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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-K/A


(Amendment No. 1)





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(Mark One)


| | x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
| | - |  | ------------------------------------------------------------------------------------ | 




For the fiscal year ended September 30, 2002





OR





| |  ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
| | - |  | ---------------------------------------------------------------------------------------- | 




For the transition period from __________ to ____________.





Commission File Number 000-27241





KEYNOTE SYSTEMS, INC.


(Exact Name of Registrant as Specified in its Charter)





Delaware

94-3226488(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)777 Mariners Island Boulevard, San Mateo, CA

94404(Address of Principal Executive Offices)

(Zip Code)





(650) 403-2400


(Address, including Zip Code, and Telephone Number, including Area Code, of Registrants Principal Executive Offices)





Securities to be registered pursuant to Section 12(b) of the Act:


None





Securities to be registered pursuant to Section 12(g) of the Act:


Common Stock, $0.001 Par Value Per Share, and the Associated Stock Purchase Rights





Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No  ̈





Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.  x





As of
January 15, 2003, the aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $157.6 million.





The number of shares of the Registrants common stock outstanding as of January 15, 2003 was 22,966,884.





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EXPLANATORY NOTE: This is Amendment No. 1 to the annual report on Form 10-K of Keynote Systems, Inc. for
the fiscal year ended September 30, 2002. The purpose of this amendment is to provide the information required by Part III of Keynotes annual report on Form 10-K.





TABLE OF CONTENTS





PART III





Item 10.

Directors and Executive Officers of the Registrant

3Item 11.

Executive Compensation

5Item 12.

Security Ownership of Certain Beneficial Owners and Management

8Item 13.

Certain Relationships and Related Transactions

13Signatures

14Certifications

15




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PART III





Item 10.Directors and Executive Officers of the
Registrant





The following table presents information regarding our executive officers and directors
as of December 31, 2002:





Name

Age

PositionUmang Gupta

53

Chairman of the Board and Chief Executive OfficerJohn Flavio

55

Senior Vice President of Finance and Chief Financial OfficerDonald Aoki

45

Vice President of EngineeringLloyd Taylor

44

Vice President of OperationsRichard Rudolph

40

Vice President of Worldwide SalesArnold Waldstein

53

Vice President of Marketing and Business DevelopmentDavid Cowan

36

DirectorStratton Sclavos

41

DirectorDeborah Rieman

53

DirectorMohan Gyani

50

DirectorGeoffrey Penney

57

Director





Umang Gupta has served as one of our directors since
September 1997 and as our chief executive officer and chairman of the board of directors since December 1997. Previously, he was a private investor and an advisor to high-technology companies. He was the founder and chairman of the board and chief
executive officer of Centura Software Corporation, formerly known as Gupta Corporation, from 1984 to 1995. Prior to that he held various positions with Oracle Corporation and IBM. Mr. Gupta holds a B.S. degree in chemical engineering from the Indian
Institute of Technology, Kanpur, India, and an M.B.A. degree from Kent State University.





John Flavio has
served as our chief financial officer since July 1999 and as our senior vice president of finance since October 2001. From July 1999 to October 2001, he also served as our vice president of finance. 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, prior to its acquisition by Lucent Technologies in
July 1999. Mr. Flavio holds a B.S. degree in finance from Santa Clara University and is a certified public accountant.





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 of Aspect Telecommunications, a supplier of customer relational
management solutions. Mr. Aoki holds a B.S. degree in computer science from the University of Southern California and a M.S. 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. 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, each from Washington University.





Richard Rudolph has served as our vice president of worldwide sales since December 2001. From February 2001 to December 2001, he served as senior vice president of global sales and business development for webHancer
Corporation, a provider of web performance measurement and analysis. From April 1999 to January 2001, he served as vice president of sales at WebTrends, a web site performance measurement and analysis company. From June 1997 to April 1999, he held
sales positions at Extensis Corporation, a provider of products and services for electronic publishing. Mr. Rudolph holds a B.S. degree in economics from Oregon State University.




