exempt from the registration requirements of the Securities Act, and are
exempt from the qualification requirements of any applicable state securities
laws; and neither the Company nor anyone acting on its behalf will take any
action hereafter that would cause the loss of such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the company
will use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder
with true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other charter
document setting, forth any rights, preferences and
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<PAGE>
privileges of, Company's capital stock, each as amended and in effect on the
date of issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof,
each share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes in
financial position at and as of the end of such fiscal year, together with an
audited statement of income for such fiscal year; (ii) within 45 days after the
close of each fiscal quarter of the Company, an unaudited balance sheet and
statement of cash flows at and as of the end of such quarter, together with an
unaudited statement of income for such quarter; and (iii) promptly after
sending, making available, or filing, copies of all reports, proxy statements,
and financial statements that the Company sends or makes available to its
shareholders and all registration statements and reports that the Company files
with the SEC or any other governmental or regulatory authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be duly executed by its officers, thereunto duly authorized this 11th day of
April, 1997.
KEYNOTE SYSTEMS INCORPORATED
By:
---------------------------------
Title:
------------------------------
11
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
-------------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________________________________ (______) (1)
shares of Preferred Stock of ____________________________________________ and
herewith makes payment of Dollars ($__________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_____________________________________________, whose address is
__________________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control).
DATED:
-------------------------
-------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant)
(Address)
-------------------------------------------
-------------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
12
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant;
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
Name Of Assignee Address No. Of Shares
- -------------------------------------------------------------------------------
DATED:
-------------------------------------
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
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<PAGE>
Exhibit 10.27
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
SHARES OF SERIES B PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after December 31, 2002)
This certifies that Robert A. Kingsbook or assigns (the "Holder"), for
value received, is entitled to purchase from KEYNOTE SYSTEMS INCORPORATED , a
California corporation (the "Company"), fully paid and nonassessable shares of
the Company's Series B Preferred Stock ("Preferred Stock") for cash at a price
per share equal to the price per share at which the Company issues shares of its
Series B Preferred Stock (the "Stock Purchase Price") at any time or from time
to time up to and including 5:00 p.m. (Pacific time) on December 31, 2002 (the
"Expiration Date"), upon surrender to the Company at its principal office at Two
West Fifth Avenue, San Mateo, CA 94402 (or at such other location as the Company
may advise Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. Initially, the number of shares to be exercised shall be
equal to the quotient of (i) 4,000 dollars, divided by (ii) the Stock Purchase
Price. The Stock Purchase Price and the number of shares purchasable hereunder
are subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have
<PAGE>
been so converted (and, where the context requires, reference to "Preferred
Stock" shall be deemed to include such Common Stock). The Company agrees that
the shares of Preferred Stock purchased under this Warrant shall be and are
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares. Subject to the provisions of
Section 2, certificates for the shares of Preferred Stock 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 within a reasonable time after the rights represented by
this Warrant have been so exercised. Except as provided in clause (b) of this
Section 1, in case of a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and execute
and deliver a new Warrant or Warrants of like tenor for the balance of the
shares purchasable under the Warrant surrendered upon such purchase to the
Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Preferred Stock as may be requested by the
Holder hereof and shall be registered in the name of such Holder or such other
name as shall be designated by such Holder, subject to the limitations contained
in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); over
(ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any
exchange, whichever is applicable, as published in the Western Edition of THE
WALL STREET JOURNAL for the ten (10) trading days prior to the date of the
Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets;
and (ii) that number of shares of Common Stock into which each share of
Preferred Stock is convertible. if the Company's Common Stock is not quoted by
NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or
the equivalent number of shares of Common Stock into which such Preferred Stock
is convertible) shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be agreed upon by the Holder and the Company or, if
agreement cannot be reached within ten (10) business days of the Holder's
election hereunder, as such price shall be determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the
2
<PAGE>
event either party fails to choose an appraiser within 30 days of the Holder's
election hereunder, then the appraisal of the sole appraiser shall constitute
the Per Share Price. Each party shall bear the cost of the appraiser selected by
such party and the cost of the third appraiser shall be borne one-half by each
party. In the event either party fails to choose an appraiser, the cost of the
sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be
transferable except upon the conditions specified in this Section 2, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each holder of this Warrant or the Preferred Stock issuable
hereunder will cause any proposed transferee of the Warrant or Preferred
Stock to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in affect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the
3
<PAGE>
Company will at all times beginning on the earlier of the closing of the
financing referred to in Section 4.8 or October 31, 1997, have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Preferred Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
The Company will take all such action as may be necessary to assure that such
shares of Preferred Stock may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which the Preferred Stock may be listed. The Company
will not take any action which would result in any adjustment of the Stock
Purchase Price (as defined in Section 4 hereof) (i) if the total number of
shares of Preferred Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Preferred Stock then
outstanding and all shares of Preferred Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Preferred Stock then authorized by
the Company's Articles of Incorporation, or (ii) if the total number of shares
of Common Stock issuable after such action upon the conversion of all such
shares of Preferred Stock together with all shares of Common Stock then
outstanding and then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase 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
Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Preferred Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution, or
4
<PAGE>
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Preferred Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
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 Stock Purchase Price and
of the number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be possible, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effect any such consolidation,
merger or sale unless, prior to the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a consideration
per share less than the Stock Purchase Price in effect immediately prior to the
time of such issue or sale, the Stock Purchase Price then in effect and then
applicable for any subsequent period or periods shall be adjusted to a price
determined by
5
<PAGE>
dividing (i) an amount equal to the sum of (x) the number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the
Stock Purchase Price then in effect and (y) the consideration, if any, received
by the Company upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale. For purposes of
this Section 4.4, all shares of Common Stock issuable upon the exercise and/or
conversion of all outstanding warrants (including this Warrant), options and
convertible securities shall be deemed to be outstanding. The foregoing
notwithstanding, no adjustment shall be made pursuant to this Section 4.4 on
account of a given sale to the extent that (a) the Stock Purchase Price is
adjusted pursuant to any other Section of this Warrant, (b) the conversion price
of the Preferred Stock is decreased pursuant to the terms thereof, or (c) the
issuance or sale does not result in an adjustment for holders of the Company's
Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant 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 signed by the Company's chief financial officer and shall state
the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation of winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
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
6
<PAGE>
books of the Company, (i) at least 20 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 subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action and (ii) in the
case of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, or other action, at least 20 days'
written notice of the data when the same shall take place. Any notice given in
accordance with the foregoing clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Preferred Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action as the case may be.
4.7 CERTAIN EVENTS. If any change in the outstanding Preferred
Stock of the Company or any other event occurs as to which the other
provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price and/or the application of such provisions, in accordance
with such essential intent and principles, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Stock Purchase Price the
total number, class and kind of shares as he would have owned had the Warrant
been exercised prior to the event and had he continued to hold such shares
until after the event requiring adjustment.
4.8 ISSUANCE OF SERIES B PREFERRED SHARES. If no round of
venture capital equity financing of at least $1,000,000 closes prior to
October 31, 1997 then the Stock Purchase Price shall be the per share price
of such preferred stock in the Series A financing ($.21) and this Warrant may
be exercised for Series A shares instead of Series B shares.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the Warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or 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
7
<PAGE>
or the shares purchasable hereunder until, and only to the extent that, this
Warrant shall have been exercised. No provisions hereof, in the absence of
affirmative action by the holder to purchase shares of Preferred Stock, and no
mere enumeration herein of the rights or privileges of the Holder hereof, shall
give rise to any liability of such Holder for the Stock Purchase Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by its creditors.
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation after the issuance of its Series B Preferred Stock and prior to
the exercise of this Warrant if the Preferred Stock would be adversely affected
by such amendment in a manner different than other holders of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to all of the registration rights set forth
in the Investor Rights Agreement dated as of May 10, 1996 to the same extent and
on the same terms and conditions as possessed by the class of Investors
thereunder. The Company shall take such action as may be reasonably necessary to
assure that the granting of such registration rights to the Holder does not
violate the provisions of such agreement or any of the Company's charter
documents or rights of prior Grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
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.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the
8
<PAGE>
Company's expense, acknowledge in writing its continuing obligation to the
Holder hereof in respect of any rights (including, without limitation, any right
to registration of the shares of Common Stock) to which the holder hereof shall
continue to be entitled after such exercise in accordance with this Warrant;
provided, that the failure of the holder hereof to make any such request shall
not affect the continuing obligation of the Company to the Holder hereof in
respect of such rights.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute d part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. 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 multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services, its
officers and its personnel; the officers of the Company have made available to
Holder any and all written information it has requested; the officers of the
Company have answered to Holder's satisfaction all inquiries made by it; in
making this investment it has relied upon information made available to it by
the Company; and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered under
the Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the
9
<PAGE>
Securities Act or an exemption from such registration is available. It has been
advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and perform
its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance and
sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the
Warrant and the issuance of Common Stock upon conversion of the Preferred Stock
will be exempt from the registration requirements of the Securities Act, and are
exempt from the qualification requirements of any applicable state securities
laws; and neither the Company nor anyone acting on its behalf will take any
action hereafter that would cause the loss of such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder
with true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws and each Certificate of Determination or other charter
document setting forth any rights, preferences and privileges of Company's
capital stock, each as amended and in effect on the date of issuance of this
Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof,
each share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes in
financial position at and as of the end of such fiscal year, together with
10
<PAGE>
an audited statement of income for such fiscal year; (ii) within 45 days after
the close of each fiscal quarter of the Company, an unaudited balance sheet and
statement of cash flows at and as of the end of such quarter, together with an
unaudited statement of income for such quarter; and (iii) promptly after
sending, making available, or filing, copies of all reports, proxy statements,
and financial statements that the Company sends or makes available to its
shareholders and all registration statements and reports that the Company files
with the SEC or any other governmental or regulatory authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 11th day of April,
1997.
KEYNOTE SYSTEMS INCORPORATED
By: /s/ Doug Finlay
------------------------------------
Title: Chief Financial Officer
11
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
---------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _______________________________ (________) (1) shares of
Preferred Stock of ___________________________ and herewith makes payment of
______________________ Dollars ($_______) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
______________________________ whose address is ____________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:
------------------------------------
(Signature must conform in all
respects to name of holder as
specified an the face of the
Warrant)
(Address)
------------------------------------
------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- --------------------------------------------------------------------------------
Dated:
-------------------------------
-------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
EXHIBIT 10.28
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
19,636 SHARES OF SERIES B PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after June 30, 2003)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from KEYNOTE SYSTEMS INCORPORATED, a California corporation (the
"Company"), 19,636 fully paid and nonassessable shares of the Company's Series B
Preferred Stock ("Preferred Stock") for cash at a price of $.55 per share (the
"Stock Purchase Price") at any time or from time to time up to and including
5:00 p.m. (Pacific time) on June 30, 2003 (the "Expiration Date"), upon
surrender to the Company at its principal office at Two West Fifth Avenue, San
Mateo, CA 94402 (or at such other location as the Company may advise Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have been so converted (and, where the
context requires, reference to "Preferred Stock" shall be deemed to include
such Common Stock). The Company agrees that the shares of Preferred Stock
purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the
<PAGE>
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares.
Subject to the provisions of Section 2, certificates for the shares of Preferred
Stock 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 within a reasonable time after
the rights represented by this Warrant have been so exercised. Except as
provided in clause (b) of this Section 1, in case of a purchase of less than all
the shares which may be purchased under this Warrant, the Company shall cancel
this Warrant and execute and deliver a new Warrant or Warrants of like tenor for
the balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder or such other name as shall be designated by such Holder, subject to the
limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the
payment of the Stock Purchase Price pursuant to clause (a) of this Section 1,
may elect, at any time on or before the Expiration Date, to receive that
number of shares of Preferred Stock equal to the quotient of: (i) the
difference between (A) the Per Share Price (as hereinafter defined) of the
Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied
by the number of shares of Preferred Stock the Holder would otherwise have
been entitled to purchase hereunder pursuant to clause (a) of this Section 1
(or such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share
Price" means the product of: (i) the greater of (A) the average of the
closing bid and asked prices of the Company's Common Stock as quoted by
NASDAQ or listed on any exchange, whichever is applicable, as published in
the Western Edition of THE WALL STREET JOURNAL for the ten (10) trading days
prior to the date of the Holder's election hereunder or, (B) if applicable at
the time of or in connection with the exercise under clause (b) of this
Section 1, the gross sales price of one share of the Company's Common Stock
pursuant to a registered public offering or that amount which shareholders of
the Company will receive for each share of Common Stock pursuant to a merger,
reorganization or sale of assets; and (ii) that number of shares of Common
Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
Per Share Price of the Preferred Stock (or the equivalent number of shares of
Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as such price
shall be agreed upon by the Holder and the Company or, if agreement cannot be
reached within ten (10) business days of the Holder's election hereunder, as
such price shall be determined by a panel of three (3) appraisers, one (1) to
be chosen by the Company, one (1) to be chosen by the Holder and the third to
be chosen by the first two (2) appraisers. If the appraisers cannot reach
agreement within 30 days of the Holder's election hereunder, then each
appraiser shall deliver its appraisal and the appraisal which is neither the
highest nor the lowest shall constitute the Per Share Price. In the event
either party fails to choose an appraiser within 30 days of the Holder's
election hereunder, then the appraisal of the sole appraiser shall constitute
the Per Share Price. Each party shall bear the cost of the appraiser selected
by such party and the cost of the third appraiser shall be borne
2
<PAGE>
one-half by each party. In the event either party fails to choose an appraiser,
the cost of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be
transferable except upon the conditions specified in this Section 2, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each holder of this Warrant or the Preferred Stock issuable
hereunder will cause any proposed transferee of the Warrant or Preferred
Stock to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
warrant is subsequently transferred represents and warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of
3
<PAGE>
authorized but unissued Preferred Stock, or other securities and property, when
and as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares of Preferred Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which the Preferred Stock may be listed. The
Company will not take any action which would result in any adjustment of the
Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of
shares of Preferred Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Preferred Stock then
outstanding and all shares of Preferred Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Preferred Stock then authorized by
the Company's Articles of Incorporation, or (ii) if the total number of shares
of Common Stock issuable after such action upon the conversion of all such
shares of Preferred Stock together with all shares of Common Stock then
outstanding and then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase 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
Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Preferred Stock into a
greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely,
in case the outstanding shares of Preferred Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of
Preferred Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,
(a) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Preferred Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash
dividend, or
4
<PAGE>
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any capital reorganization of the capital stock of the Company, or
any consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of its assets to another corporation shall
be effected in such a way that holders of Preferred Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for
Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby the holder hereof shall thereafter have the
right to purchase and receive (in lieu of the shares of the Preferred Stock
of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Preferred Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby. In any such case, 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 Stock Purchase Price
and of the number of shares purchasable and receivable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may be possible,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument, executed and mailed or delivered to the registered Holder
hereof at the last address of such Holder appearing on the books of the
Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company
shall at any time or from time to time issue or sell any of its Common Stock,
Preferred Stock, options to acquire (or rights to acquire such options), or
any other securities convertible into or exercisable for Common Stock, for a
consideration per share less than the Stock Purchase Price in effect
immediately prior to the time of such issue or sale, the Stock Purchase Price
then in effect and then applicable for any subsequent period or periods shall
be adjusted to a price determined by dividing (i) an amount equal to the sum
of (x) the number of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the Stock Purchase Price then in effect and
(y) the consideration, if any, received by the Company upon such issue or
sale, by
5
<PAGE>
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale. For purposes of this Section 4.4, all shares of Common Stock
issuable upon the exercise and/or conversion of all outstanding warrants
(including this Warrant), options and convertible securities shall be deemed to
be outstanding. The foregoing notwithstanding, no adjustment shall be made
pursuant to this Section 4.4 on account of a given sale to the extent that (a)
the Stock Purchase Price is adjusted pursuant to any other Section of this
Warrant, (b) the conversion price of the Preferred Stock is decreased pursuant
to the terms thereof, or (c) the issuance or sale does not result in an
adjustment for holders of the Company's Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price, and/or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant 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 signed by the Company's chief
financial officer and shall state the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its
Preferred Stock payable in stock or make any special dividend or other
distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to
the holders of its Preferred Stock any additional shares of stock of any
class or other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other
action, notice of which is actually provided to holders of the Preferred
Stock;
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, (i) at least 20 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 subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification,
6
<PAGE>
consolidation, merger, sale, dissolution, liquidation or winding-up, or other
action and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, or other
action, at least 20 days' written notice of the date when the same shall take
place. Any notice given in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Preferred Stock shall be entitled thereto. Any
notice given in accordance with the foregoing clause (ii) shall also specify the
date on which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be.
4.7 CERTAIN EVENTS. If any change in the outstanding Preferred
Stock of the Company or any other event occurs as to which the other
provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price and/or the application of such provisions, in accordance
with such essential intent and principles, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Stock Purchase Price the
total number, class and kind of shares as he would have owned had the Warrant
been exercised prior to the event and had he continued to hold such shares
until after the event requiring adjustment.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the Warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or 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. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Preferred Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
7
<PAGE>
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation prior to the exercise of this Warrant if the Preferred Stock would
be adversely affected by such amendment in a manner different than other holders
of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to all of the registration rights set forth
in the Investor Rights Agreement dated as of May 10, 1996 to the same extent and
on the same terms and conditions as possessed by the class of Investors
thereunder. The Company shall take such action as may be reasonably necessary to
assure that the granting of such registration rights to the Holder does not
violate the provisions of such agreement or any of the Company's charter
documents or rights of prior Grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
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.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.