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Arnold Waldstein has served as our vice president of marketing and
business development since April 2002. From May 1999 to March 2002, Mr. Waldstein served as vice president of marketing and strategic alliances for Moai Technologies, an online strategic sourcing company. From March 1998 to May 1999, he founded and
served as chief executive officer of Waldstein Consulting, a boutique consulting firm. From February 1996 to February 1998, he served as vice president of marketing and business development at Electric Communities, an online services company. Mr.
Waldstein holds a B.A. degree in English from Ohio University.





David Cowanhas served as one of our
directors since March 1998. Since August 1996, Mr. Cowan has served as a General Partner of Bessemer Venture Partners, a venture capital investment firm. Mr. Cowan also serves as a Director on the Board of VeriSign, Inc. as well as the boards of
several private companies. Mr. Cowan holds an A.B. degree in mathematics and computer science and a M.B.A. degree from Harvard University.





Stratton Sclavoshas served as one of our directors since April 1999. Since July 1995, Mr. Sclavos has served as the President, Chief Executive Officer and a director of VeriSign, Inc. Mr. Sclavos is also a director
of Juniper Networks, Inc., Intuit, Inc. and Marimba, Inc. Mr. Sclavos holds a B.S. degree in electrical and computer engineering from the University of California, Davis.





Deborah Riemanhas served as one of our directors since January 2002. Since June 1999, Dr. Rieman has managed a private investment fund. Since August 1999, Dr.
Rieman has also served as an Entrepreneur-in-Residence with U.S. Venture Partners, a venture capital firm. From July 1995 to June 1999, Dr. Rieman was the President and Chief Executive Officer of Check Point Software Technologies Inc., an Internet
security software company. Dr. Rieman also serves as a director of Altera Corp., Corning Inc., Tumbleweed Communications Inc., and two private companies. Dr. Rieman holds a Ph.D. degree in mathematics from Columbia University and a B.A. degree in
mathematics from Sarah Lawrence College.





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





Geoffrey Penneyhas served as one of our directors since July 2002. Since December 1998,
Mr. Penney has served as Executive Vice President, and since November 2001, as Chief Information Officer, of the Charles Schwab Corporation, a financial services company. He served from February 1997 to December 1998 as Senior Vice President of
Financial Products and International Technology of the Charles Schwab Corporation. From February 1994 to February 1997, Mr. Penney served as Senior Vice President of Fidelity Investments, a financial services company. Mr. Penney holds a Ph.D. degree
and B.A. degree in inorganic chemistry from St. Johns College, Cambridge.





Compliance Under Section 16(a) of the Securities
Exchange Act of 1934





Section 16 of the Securities Exchange Act of 1934, as amended, requires our directors
and officers, and persons who own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and the Nasdaq National Market. Such persons are required by
Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms that they file.





Based solely on our review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that all Section 16(a) filing requirements for the year ended September 30, 2002
were met.




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Item 11.Executive Compensation





The following table presents compensation information
for the fiscal years ending September 30, 2000, 2001 and 2002 paid or accrued to our Chief Executive Officer and our four other most highly compensated executive officers who were serving as executive officers as of September 30, 2002.





Summary Compensation Table





Name and Principal Position

Fiscal Year

Annual Compensation


Long Term Compensation

All Other CompensationAwardsSalary

Bonus


Securities Underlying OptionsUmang Gupta Chief Executive Officer

2002 2001 2000

$
244,072 200,645 200,860

$
 150,000 100,000
(1) (1)

1,300,000 
300,000

$
  John Flavio Senior Vice President of Finance and Chief Financial Officer

2002 2001 2000


198,426 185,148 173,713


19,262 41,933 17,000
(2) (2)

70,000 75,000 30,000


  Lloyd Taylor Vice President of Operations

2002 2001 2000


186,251 179,588 164,984


25,608  14,630


60,000 76,000 30,000


  Donald Aoki Vice President of Engineering

2002 2001 2000


185,794 179,154 168,842


22,302 14,875 8,500


50,000 120,000 30,000


  Richard Rudolph Vice President of Worldwide Sales

2002 2001 2000


153,125  


  