8
<PAGE>
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. 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 multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of investment in the Company and it is able to bear the economic
risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions
of Rule 144 promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
9
<PAGE>
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate power
and corporate authority to issue this Warrant and to carry out and perform its
obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this has been taken. This Warrant is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of Holder's
representations set forth in Section 17 hereof, the offer, issuance and sale of
the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant
and the issuance of Common Stock upon conversion of the Preferred Stock will be
exempt from the registration requirements of the Securities Act, and are exempt
from the qualification requirements of any applicable state securities laws; and
neither the Company nor anyone acting on its behalf will take any action
hereafter that would cause the loss of such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company will
use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with true
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document setting
forth any rights, preferences and privileges of Company's capital stock, each as
amended and in effect on the date of issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each share
of the Preferred Stock is convertible into one share of the Common Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the earlier
of the Expiration Date or the complete exercise of this Warrant, the Company
shall furnish to Holder (i) within 90 days after the close of each fiscal year
of the Company an audited balance sheet and statement of changes in financial
position at and as of the end of such fiscal year, together with an audited
statement of income for such fiscal year; (ii) within 45 days after the close of
each fiscal quarter of the Company, an unaudited balance sheet and statement of
cash flows at and as of the end of such quarter, together with an unaudited
statement of income for such quarter; and (iii) promptly after sending, making
available, or filing, copies of all reports, proxy statements, and financial
statements that the Company sends or makes available to its shareholders and all
registration statements and reports that the Company files with the SEC or any
other governmental or regulatory authority.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 23rd day of December,
1997.
KEYNOTE SYSTEMS INCORPORATED
By: /s/ DOUG FINLAY
----------------------------------
Title: Chief Financial Officer
11
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
---------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________________________________ (_______) (1) shares
of Preferred Stock of ______________________________ and herewith makes payment
of ________________ Dollars ($_________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
______________________________________________________, whose address is
_____________________________________________________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:
--------------------------------
--------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
(Address)
--------------------------------------
--------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- --------------------------------------------------------------------------------
Dated:
------------------------------
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated ______________, 199__, issued by __________________, a _____________
corporation (the "Company"), to VENTURE LENDING & LEASING, INC., a Maryland
corporation (the "Holder").
This certifies that the Holder is entitled to purchase from the
Company _____________________________________ (_______) fully paid and
nonassessable shares of the Company's ____________ Stock at a price of
_______________ Dollars ($_______) per share (the "Stock Purchase Price"). The
Stock Purchase Price and the number of shares purchasable under the Warrant
remain subject to adjustment as provided in Section 4 of the Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this ____ day of _____________, 199__.
Keynote Systems Incorporated
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
VENTURE LENDING & LEASING, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
Exhibit 10.29
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
45,818 SHARES OF SERIES B PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after June 30, 2003)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from KEYNOTE SYSTEMS INCORPORATED, a California corporation (the
"Company"), 45,818 fully paid and nonassessable shares of the Company's Series B
Preferred Stock ("Preferred Stock") for cash at a price of $.55 per share (the
"Stock Purchase Price") at any time or from time to time up to and including
5:00 p.m. (Pacific time) on June 30, 2003 (the "Expiration Date"), upon
surrender to the Company at its principal office at Two West Fifth Avenue, San
Mateo, CA 94402 (or at such other location as the Company may advise Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this Section
1, this Warrant shall be exercisable at the option of the Holder, at any time or
from time to time, on or before the Expiration Date for all or any portion of
the shares of Preferred Stock (but not for a fraction of a share) which may be
purchased hereunder for the Stock Purchase Price multiplied by the number of
shares to be purchased. In the event, however, that pursuant to the Company's
Articles of Incorporation, as amended, an event causing automatic conversion of
the Company's Preferred Stock shall have occurred prior to the exercise of this
Warrant, in whole or in part, then this Warrant shall be exercisable for the
number of shares of Common Stock of the Company into which the Preferred Stock
not purchased upon any prior exercise of the Warrant would have been so
converted (and, where the context requires, reference to "Preferred Stock" shall
be deemed to include such Common Stock). The Company agrees that the shares of
Preferred Stock
<PAGE>
purchased under this Warrant shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares. Subject to the provisions of Section 2, certificates for the shares of
Preferred Stock 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 within a reasonable
time after the rights represented by this Warrant have been so exercised. Except
as provided in clause (b) of this Section 1, in case of a purchase of less than
all the shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Preferred Stock as
may be requested by the Holder hereof and shall be registered in the name of
such Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); over
(ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any
exchange, whichever is applicable, as published in the Western Edition of THE
WALL STREET JOURNAL for the ten (10) trading days prior to the date of the
Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets;
and (ii) that number of shares of Common Stock into which each share of
Preferred Stock is convertible. If the Company's Common Stock is not quoted by
NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or
the equivalent number of shares of Common Stock into which such Preferred Stock
is convertible) shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be agreed upon by the Holder and the Company or, if
agreement cannot be reached within ten (10) business days of the Holder's
election hereunder, as such price shall be determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser within 30 days of
the Holder's election hereunder, then the appraisal of the sole appraiser shall
constitute the Per Share Price. Each party shall bear
2
<PAGE>
the cost of the appraiser selected by such party and the cost of the third
appraiser shall be borne one-half by each party. In the event either party fails
to choose an appraiser, the cost of the sole appraiser shall be borne one-half
by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause
any proposed transferee of the Warrant or Preferred Stock to agree to take
and hold such securities subject to the provisions and upon the conditions
specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the Preferred
Stock, (iii) shares of the Company's Common Stock issued upon conversion of the
Preferred Stock and (iv) any other securities issued in respect of the Preferred
Stock or Common Stock issued upon conversion of the Preferred Stock upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of this Section 2 or
unless such securities have been registered under the Securities Act or sold
under Rule 144) be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is
subsequently transferred represents and warrants to the Company (by acceptance
of such transfer) that it will not transfer the Warrant (or securities issuable
upon exercise hereof unless a registration statement under the Securities Act
was in effect with respect to such securities at the time of issuance thereof)
except pursuant to (i) an effective registration statement under the Securities
Act, (ii) Rule 144 under the Securities Act (or any other rule under the
Securities Act relating to the disposition of securities), or (iii) an opinion
of counsel, reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Preferred Stock which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon
3
<PAGE>
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Preferred Stock, or other securities
and property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Preferred Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Preferred Stock
may be listed. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if
the total number of shares of Preferred Stock issuable after such action upon
exercise of all outstanding warrants, together with all shares of Preferred
Stock then outstanding and all shares of Preferred Stock then issuable upon
exercise of all options and upon the conversion of all convertible securities
then outstanding, would exceed the total number of shares of Preferred Stock
then authorized by the Company's Articles of Incorporation, or (ii) if the total
number of shares of Common Stock issuable after such action upon the conversion
of all such shares of Preferred Stock together with all shares of Common Stock
then outstanding and then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock Purchase
Price and the number of shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events described in this Section 4. Upon each adjustment of the Stock Purchase
Price, the Holder of this Warrant shall thereafter be entitled to purchase, at
the Stock Purchase Price resulting from such adjustment, the number of shares
obtained by multiplying the Stock Purchase 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 Stock Purchase
Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
4
<PAGE>
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Preferred Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
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 Stock Purchase Price and
of the number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be possible, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effect any such consolidation,
merger or sale unless, prior to the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a consideration
per share less than the Stock Purchase Price in effect immediately prior to the
time of such issue or sale, the Stock Purchase Price then in effect and then
applicable for any subsequent period or periods shall be adjusted to a price
determined by dividing (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Stock Purchase Price then
5
<PAGE>
in effect and (y) the consideration, if any, received by the Company upon such
issue or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale. For purposes of this Section 4.4, all
shares of Common Stock issuable upon the exercise and/or conversion of all
outstanding warrants (including this Warrant), options and convertible
securities shall be deemed to be outstanding. The foregoing notwithstanding, no
adjustment shall be made pursuant to this Section 4.4 on account of a given sale
to the extent that (a) the Stock Purchase Price is adjusted pursuant to any
other Section of this Warrant, (b) the conversion price of the Preferred Stock
is decreased pursuant to the terms thereof, or (c) the issuance or sale does not
result in an adjustment for holders of the Company's Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant 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 signed by the Company's chief financial officer and shall state
the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
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, (i) at least 20 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 subscription
6
<PAGE>
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 days' written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Preferred Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.
4.7 CERTAIN EVENTS. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.
5. ISSUE TAX. The issuance of certificates for shares of Preferred Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained
in this Warrant shall be construed as conferring upon the Holder hereof the
right to vote or to consent as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or 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. No provisions hereof, in
the absence of affirmative action by the holder to purchase shares of Preferred
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Stock Purchase
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by its creditors.
7
<PAGE>
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation prior to the exercise of this Warrant if the Preferred Stock would
be adversely affected by such amendment in a manner different than other holders
of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with respect
to the shares of Preferred Stock issued upon exercise hereof or the shares of
Common Stock or other securities issued upon conversion of such Preferred Stock
as the case may be, to all of the registration rights set forth in the Investor
Rights Agreement dated as of May 10, 1996 to the same extent and on the same
terms and conditions as possessed by the class of Investors thereunder. The
Company shall take such action as may be reasonably necessary to assure that the
granting of such registration rights to the Holder does not violate the
provisions of such agreement or any of the Company's charter documents or rights
of prior Grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the holder hereof or the Company shall be deemed to
have been given (i) upon receipt if delivered personally or by courier (ii) upon
confirmation of receipt if by telecopy or (iii) three business days after
deposit in the US mail, with postage prepaid and certified or registered, 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.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.
8
<PAGE>
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. 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
multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it understands
that investment in the Warrant involves substantial risks; it has made detailed
inquiries concerning the Company, its business and services, its officers and
its personnel; the officers of the Company have made available to Holder any and
all written information it has requested; the officers of the Company have
answered to Holder's satisfaction all inquiries made by it; in making this
investment it has relied upon information made available to it by the Company;
and it has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of investment in the Company
and it is able to bear the economic risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment for its
own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of Preferred
Stock issuable upon exercise thereof and the shares of Common Stock issuable
upon conversion of the Preferred Stock, have not been registered under the
Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred Stock
and the Common Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. It has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
9
<PAGE>
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The Company
hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate power
and corporate authority to issue this Warrant and to carry out and perform its
obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this has been taken. This Warrant is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of Holder's
representations set forth in Section 17 hereof, the offer, issuance and sale of
the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant
and the issuance of Common Stock upon conversion of the Preferred Stock will be
exempt from the registration requirements of the Securities Act, and are exempt
from the qualification requirements of any applicable state securities laws; and
neither the Company nor anyone acting on its behalf will take any action
hereafter that would cause the loss of such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company will
use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with true
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document setting
forth any rights, preferences and privileges of Company's capital stock, each as
amended and in effect on the date of issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each share
of the Preferred Stock is convertible into one share of the Common Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the earlier
of the Expiration Date or the complete exercise of this Warrant, the Company
shall furnish to Holder (i) within 90 days after the close of each fiscal year
of the Company an audited balance sheet and statement of changes in financial
position at and as of the end of such fiscal year, together with an audited
statement of income for such fiscal year; (ii) within 45 days after the close of
each fiscal quarter of the Company, an unaudited balance sheet and statement of
cash flows at and as of the end of such quarter, together with an unaudited
statement of income for such quarter; and (iii) promptly after sending, making
available, or filing, copies of all reports, proxy statements, and financial
statements that the Company sends or makes available to its shareholders and all
registration statements and reports that the Company files with the SEC or any
other governmental or regulatory authority.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 23rd day of December,
1997.
KEYNOTE SYSTEMS INCORPORATED
By: /s/ DOUG FINLAY
----------------------------
Title: Chief Financial Officer
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
--------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________________________ (_______) (1) shares of Preferred
Stock of ____________________________ and herewith makes payment of
______________________ Dollars ($_______) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to, whose
address is
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:
------------------------------
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
(Address)
-------------------------------------
-------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
11
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- --------------------------------------------------------------------------------
Dated:
-------------------------
-------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated ______________, 199_, issued by _______________, a ______________
corporation (the "Company"), to VENTURE LENDING & LEASING II, INC., a Maryland
corporation (the "Holder").
This certifies that the Holder is entitled to purchase from the
Company ___________________________ (_________) fully paid and nonassessable
shares of the Company's _________ Stock at a price of ___________________
Dollars ($_______) per share (the "Stock Purchase Price"). The Stock Purchase
Price and the number of shares purchasable under the Warrant remain subject to
adjustment as provided in Section 4 of the Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this ____ day of ___________, 199__.
Keynote Systems Incorporated
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
VENTURE LENDING & LEASING II, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
<PAGE>
EXHIBIT 10.30
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
7,273 SHARES OF SERIES B PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after June 30, 2003)
This certifies that Robert Kingsbook or assigns (the "Holder"), for
value received, is entitled to purchase from KEYNOTE SYSTEMS INCORPORATED, a
California corporation (the "Company"), 7,273 fully paid and nonassessable
shares of the Company's Series B Preferred Stock ("Preferred Stock") for cash at
a price of $.55 per share (the "Stock Purchase Price") at any time or from time
to time up to and including 5:00 p.m. (Pacific time) on June 30, 2003 (the
"Expiration Date"), upon surrender to the Company at its principal office at Two
West Fifth Avenue, San Mateo, CA 94402 (or at such other location as the Company
may advise Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of shares for
which this warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have been so converted (and where the
context requires, reference to "Preferred Stock" shall be deemed to include
such Common Stock). The Company agrees that the shares of Preferred Stock
purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the
<PAGE>
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares.
Subject to the provisions of Section 2, certificates for the shares of Preferred
Stock 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 within a reasonable time after
the rights represented by this Warrant have been so exercised. Except as
provided in clause (b) of this Section 1, in case of a purchase of less than all
the shares which may be purchased under this warrant, the Company shall cancel
this Warrant and execute and deliver a new Warrant or Warrants of like tenor for
the balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder or such other name as shall be designated by such Holder, subject to the
limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock
Purchase Price then in affect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); over
the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any
exchange, whichever is applicable, as published in the Western Edition of THE
WALL STREET JOURNAL for the ten (10) trading days prior to the date of the
Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets;
and (ii) that number of shares of Common Stock into which each share of
Preferred Stock is convertible. If the Company's Common Stock is not quoted by
NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or
the equivalent number of shares of Common Stock into which such Preferred Stock
is convertible) shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be agreed upon by the Holder and the Company or, if
agreement cannot be reached within ten (10) business days of the Holder's
election hereunder, as such price shall be determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser within 30 days of
the Holder's election hereunder, then the appraisal of the sole appraiser shall
constitute the Per Share Price. Each party shall bear the cost of the appraiser
selected by such party and the cost of the third appraiser shall be borne
2
<PAGE>
one-half by each party. In the event either party fails to choose an appraiser,
the cost of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause any
proposed transferee of the Warrant or Preferred Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and Warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of authorized but unissued
Preferred Stock, or other securities and property, when and as required to
3
<PAGE>
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Preferred Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Preferred Stock may be listed. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Preferred
Stock issuable after such action upon exercise of all outstanding warrants,
together with all shares of Preferred Stock then outstanding and all shares of
Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common Stock
issuable after such action upon the conversion of all such shares of Preferred
Stock together with all shares of Common Stock then outstanding and then
issuable upon exercise of all options and upon the conversion of all convertible
securities then outstanding would exceed the total number of shares of Common
Stock then authorized by the Company's Articles of Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase 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
Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Preferred Stock into a
greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely,
in case the outstanding shares of Preferred Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash
dividend, or
4
<PAGE>
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Preferred Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
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 Stock Purchase Price and
of the number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be possible, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not affect any such consolidation,
merger or sale unless, prior to the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a consideration
per share less than the Stock Purchase Price in effect immediately prior to the
time of such issue or sale, the Stock Purchase Price then in effect and then
applicable for any subsequent period or periods shall be adjusted to a price
determined by dividing (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Stock Purchase Price then in effect and (y) the consideration,
if any, received by the Company upon such issue or sale, by
5
<PAGE>
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale. For purposes of this Section 4.4, all shares of Common Stock
issuable upon the exercise and/or conversion of all outstanding warrants
(including this Warrant), options and convertible securities shall be deemed to
be outstanding. The foregoing notwithstanding, no adjustment shall be made
pursuant to this Section 4.4 on account of a given sale to the extent that (a)
the Stock Purchase Price is adjusted pursuant to any other Section of this
Warrant, (b) the conversion price of the Preferred Stock is decreased pursuant
to the terms thereof, or (c) the issuance or sale does not result in an
adjustment for holders of the Company's Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant 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 signed by the Company's chief financial officer and shall state
the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
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, (i) at least 20 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 subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification,
6
<PAGE>
consolidation, merger, sale, dissolution, liquidation or winding-up, or other
action and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, or other
action, at least 20 days' written notice of the date when the same shall take
place. Any notice given in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Preferred Stock shall be entitled thereto. Any
notice given in accordance with the foregoing clause (ii) shall also specify the
date on which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up or other action as the case may be.
4.7 CERTAIN EVENTS. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the Warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or 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. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Preferred Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
7
<PAGE>
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation prior to the exercise of this Warrant if the Preferred Stock would
be adversely affected by such amendment in a manner different than other holders
of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to all of the registration rights set forth
in the Investor Rights Agreement dated as of May 10, 1996 to the same extent and
an the same terms and conditions as possessed by the class of Investors
thereunder. The Company shall take such action as may be reasonably necessary to
assure that the granting of such registration rights to the Holder does not
violate the provisions of such agreement or any of the Company's charter
documents or rights of prior Grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
to each such holder at its address as shown an the books of the Company or to
the Company at the address indicated therefor in the first paragraph of this
Warrant.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially, all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.
8
<PAGE>
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense will make and
deliver a new warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. 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 multiplied by the then effective stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and Warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of investment in the Company and it is able to bear the economic
risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions
of Rule 144 promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
9
<PAGE>
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and
perform its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares
of Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with
true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws and each Certificate of Determination or other charter
document setting forth any rights, preferences and privileges of the
Company's capital stock, each as amended and in effect on the date of
issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each
share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes
in financial position at and as of the end of such fiscal year, together with
an audited statement of income for such fiscal year; (ii) within 45 days
after the close of each fiscal quarter of the Company, an unaudited balance
sheet and statement of cash flows at and as of the end of such quarter,
together with an unaudited statement of income for such quarter; and (iii)
promptly after sending, making available, or filing, copies of all reports,
proxy statements and financial statements that the Company sends or makes
available to its shareholders and all registration statements and reports
that the Company files with the SEC or any other governmental or regulatory
authority.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 23rd day of December,
1997.