150,000 



22,299  
(3)


---

|(1) |  | All of Mr. Guptas bonus in fiscal 2001 was for services rendered in fiscal 2000, and all of his bonus in fiscal 2000 was for services rendered in fiscal
1999.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | $28,000 of Mr. Flavios bonus in fiscal 2001 was for services rendered in fiscal 2000, and $8,500 of his bonus in fiscal 2000 was for services rendered in
fiscal 1999.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Represents an allowance for commuting expenses.
|--- |  | -----------------------------------------------




Option Grants in Fiscal 2002





The following table presents
the grants of stock options under our 1999 Equity Incentive Plan during the fiscal year ended September 30, 2002 to our Chief Executive Officer and our four other most highly compensated executive officers who were serving as executive officers as
of September 30, 2002.





All options granted under our 1999 Equity Incentive Plan are either incentive stock
options or nonqualified stock options. Options granted under our 1999 Equity Incentive Plan may be immediately exercisable subject to our 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 granted under our 1999 Equity Incentive Plan that are not immediately exercisable generally
vest over four years and become exercisable 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.




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Options were granted at an exercise price equal to the fair market value of our
common stock. In the year ending September 30, 2002, we granted to our employees options to purchase a total of 4,491,353 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 market price per share of our common stock on the date of grant;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | 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. The closing price per share of our common stock as reported on the Nasdaq National Market on September 30, 2002, was $6.57.





Individual Grants

Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option TermName

Number of Securities Underlying

Percent of Total Options Granted to Employees in


Exercise Price

ExpirationOptions

Fiscal 2002


Per Share

Date

5%

10%Umang Gupta

1,300,000

28.9
%

$
7.52

11-11-11

$
6,148,074

$
15,580,426John Flavio

30,000 40,000

0.7 0.9



7.52 7.27

11-11-11 06-30-12


141,879 182,883


359,548 463,460Lloyd Taylor

60,000

1.3



7.27

06-30-12


274,324


695,190Donald Aoki

50,000

1.1



7.27

06-30-12


228,603


579,325Richard Rudolph

150,000

3.3



8.65

12-16-11


815,991


2,067,881





Aggregated Option Exercises in Fiscal 2002 and Option Values at
September 30, 2002





The following table presents the number of shares of common stock subject to vested and
unvested stock options held as of September 30, 2002 by our Chief Executive Officer and our four other most highly compensated executive officers who were serving as executive officers as of September 30, 2002. None of these individuals exercised
stock options during the fiscal year ended September 30, 2002 or held in-the-money options as of September 30, 2002, based on $6.57, the closing price per share of our common stock on September 30, 2002, as reported on the Nasdaq National Market.





Each of the options granted to the optionees listed in the table below was either immediately exercisable upon
grant, subject to our right to repurchase the option shares upon termination of the optionees employment, or generally vests over four years and becomes exercisable 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.





Number of Securities Underlying Unexercised Options at September 30, 2002Name

Vested

UnvestedUmang Gupta

487,500

1,112,500John Flavio

125,831

191,669Lloyd Taylor

47,353

147,815Donald Aoki

71,249

172,501Richard Rudolph



150,000




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In the case of immediately exercisable options, our right to repurchase the
shares generally lapses over four years and 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. As of September 30, 2002, Mr. Taylor held 12,500 shares subject to our
right of repurchase.





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.    On
September 24, 1999, the date of our initial public offering, each non-employee director who was a member of our board on or before September 24, 1999, was automatically granted an option to purchase 50,000 shares under our 1999 Equity Incentive
Plan, at an exercise price equal to the fair market value of our common stock on the date of grant, unless that director had previously received an option grant. Each non-employee who becomes a director is automatically 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. The options have ten-year terms and 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 automatically granted to non-employee directors under the plan vest over three years. One-third of the shares
subject to these options vest 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 these
options vest ratably monthly over the two years from the date on which shares first vest. Any unvested shares subject to these options will become immediately exercisable upon a transaction that results in a change of our control.





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.