KEYNOTE SYSTEMS INCORPORATED
By: /s/ Doug Finlay
---------------------------
Title: Chief Financial Officer
11
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
--------------------------
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________________________________ (_______) (1) shares of
Preferred Stock of ____________________________ and herewith makes payment of
_____________________ Dollars ($______) therefor, and requests that the
certificates for such shares be issued in the name of
_______________________________________________, and delivered to, whose address
is____________________________________________________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:
----------------------------
----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
(Address)
----------------------------------
----------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- --------------------------------------------------------------------------------
Dated:
--------------------------
--------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated ________________, 199__, issued by ___________________, a ___________
corporation (the "Company"), to Robert Kingsbook (the "Holder").
This certifies that the Holder is entitled to purchase from the
Company ___________________________________ (_______) fully paid and
nonassessable shares of the Company's ___________ Stock at a price of
___________________________________ Dollars ($_______) per share (the "Stock
Purchase Price"). The Stock Purchase Price and the number of shares purchasable
under the Warrant remain subject to adjustment as provided in Section 4 of the
Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this ____ day of ___________, 199__.
Keynote Systems Incorporated
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Robert Kingsbook
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE>
EXHIBIT 10.31
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
20,308 SHARES OF SERIES C PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after June 30, 2004)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from KEYNOTE SYSTEMS INCORPORATED, a California corporation (the
"Company"), 20,308 fully paid and nonassessable shares of the Company's Series C
Preferred Stock ("Preferred Stock") for cash at a price of $.65 per share (the
"Stock Purchase Price") at any time or from time to time up to and including
5:00 p.m. (Pacific time) on June 30, 2004 (the "Expiration Date"), upon
surrender to the Company at its principal office at Two West Fifth Avenue, San
Mateo, CA 94402 (or at such other location as the Company may advise Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES,
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have been so converted (and, where the
context requires, reference to "Preferred Stock" shall be deemed to include
such Common Stock). The Company agrees that the shares of Preferred Stock
purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall
<PAGE>
have been surrendered and payment made for such shares. Subject to the
provisions of Section 2, certificates for the shares of Preferred Stock 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 within a reasonable time after
the rights represented by this Warrant have been so exercised. Except as
provided in clause (b) of this Section 1, in case of a purchase of less than
all the shares which may be purchased under this Warrant, the Company shall
cancel this Warrant and execute and deliver a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within a reasonable time. Each stock
certificate so delivered shall be in such denominations of Preferred Stock as
may be requested by the Holder hereof and shall be registered in the name of
such Holder or such other name as shall be designated by such Holder, subject
to the limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); over
(ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any
exchange, whichever is applicable, as published in the Western Edition of THE
WALL STREET JOURNAL for the ten (10) trading days prior to the date of the
Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets;
and (ii) that number of shares of Common Stock into which each share of
Preferred Stock is convertible. If the Company's Common Stock is not quoted by
NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or
the equivalent number of shares of Common Stock into which such Preferred Stock
is convertible) shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be agreed upon by the Holder and the Company or, if
agreement cannot be reached within ten (10) business days of the Holder's
election hereunder, as such price shall he determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser within 30 days of
the Holder's election hereunder, then the appraisal of the sole appraiser shall
constitute the Per Share Price. Each party shall bear the cost of the appraiser
selected by such party and the cost of the third appraiser shall be borne
one-half
2
<PAGE>
by each party. In the event either party fails to choose an appraiser, the cost
of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause any
proposed transferee of the Warrant or Preferred Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the Preferred
Stock, (iii) shares of the Company's Common Stock issued upon conversion of the
Preferred Stock and (iv) any other securities issued in respect of the Preferred
Stock or Common Stock issued upon conversion of the Preferred Stock upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of this Section 2 or
unless such securities have been registered under the Securities Act or sold
under Rule 144) be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT SEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is
subsequently transferred represents and warrants to the Company (by acceptance
of such transfer) that it will not transfer the Warrant (or securities issuable
upon exercise hereof unless a registration statement under the Securities Act
was in effect with respect to such securities at the time of issuance thereof)
except pursuant to (i) an effective registration statement under the Securities
Act, (ii) Rule 144 under the Securities Act (or any other rule under the
Securities Act relating to the disposition of securities), or (iii) an opinion
of counsel, reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of authorized but unissued
Preferred Stock, or other securities and property, when and as required to
3
<PAGE>
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Preferred Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Preferred Stock may be listed. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Preferred
Stock issuable after such action upon exercise of all outstanding warrants,
together with all shares of Preferred Stock then outstanding and all shares of
Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common Stock
issuable after such action upon the conversion of all such shares of Preferred
Stock together with all shares of Common Stock then outstanding and then
issuable upon exercise of all options and upon the conversion of all convertible
securities then outstanding would exceed the total number of shares of Common
Stock then authorized by the Company's Articles of Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase 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
Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend,
or
4
<PAGE>
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of share's or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Preferred Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
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 Stock Purchase Price and
of the number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be possible, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effect any such consolidation,
merger or sale unless, prior to the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a consideration
per share less than the Stock Purchase Price in effect immediately prior to the
time of such issue or sale, the Stock Purchase Price then in effect and then
applicable for any subsequent period or periods shall be adjusted to a price
determined by dividing (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Stock Purchase Price then in effect and (y) the consideration,
if any, received by the Company upon such issue or sale, by
5
<PAGE>
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale. For purposes of this Section 4.4, all shares of Common Stock
issuable upon the exercise and/or conversion of all outstanding warrants
(including this Warrant), options and convertible securities shall be deemed to
be outstanding. The foregoing notwithstanding, no adjustment shall be made
pursuant to this Section 4.4 on account of a given sale to the extent that (a)
the Stock Purchase Price is adjusted pursuant to any other Section of this
Warrant, (b) the conversion price of the Preferred Stock is decreased pursuant
to the terms thereof, or (c) the issuance or sale does not result in an
adjustment for holders of the Company's Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant 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 signed by the Company's chief financial officer and shall state
the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other
action, notice of which is actually provided to holders of the Preferred
Stock;
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, (i) at least 20 day's 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 subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the
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<PAGE>
case of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, or other action, at least 20 day's
written notice of the date when the same shall take place. Any notice given in
accordance with the foregoing clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Preferred Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action as the case may be.
4.7 CERTAIN EVENTS. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or 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. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Preferred Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation prior to
7
<PAGE>
the exercise of this Warrant if the Preferred Stock would be adversely affected
by such amendment in a manner different than other holders of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to all of the registration rights set forth
in the Investor Rights Agreement dated as of May 10, 1996 to the same extent and
on the same terms and conditions as possessed by the class of Investors
thereunder. The company shall take such action as may be reasonably necessary to
assure that the granting of such registration rights to the Holder does not
violate the provisions of such agreement or any of the Company's charter
documents or rights of prior Grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
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.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not
8
<PAGE>
constitute a part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. 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 multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of investment in the Company and it is able to bear the economic
risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions
of Rule 144 promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
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<PAGE>
18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and
perform its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares
of Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with
true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other
charter document, setting forth any rights, preferences and privileges of
Company's capital stock, each as amended and in effect on the date of
issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each
share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes
in financial position at and as of the end of such fiscal year, together with
an audited statement of income for such fiscal year; (ii) within 45 days
after the close of each fiscal quarter of the Company, an unaudited balance
sheet and statement of cash flows at and as of the end of such quarter,
together with an unaudited statement of income for such quarter; and (iii)
promptly after sending, making available, or filing, copies of all reports,
proxy statements, and financial statements that the Company sends or makes
available to its shareholders and all registration statements and reports
that the Company files with the SEC or any other governmental or regulatory
authority.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 24th day of June, 1998.
KEYNOTE SYSTEMS INCORPORATED
By:
--------------------------------
Title:
-----------------------------
11
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
----------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______________________________________________ (_____) (1)
shares of Preferred Stock of __________________________________________________
and herewith makes payment of __________________________________________________
Dollars ($_________) therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to,
________________________________________________________, whose address is
___________________________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:
-------------------------------
--------------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant)
(Address)
--------------------------------------------
--------------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the warrant, may be deliverable upon exercise.
12
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- -------------------------------------------------------------------------------
DATED:
----------------------------
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
13
<PAGE>
EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated ___________________, 1999_, issued by ____________________, a
__________________ corporation (the "Company"), to VENTURE LENDING & LEASING,
INC., a Maryland corporation (the "Holder").
This certifies that the Holder is entitled to purchase from the
Company ____________________________ fully paid and nonassessable shares of the
Company's ___________________ Stock at a price of ________ Dollars ($_______)
per share (the "Stock Purchase Price"). The Stock Purchase Price and the number
of shares purchasable under the Warrant remain subject to adjustment as provided
in Section 4 of the Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this __________day of ____________, 199__.
Keynote Systems Incorporated
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
VENTURE LENDING & LEASING, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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<PAGE>
EXHIBIT 10.32
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE A NUMBER OF
47,384 SHARES OF SERIES C PREFERRED STOCK OF
KEYNOTE SYSTEMS INCORPORATED
(Void after June 30, 2004)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from KEYNOTE SYSTEMS INCORPORATED, a California corporation (the
"Company"), 47,384 fully paid and nonassessable shares of the Company's Series C
Preferred Stock ("Preferred Stock") for cash at a price of $.65 per share (the
"Stock Purchase Price") at any time or from time to time up to and including
5:00 p.m. (Pacific time) on June 30, 2004 (the "Expiration Date"), upon
surrender to the Company at its principal office at Two West Fifth Avenue, San
Mateo, CA 94402 (or at such other location as the Company may advise Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this Section
1, this Warrant shall be exercisable at the option of the Holder, at any time or
from time to time, on or before the Expiration Date for all or any portion of
the shares of Preferred Stock (but not for a fraction of a share) which may be
purchased hereunder for the Stock Purchase Price multiplied by the number of
shares to be purchased. In the event, however, that pursuant to the Company's
Articles of Incorporation, as amended, an event causing automatic conversion of
the Company's Preferred Stock shall have occurred prior to the exercise of this
Warrant, in whole or in part, then this Warrant shall be exercisable for the
number of shares of Common Stock of the Company into which the Preferred Stock
not purchased upon any prior exercise of the Warrant would have been so
converted (and, where the context requires, reference to "Preferred Stock" shall
be deemed to include such Common Stock). The Company agrees that the shares of
Preferred Stock purchased under this Warrant shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall
<PAGE>
have been surrendered and payment made for such shares. Subject to the
provisions of Section 2, certificates for the shares of Preferred Stock 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 within a reasonable time after the
rights represented by this Warrant have been so exercised. Except as provided in
clause (b) of this Section 1, in case of a purchase of less than all the shares
which may be purchased under this Warrant, the Company shall cancel this Warrant
and execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Preferred Stock as may be requested by the
Holder hereof and shall be registered in the name of such Holder or such other
name as shall be designated by such Holder, subject to the limitations contained
in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock
Purchase Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 1 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); over
(ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any
exchange, whichever is applicable, as published in the Western Edition of THE
WALL STREET JOURNAL for the ten (10) trading days prior to the date of the
Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross sales
price of one share of the Company's Common Stock pursuant to a registered public
offering or that amount which shareholders of the Company will receive for each
share of Common Stock pursuant to a merger, reorganization or sale of assets;
and (ii) that number of shares of Common Stock into which each share of
Preferred Stock is convertible. If the Company's Common Stock is not quoted by
NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or
the equivalent number of shares of Common Stock into which such Preferred Stock
is convertible) shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be agreed upon by the Holder and the Company or, if
agreement cannot be reached within ten (10) business days of the Holder's
election hereunder, as such price shall he determined by a panel of three (3)
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser within 30 days of
the Holder's election hereunder, then the appraisal of the sole appraiser shall
constitute the Per Share Price. Each party shall bear the cost of the appraiser
selected by such party and the cost of the third appraiser shall be borne
2
<PAGE>
one-half by each party. In the event either party fails to choose an appraiser,
the cost of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause any
proposed transferee of the Warrant or Preferred Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the Preferred
Stock, (iii) shares of the Company's Common Stock issued upon conversion of the
Preferred Stock and (iv) any other securities issued in respect of the Preferred
Stock or Common Stock issued upon conversion of the Preferred Stock upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of this Section 2 or
unless such securities have been registered under the Securities Act or sold
under Rule 144) be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT SEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is
subsequently transferred represents and warrants to the Company (by acceptance
of such transfer) that it will not transfer the Warrant (or securities issuable
upon exercise hereof unless a registration statement under the Securities Act
was in effect with respect to such securities at the time of issuance thereof)
except pursuant to (i) an effective registration statement under the Securities
Act, (ii) Rule 144 under the Securities Act (or any other rule under the
Securities Act relating to the disposition of securities), or (iii) an opinion
of counsel, reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of authorized but unissued
Preferred Stock, or other securities and property, when and as required to
3
<PAGE>
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Preferred Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Preferred Stock may be listed. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Preferred
Stock issuable after such action upon exercise of all outstanding warrants,
together with all shares of Preferred Stock then outstanding and all shares of
Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common Stock
issuable after such action upon the conversion of all such shares of Preferred
Stock together with all shares of Common Stock then outstanding and then
issuable upon exercise of all options and upon the conversion of all convertible
securities then outstanding would exceed the total number of shares of Common
Stock then authorized by the Company's Articles of Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase 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
Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing
by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend,
or
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(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of share's or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Preferred Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
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 Stock Purchase Price and
of the number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be possible, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effect any such consolidation,
merger or sale unless, prior to the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a consideration
per share less than the Stock Purchase Price in effect immediately prior to the
time of such issue or sale, the Stock Purchase Price then in effect and then
applicable for any subsequent period or periods shall be adjusted to a price
determined by dividing (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Stock Purchase Price then
5
<PAGE>
in effect and (y) the consideration, if any, received by the Company upon such
issue or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale. For purposes of this Section 4.4, all
shares of Common Stock issuable upon the exercise and/or conversion of all
outstanding warrants (including this Warrant), options and convertible
securities shall be deemed to be outstanding. The foregoing notwithstanding, no
adjustment shall be made pursuant to this Section 4.4 on account of a given sale
to the extent that (a) the Stock Purchase Price is adjusted pursuant to any
other Section of this Warrant, (b) the conversion price of the Preferred Stock
is decreased pursuant to the terms thereof, or (c) the issuance or sale does not
result in an adjustment for holders of the Company's Preferred Stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant 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 signed by the Company's chief financial officer and shall state
the Stock Purchase 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.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its
Preferred Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) 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 corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
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, (i) at least 20 day's 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 subscription
6
<PAGE>
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Preferred Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.
4.7 CERTAIN EVENTS. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the then Holder of the warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or 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. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Preferred Stock, and no mere enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
7
<PAGE>
8. AMENDMENT OF ARTICLES OF INCORPORATION. Unless the holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation prior to the exercise of this Warrant if the Preferred Stock would
be adversely affected by such amendment in a manner different than other holders
of Preferred Stock.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to all of the registration rights set forth
in the Investor Rights Agreement dated as of May 10, 1996 to the same extent and
on the same terms and conditions as possessed by the class of Investors
thereunder. The company shall take such action as may be reasonably necessary to
assure that the granting of such registration rights to the Holder does not
violate the provisions of such agreement or any of the Company's charter
documents or rights of prior Grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. 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 party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by courier
(ii) upon confirmation of receipt if by telecopy or (iii) three business days
after deposit in the US mail, with postage prepaid and certified or registered,
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.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder hereof
but at the Company's expense, acknowledge in writing its continuing obligation
to the Holder hereof in respect of any rights (including, without limitation,
any right to registration of the shares of Common Stock) to which the holder
hereof shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.
8
<PAGE>
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. 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.
15. LOST WARRANTS OR STOCK CERTIFICATES. 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
any Warrant or stock certificate 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 or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. 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 multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it understands
that investment in the Warrant involves substantial risks; it has made detailed
inquiries concerning the Company, its business and services, its officers and
its personnel; the officers of the Company have made available to Holder any and
all written information it has requested; the officers of the Company have
answered to Holder's satisfaction all inquiries made by it; in making this
investment it has relied upon information made available to it by the Company;
and it has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of investment in the Company
and it is able to bear the economic risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment for its
own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of Preferred
Stock issuable upon exercise thereof and the shares of Common Stock issuable
upon conversion of the Preferred Stock, have not been registered under the
Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred Stock
and the Common Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. It has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
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<PAGE>
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate power
and corporate authority to issue this Warrant and to carry out and perform its
obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this has been taken. This Warrant is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of Holder's
representations set forth in Section 17 hereof, the offer, issuance and sale of
the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant
and the issuance of Common Stock upon conversion of the Preferred Stock will be
exempt from the registration requirements of the Securities Act, and are exempt
from the qualification requirements of any applicable state securities laws; and
neither the Company nor anyone acting on its behalf will take any action
hereafter that would cause the loss of such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company will
use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with true
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document,
setting forth any rights, preferences and privileges of Company's capital stock,
each as amended and in effect on the date of issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof,
each share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the earlier
of the Expiration Date or the complete exercise of this Warrant, the Company
shall furnish to Holder (i) within 90 days after the close of each fiscal year
of the Company an audited balance sheet and statement of changes in financial
position at and as of the end of such fiscal year, together with an audited
statement of income for such fiscal year; (ii) within 45 days after the close of
each fiscal quarter of the Company, an unaudited balance sheet and statement of
cash flows at and as of the end of such quarter, together with an unaudited
statement of income for such quarter; and (iii) promptly after sending, making
available, or filing, copies of all reports, proxy statements, and financial
statements that the Company sends or makes available to its shareholders and all
registration statements and reports that the Company files with the SEC or any
other governmental or regulatory authority.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 24th day of June, 1998.
KEYNOTE SYSTEMS INCORPORATED
By:
----------------------------------
Title:
-------------------------------
11
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______________________________________________ (_____) (1)
shares of Preferred Stock of __________________________________________________
and herewith makes payment of __________________________________________________
Dollars ($_________) therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to,
________________________________________________________, whose address is
_____________________________________________.
The undersigned represents that it is acquiring such Preferred Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:
--------------------
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
(Address)
--------------------------------------------------
--------------------------------------------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the warrant, may be deliverable upon exercise.