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Item 12.Security Ownership of Certain Beneficial Owners and Management





The following
table presents information as to the beneficial ownership of our common stock as of December 31, 2002 by:





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




| |  |  | each of our directors;
| | - |  | ----------------------




| |  |  | our Chief Executive Officer and four other most highly compensated executive officers whose salary and bonus for the fiscal year ending September 30, 2002 was
more than $100,000; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | directors and executive officers as a group.
| | - |  | --------------------------------------------




The percentage ownership is based on 22,966,884 shares of common stock outstanding as of December 31, 2002. Shares of common stock that are subject to options currently exercisable or exercisable
within 60 days of December 31, 2002, are deemed outstanding for the purposes of computing the percentage ownership of the person holding these options but are not deemed outstanding for computing the percentage ownership of any other person.
Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unless indicated below, to our knowledge, the persons and entities named in
the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Unless otherwise noted, the address for each of the 5% or greater stockholders listed below is
c/o Keynote Systems, Inc., 777 Mariners Island Boulevard, San Mateo, CA 94404, unless otherwise noted.





Name of Beneficial Owner

Shares Beneficially OwnedNumber of Shares

PercentUmang Gupta (1)

2,830,076

11.97
%FMR Corp. (2) One Federal Street Boston, MA 02110-2003

2,165,890

9.43Cannell Capital LLC (3) 150 California Street, 5th Floor San Francisco, CA 94111

1,931,900

8.41Becker Capital Management, Inc. (4) 1211 SW Fifth Avenue, Suite 2185 Portland, OR 97204

1,541,725

6.71High Rock Capital LLC (5) 28 State Street, 18th Floor Boston, MA 02109

1,535,500

6.69Donald Aoki (6)

204,115

*David Cowan (7)

198,251

*Lloyd Taylor (8)

181,720

*John Flavio (9)

178,904

*Stratton Sclavos (10)

50,000

*Rich Rudolph (11)

46,250

*Mohan Gyani (12)

30,555

*Deborah Rieman (12)

30,555

*Geoffrey Penney



*All 11 directors and executive officers as a group (13)

3,750,426

15.52
%


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|* |  | Indicates beneficial ownership of less than 1%.
|- |  | -----------------------------------------------



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|(1) |  | Includes 70,000 shares held by the Gupta Family 1999 Irrevocable Trust. Mr. Gupta disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in the shares. Includes 679,166 shares subject to options exercisable within 60 days of December 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Based solely on information provided by FMR Corp. in an amended Schedule 13G filed with the Securities and Exchange Commission on February 14, 2002. According
to this Schedule 13G, FMR Corp. may be deemed to share voting and/or investment power with respect to these shares with certain affiliated companies and persons listed in the Schedule 13G.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Based solely on information provided by Cannell Capital LLC in a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2002. According
to this Schedule 13G, Cannell Capital LLC may be deemed to share voting and/or investment power with respect to these shares with certain affiliated companies and persons listed in the Schedule.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Based solely on information provided by Becker Capital Management, Inc. in a Schedule 13G filed with the Securities and Exchange Commission on February 7, 2002.
According to this Schedule 13G, all securities reported on the Schedule are owned by advisory clients of Becker Capital Management, Inc., which disclaims beneficial ownership of all such securities.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(5) |  | Based solely on information provided by High Rock Capital LLC in a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------




|(6) |  | Includes 5,042 shares held by Mr. Aoki as trustee for his minor children and 950 shares held by the Frank and Jeanne Aoki Revocable Trust, over which Mr. Aoki
exercises investment power. Mr. Aoki disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in the shares. Includes 87,916 shares subject to options exercisable within 60 days of December 31, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(7) |  | Includes 50,000 shares subject to options exercisable within 60 days of December 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------




|(8) |  | Includes 123,949 shares held by the Taylor Family Trust. Of these shares, 3,125 shares remained subject to our right of repurchase as of December 31, 2002.
Includes 57,771 shares subject to options exercisable within 60 days of December 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(9) |  | Includes 162,290 shares subject to options exercisable within 60 days of December 31, 2002.
|--- |  | -------------------------------------------------------------------------------------------