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Preferred Stock
covered thereby set forth hereinbelow, unto:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- --------------------------------------------------------------------------------
DATED:
----------------------------
---------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
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EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated ___________________, 1999_, issued by ____________________, a
__________________ corporation (the "Company"), to VENTURE LENDING & LEASING II,
INC., a Maryland corporation (the "Holder").
This certifies that the Holder is entitled to purchase from the
Company ____________________________ fully paid and nonassessable shares of the
Company's ___________________ Stock at a price of ________ Dollars ($_______)
per share (the "Stock Purchase Price"). The Stock Purchase Price and the number
of shares purchasable under the Warrant remain subject to adjustment as provided
in Section 4 of the Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this __________day of ____________, 199__.
Keynote Systems Incorporated
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
VENTURE LENDING & LEASING II, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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<PAGE>
EXHIBIT 10.33
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES C PREFERRED STOCK OF
KEYNOTE SYSTEMS, INC.
DATED AS OF AUGUST 21, 1998 (THE "EFFECTIVE DATE")
WHEREAS, Keynote Systems, Inc., a California corporation (the "Company")
has entered into a Master Lease Agreement dated as of August 21, 1998, Equipment
Schedule No. VL-1 and VL-2 dated as of August 21, 1998 and related Summary
Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series C Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 30,769 fully paid and
non-assessable shares of the Company's Series C Preferred Stock (the "Preferred
Stock") at a purchase price of $0.65 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
or (ii) three (3) years from the effective date of the Company's initial public
offering, whichever is longer.
<PAGE>
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
-----
A
Where: X = the number of shares of Preferred Stock to be issued to
the Warrantholder.
Y = the number of shares of Preferred Stock requested
to be exercised under this Warrant Agreement.
A = he fair market value of one (1) share of
Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by
the SEC, then the fair market value per share shall be the product of (x)
the initial "Price to Public" specified in the final prospectus with
respect to the offering and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such
exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of
the closing prices over a twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
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(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of the
closing bid and asked prices quoted on the NASDAQ system (or
similar system) over the twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Preferred Stock shall be the
product of (x) the highest price per share which the Company could obtain
from a willing buyer (not a current employee or director) for shares of
Common Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by its Board of Directors and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise, unless the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the fair market
value of Preferred Stock shall be deemed to be the value received by the
holders of the Company's Preferred Stock on a common equivalent basis
pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
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6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total
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<PAGE>
number of all shares of the Company's stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately after
such dividend or distribution. The Warrantholder shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Preferred Stock (calculated to the nearest whole share) obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Preferred Stock issuable upon the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If, the Warrantholder's total cost
of equipment leased pursuant to the Leases exceeds $500,000, Warrantholder shall
have the right to purchase from the Company, at the Exercise Price (adjusted as
set forth herein), an additional number of shares, which number shall be
determined by (i) multiplying the amount by which the Warrantholder's total
equipment cost exceeds $500,000 by 4% and (ii) dividing the product thereof by
the Exercise Price per share referenced above.
(f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's Articles
of Incorporation, as amended through the Effective Date, a true and complete
copy of which is attached hereto as Exhibit __ (the "Charter"). The Company
shall promptly provide the Warrantholder with any restatement, amendment,
modification or waiver of the Charter. The Company shall provide Warrantholder
with prior written notice of any issuance of its stock or other equity security
to occur after the Effective Date of this Warrant, which notice shall include
(a) the price at which such stock or security is to be sold, (b) the number of
shares to be issued, and (c) such other information as necessary for
Warrantholder to determine if a dilutive event has occurred.
(g) NOTICE OF ADJUSTMENTS. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) 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, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days' written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after
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giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, addressed to the Warrantholder, at the address as shown on the
books of the Company.
(h) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
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<PAGE>
(i) The authorized capital of the Company consists of (A) 40,000,000
shares of Common Stock, of which 6,636,063 shares were issued and
outstanding at the Closing Date of the Company's Series C Preferred Stock
financing, and (B) 39,781,478 shares of preferred stock, of which
18,007,523 shares are issued and outstanding and are convertible into
18,007,523 shares of Common Stock at prices ranging from $0.21 to $0.65
per share.
(ii) At the Closing Date of the Company's Series C Preferred Stock
financing, the Company has reserved approximately 6,050,000 shares of
Common Stock for issuance under its Stock Option Plan, under which
4,252,421 options were outstanding at exercise prices of not more than
$0.12 per share. There are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock
or other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances
of the Company's capital stock.
(e) INSURANCE. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth in this
Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) COMPLIANCE WITH RULE 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no
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<PAGE>
present intention of selling or engaging in any public distribution of the
same except pursuant to a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) FINANCIAL RISK. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) RISK OF NO REGISTRATION. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d) of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
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(f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. RIGHT OF FIRST OFFER.
In accordance with the provisions of Section 4 of the Company's Second
Amended and Restated Investor Rights Agreement dated as of March 10, 1998 (the
"Rights Agreement"), if the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), subject to the exceptions set forth in paragraph (d)
thereof, the Company shall promptly provide Warrantholder with an offer to sell
Warrantholder a portion of such Shares equal to the proportion that the number
of shares of Preferred Stock to be issued upon exercise hereunder or number of
shares of common stock upon conversion thereof, bears to the total number of
shares of common stock of the Company then outstanding (assuming full conversion
of all shares of Preferred Stock).
12. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
13. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) COUNTERPARTS. This Warrant 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.
(e) NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transaction (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease
Administration, cc: Legal Department, Attention: General Counsel (and/or, if by
facsimile, (847) 518-5465 and (847) 518-
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5088) and (ii) to the Company at Two West Fifth Avenue, San Mateo, CA 94402,
Attention: Chief Financial Officer (and/or, if by facsimile, (650) 524-3099 or
at such other address as any such party may subsequently designate by written
notice to the other party.
(f) REMEDIES. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek the observance or performance
of any of the 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 actions as
may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be amended by a
written instrument signed by the Company and by the Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
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IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
COMPANY: KEYNOTE SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
WARRANTHOLDER: COMDISCO, INC.
By:
--------------------------------
Title:
-----------------------------
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EXHIBIT I
NOTICE OF EXERCISE
To:
--------------------------
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of
the Series __ Preferred Stock of _________________, pursuant to the terms
of the Warrant Agreement dated the ______ day of _________________, 199_
(the "Warrant Agreement") between _______________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series __ Preferred Stock of
____________________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series __ Preferred Stock in the name of the undersigned or in such other
name as is specified below.
- --------------------------------
(Name)
- --------------------------------
(Address)
WARRANTHOLDER: COMDISCO, INC.
By:
-----------------------------
Title:
--------------------------
Date:
---------------------------
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EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ______________________, hereby acknowledges receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _________ shares of the
Series __ Preferred Stock of _____________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that _______ shares remain subject
to purchase under the terms of the Warrant Agreement.
COMPANY:
By:
-----------------------------
Title:
--------------------------
Date:
---------------------------
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EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- --------------------------------------------------------
(Please Print)
whose address is
----------------------------------------
- --------------------------------------------------------
Dated:
----------------------------------
Holder's Signature:
---------------------
Holder's Address:
-----------------------
----------------------------------------
Signature Guaranteed:
-----------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
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Exhibit 10.34
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series C Preferred Stock of
KEYNOTE SYSTEMS, INC.
Dated as of September 30, 1998 (the "Effective Date")
WHEREAS, Keynote Systems, Inc., a California corporation (the "Company")
has entered into a Loan and Security Agreement dated as of September 30, 1998,
and related Promissory Notes (collectively, the "Loans") with Comdisco, Inc., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of its Series C Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, that number of fully paid and
non-assessable shares of the Company's Series C Preferred Stock equal to
$2,500,000 multiplied by 10%, the product of which is divided by the exercise
price (the "Exercise Price"). The Exercise Price shall be equal to the lesser
of (a) the numeric average of the price per share of the Company's Series C
Preferred Stock and the Company's Series D Preferred Stock or (b) $0.90 per
share (split adjusted if applicable). The number and purchase price of such
shares are subject to adjustment as provided in Section 8 hereof.
If all of the Preferred Stock is converted into shares of Common Stock in
connection with a registration of the Company's Common stock under the 1933 Act,
then this Warrant shall automatically become exercisable for that number of
shares of Common Stock equal to the number of shares of Common Stock that would
have been received if this Warrant had been exercised in full and the shares of
Preferred Stock received thereupon had been simultaneously converted into shares
of Common Stock immediately prior to such event, and the Exercise Price shall be
automatically adjusted to equal the amount obtained by dividing (i) the
aggregate Exercise Price of the shares of Preferred Stock for which this Warrant
was exercisable immediately prior to such conversion, by (ii)
<PAGE>
the number of shares of Common Stock for which this Warrant is exercisable
immediately after such conversion.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
or (ii) three (3) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by
the SEC, then the fair market value per share shall be the product of (x)
the initial "Price to Public" specified in the final prospectus with
respect to the
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offering and (y) the number of shares of Common Stock into which each share
of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of the
closing prices over a twenty-one (21) day period ending three days
before the day the current fair market value of the securities is
being determined and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of the
closing bid and asked prices quoted on the NASDAQ system (or similar
system) over the twenty-one (21) day period ending three days before
the day the current fair market value of the securities is being
determined and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the fair market value of Preferred Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
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<PAGE>
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is not the surviving corporation, or the
sale of all or substantially all of the Company's properties and assets to any
other person (hereinafter referred to as a "Merger Event"), then, as a part of
such Merger Event, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive, upon exercise of the Warrant, the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant immediately
prior to the Merger Event. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change
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<PAGE>
with respect to the securities which were subject to the purchase rights under
this Warrant Agreement immediately prior to such combination, reclassification,
exchange, subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If the Company has not paid any
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which is
due but unpaid by 1% and (ii) dividing the product thereof by the Exercise
Price.
(f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's Articles
of Incorporation, as amended through the Effective Date, a true and complete
copy of which is attached hereto as Exhibit __ (the "Charter"). The Company
shall promptly provide the Warrantholder with any restatement, amendment,
modification or waiver of the Charter. The Company shall provide Warrantholder
with prior written notice of any issuance of its stock or other equity security
to occur after the Effective Date of this Warrant, which notice shall include
(a) the price at which such stock or security, excluding shares issued to
employees, directors and consultants pursuant to the Company's stock option and
equity incentive plans, is to be sold, (b) the number of shares to be issued,
and (c) such other information as necessary for Warrantholder to determine if a
dilutive event has occurred.
(g) NOTICE OF ADJUSTMENTS. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription pro rata to the
holder of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the
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Warrantholder: (A) at least twenty (20) 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, subscription rights (specifying the date on which
the holders of Preferred Stock shall be entitled thereto) or for determining
rights to vote in respect of such Merger Event, dissolution, liquidation or
winding up; (B) in the case of any such Merger Event, dissolution, liquidation
or winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Preferred Stock shall be entitled to exchange their Preferred Stock for
securities or other property deliverable upon such Merger Event, dissolution,
liquidation or winding up); and (C) in the case of a public offering, the
Company shall give the Warrantholder at least twenty (20) days' written notice
prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
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<PAGE>
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A)
40,000,000 shares of Common Stock, of which 6,636,063 shares were issued
and outstanding at the Closing Date of the Company's Series C Preferred
Stock financing, and (B) 39,781,478 shares of preferred stock, of which
18,007,523 shares are issued and outstanding and are convertible into
18,007,523 shares of Common Stock at prices ranging from $0.21 to $0.65 per
share.
(ii) At the Closing Date of the Company's Series C Preferred Stock
financing, the Company has reserved approximately 6,050,000 shares of
Common Stock for issuance under its Stock Option Plan, under which
4,252,421 options were outstanding at exercise prices of not more than
$0.12 per share. There are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock
or other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances
of the Company's capital stock.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth in the
Rights Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) COMPLIANCE WITH RULE 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule
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144 promulgated by the Securities and Exchange Commission, the Company shall
furnish to the Warrantholder, within ten days after receipt of such request, a
written statement confirming the Company's compliance with the filing
requirements of the Securities and Exchange Commission as set forth in such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
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<PAGE>
(d) FINANCIAL RISK. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) RISK OF NO REGISTRATION. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d) of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. RIGHT OF FIRST OFFER.
In accordance with the provisions of Section 4 of the Company's Second
Amended and Restated Investor Rights Agreement dated as of March 10, 1998 (the
"Rights Agreement"), if the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), subject to the exceptions set forth in Section 4.2
thereof, the Company shall promptly provide Warrantholder with an offer to sell
Warrantholder a portion of such Shares equal to the proportion that the number
of shares of Preferred Stock to be issued upon exercise hereunder or number of
shares of common stock upon conversion thereof, bears to the total number of
shares of common stock of the Company then outstanding (assuming full conversion
of all shares of Preferred Stock and full exercise of all Common Stock options
then outstanding).
12. LOCKUP AGREEMENT.
Warrantholder agrees in connection with the Company's Initial Public
Offering (1) not to sell, make short of, loan, grant any options for the
purchase of, or otherwise dispose of any shares of Common Stock of the Company
held by Holder (other than those shares included in the registration) without
the prior written consent of the Company or the underwriters managing such
Initial Public Offering of the Company's securities for one hundred eighty (180)
days from the effective date of such registration, and (2) Warrantholder further
agrees to execute any agreement reflecting (1) above as may be requested by the
underwriters at the time of the public offering.
13. TRANSFERS.
Subject to the terms and conditions in Section 10 hereof, this Warrant
Agreement and all rights hereunder are transferable in whole or in part by the
Warrantholder and any successor transferee, provided, however, in no event shall
the number of transfers of the rights and interests in all of the Warrants
exceed three (3) transfers. The transfer shall be recorded on the books of the
Company upon receipt by the Company of a notice of transfer in the form attached
hereto as Exhibit
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III (the "Transfer Notice"), at its principal offices and the payment to the
Company of all transfer taxes and other governmental charges imposed on such
transfer.
14. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) COUNTERPARTS. This Warrant 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.
(e) NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transaction (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease
Administration, cc: Legal Department, Attention: General Counsel (and/or, if by
facsimile, (847) 518-5465 and (847) 518-5088) and (ii) to the Company at Two
West Fifth Avenue, San Mateo, CA 94402, Attention: Chief Financial Officer
(and/or, if by facsimile, (650) 524-3099 or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) REMEDIES. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek the observance or performance
of any of the 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 actions as
may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
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(i) SEVERABILITY. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Loans referenced in the preamble of this Warrant Agreement exceeds
$1,000,000, the Company will also provide Warrantholder with an opinion from the
Company's counsel with respect to those same representations, warranties and
covenants. The Company shall also supply such other documents as the
Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
COMPANY: KEYNOTE SYSTEMS, INC.
By:
-----------------------------------
Title:
--------------------------------
WARRANTHOLDER: COMDISCO, INC.
By:
-----------------------------------
Title:
--------------------------------
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<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ____________________
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of
the Series __ Preferred Stock of _________________, pursuant to the terms
of the Warrant Agreement dated the ______ day of _________________, 199_
(the "Warrant Agreement") between _______________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series __ Preferred Stock of
____________________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series __ Preferred Stock in the name of the undersigned or in such other
name as is specified below.
- --------------------------------
(Name)
- --------------------------------
(Address)
WARRANTHOLDER: COMDISCO, INC.
By:
-----------------------------
Title:
--------------------------
Date:
---------------------------
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<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ______________________, hereby acknowledges receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _________ shares of the
Series __ Preferred Stock of _____________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that _______ shares remain subject
to purchase under the terms of the Warrant Agreement.
COMPANY:
By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------
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EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement, execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ------------------------------------------------------------------
(Please Print)
whose address is
-------------------------------------------------
- ------------------------------------------------------------------
Dated:
----------------------------------------
Holder's Signature:
---------------------------
Holder's Address:
-----------------------------
----------------------------------------------
Signature Guaranteed:
---------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
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[ARTHUR ANDERSEN LOGO]
--------------------
Arthur Andersen LLP
July 9, 1999 ---------------------
Suite 1500
RiverPark Tower
Mr. Doug Finley 333 West San Carlos Street
Chief Financial Officer San Jose, CA 95110-2710
Keynote Systems, Inc. 408 998 2112
Two West Fifth Avenue
San Mateo, California 94402
Dear Mr. Finley:
This is to confirm that the client-auditor relationship between Keynote
Systems, Inc. and Arthur Andersen LLP has ceased.
Yours very truly,
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
By /s/ Stuart M. Huizinga
---------------------------
Stuart M. Huizinga
Cc: SEC Office of the Chief Accountant
<PAGE>
[ARTHUR ANDERSEN LOGO]
--------------------
Arthur Andersen LLP
July 9, 1999 ---------------------
Suite 1500
RiverPark Tower
Office of the Chief Accountant 333 West San Carlos Street
Securities and Exchange Commission San Jose, CA 95110-2710
450 Fifth Street, N.W. 408 998 2112
Washington, D.C. 20549
Dear Sir/Madam:
We have read the second paragraph of the "Experts" section included in the
Form S-1 dated July 9, 1999 of Keynote Systems, Inc. to be filed with the
Securities and Exchange Commission and are in agreement with the statements
contained therein.
Yours very truly,
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
By /s/ Stuart M. Huizinga
---------------------------
Stuart M. Huizinga
Cc: Mr. Doug Finley, CFO, Keynote Systems, Inc.
<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 August 6, 1999 except as
to Note 12(c), 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.
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<CAPTION>
<S> <C>
/s/ KPMG LLP
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Mountain View, California
August 23, 1999
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 17,152
<SECURITIES> 0
<RECEIVABLES> 1,701
<ALLOWANCES> 76
<INVENTORY> 0
<CURRENT-ASSETS> 19,659
<PP&E> 2,709
<DEPRECIATION> 1,021
<TOTAL-ASSETS> 22,862
<CURRENT-LIABILITIES> 2,961
<BONDS> 4,368
23,381
0
<COMMON> 12
<OTHER-SE> (6,631)
<TOTAL-LIABILITY-AND-EQUITY> 22,862
<SALES> 0
<TOTAL-REVENUES> 4,109
<CGS> 975
<TOTAL-COSTS> 7,622
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> (3,659)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,659)
<EPS-BASIC> (.91)
<EPS-DILUTED> (.91)
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