|(10) |  | Represents 50,000 shares subject to options exercisable within 60 days of December 31, 2002.
|---- |  | --------------------------------------------------------------------------------------------




|(11) |  | Includes 43,750 shares subject to options exercisable within 60 days of December 31, 2002.
|---- |  | ------------------------------------------------------------------------------------------




|(12) |  | Includes 30,555 shares subject to options exercisable within 60 days of December 31, 2002.
|---- |  | ------------------------------------------------------------------------------------------




|(13) |  | Includes 1,192,003 shares subject to options exercisable within 60 days of December 31, 2002. Of the shares held, 3,125 shares remained subject to our right of
repurchase as of December 31, 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Equity Compensation Plans





As of September 30, 2002, we maintained our 1999 Equity Incentive Plan and 1999 Employee Stock Purchase Plan, both of which were approved
by our stockholders. Our 1996 Stock Option Plan and our 1999 Stock Option Plan, both of which were terminated in connection with our initial public offering in September 1999, were also approved by our stockholders. The terms of these plan are
described more fully below.




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The following table gives information about equity awards under those plans as of
September 30, 2002:





(a)

(b)

(c)Plan Category

Number of Shares to be Issued Upon Exercise of Outstanding Options

Weighted-Average Exercise
Price of Outstanding Options

Number of Shares Remaining Available for Equity Compensation Plans (Excluding Ordinary Shares Reflected in Column (a))Equity compensation plans approved by stockholders

6,373,496

$
12.58

4,595,785
(1)Equity compensation plans not approved by stockholders (2)






Total

6,373,496

$
12.58

4,595,785


---

|(1) |  | Of these, 3,727,432 shares remained available for grant under the 1999 Equity Incentive Plan and 868,353 shares remained available for grant under the 1999
Employee Stock Purchase Agreement.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | In connection with our acquisition of Velogic, Inc. in June 2002, we assumed the options to purchase stock initially granted under Velogics 1998 Stock
Option/Stock Issuance Plan. The options have been converted into options to purchase our common stock on the terms specified in the agreement and plan of reorganization with Velogic but are otherwise administered in accordance with the terms of the
Velogics 1998 Stock Option/Stock Issuance Plan. No further awards will be made under Velogics 1998 Stock Option/Stock Issuance Plan. The options generally vest over four years and expire ten years from the date of grant. As of September
30, 2002, there were outstanding options to purchase a total of 3,945 shares with a weighted average exercise price of $2.053 per share. Information regarding these assumed options are not included in the table above.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




1996 Stock Option Plan and 1999 Stock Option Plan





Our 1996 Stock Option Plan and 1999 Stock Option Plan terminated upon the date of our initial public offering in September 1999, at which
time our 1999 Equity Incentive Plan became effective. Since that time, no additional options have been granted or in the future will be granted under these plans. However, this termination did not affect any options outstanding under these plans,
all of which will remain outstanding until exercised or until they terminate or expire by their terms. Options granted under these plan are subject to terms substantially similar to those described below with respect to options granted under our
1999 Equity Incentive Plan.





1999 Equity Incentive Plan





Shares Reserved Under the Plan.    The board of directors has adopted and our stockholders have approved our
1999 Equity Incentive Plan. The board initially reserved 5,000,000 shares of common stock available for issuance under this plan. In addition, upon the date of our initial public offering on September 24, 1999, a total of 38,037 additional shares
previously reserved for grant under our 1996 Stock Option Plan and 1999 Stock Option Plan became available for grant under the under our 1999 Equity Incentive Plan. These shares either had not been issued, were not subject to outstanding grants, had
been issued but were subsequently forfeited or repurchased by us, or were subject to options that expired or became unexercisable. 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 of each year, the total number of shares
reserved for issuance under the plan increases automatically by a number of shares equal to 5% of our outstanding shares on December 31 of the preceding year.




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Term of the Plan.    The plan became effective on
September 24, 1999. The plan will terminate after 10 years, unless it is terminated earlier by our board. The plan authorizes 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 is administered by our compensation committee,
all of the members of which are non-employee directors under applicable federal securities laws and outside directors as defined under applicable federal tax laws. Except for the automatic option grants to non-employee
directors described below, the compensation committee has the authority to construe and interpret the plan, grant awards and make all other determinations necessary or advisable for the administration of the plan. Grants of options to non-officer
employees to purchase 40,000 or fewer shares of our common stock can be authorized by our Chief Executive Officer or Chief Financial Officer and ratified by our compensation committee.





Eligibility to Participate.    The plan authorizes the award of stock options, restricted stock awards and stock bonuses. These may be granted to
our employees, officers, directors, consultants, independent contractors and advisors or those of any parent or subsidiary of us, provided the consultants, independent contractors and advisors provide bona fide services to us not in connection with
the offer and sale of securities in a capital-raising transaction. No person is eligible to received more than 4,000,000 shares in any calendar year under the Plan, other than our new employees or new employees of a parent or subsidiary of us, who
are eligible to receive up to 4,500,000 shares in the calendar year in which they begin their employment with us. 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.





Stock Options.    The plan provides for the grant of 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. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The
exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The exercise price of non-qualified stock options must be at least equal to 85%
of the fair market value of our common stock on the date of grant. Options granted under the plan are exercisable as they vest. In general, options vest over a four-year period and 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. The maximum term of options granted under the plan is 10 years. Our non-employee directors are entitled to receive stock option grants to purchase 50,000 shares of our common stock which
vest as to 33.3% of the shares subject to the option upon the earlier of one year of service as a director or the date of our annual meeting and as to 2.82% of the shares each succeeding month.





Options may be exercised during the lifetime of the optionee only by the optionee. The compensation committee could provide for differing provisions in individual
award agreements, but only with respect to awards that are not incentive stock options. Options granted under the plan generally may be exercised for a period of time after the termination of the optionees service to us 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.





Restricted Stock and Stock Bonuses.    The plan authorizes the grant of restricted stock and stock bonus awards either in addition to or in lieu
of other awards under the plan, under the terms, conditions and restrictions as the compensation committee may provide. They may be issued for past services or may be awarded upon the completion of certain services or performance goals.





1999 Employee Stock Purchase Plan





The board has adopted and our stockholders have approved the 1999 Employee Stock Purchase Plan. The plan is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code. Rights granted under the plan are not transferable by a participant other than by will or the laws of descent and distribution.




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Shares Reserved Under the Plan.    The board of
directors initially reserved 400,000 shares of common stock under this plan. 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 4,000,000.





Administration of the Plan.    The plan is administered by our compensation committee. Our compensation committee has the authority to construe and interpret the plan, and its decisions are final
and binding.





Eligibility to Participate.    Employees generally are 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 ends automatically upon termination of
employment for any reason.





How Purchases are Made.    Under the plan, eligible
employees are 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 is for two years and consists of four six-month purchase periods. The first
offering period began on September 24, 1999, the first business day on which price quotations for our common stock were available on the Nasdaq National Market. Offering periods and purchase periods will begin on February 1 and August 1 of each
year.





The plan provides 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 has 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.





Term of the Plan.    The plan became effective on September 24, 1999. The plan will terminate 10 years from the date the plan was adopted by our board, unless it is terminated earlier under the terms of the
plan. The board has 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.




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Item 13.Certain Relationships and Related Transactions





Other than the compensation
arrangements that are described in Director Compensation and the transactions described below, since October 1, 2001, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were
or will be a party:





| |  |  | in which the amount involved exceeds $60,000; and
| | - |  | -------------------------------------------------




| |  |  | in which any director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or
indirect material interest.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Employment Agreement with Chief Executive Officer





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





In connection with the November 2001 amendment of this agreement, Mr. Gupta was granted an option to purchase 1,300,000 shares of common stock at an exercise price of
$7.52 per share. This option is immediately exercisable, subject to our right to repurchase the shares of common stock upon termination of his employment. This option vested as to 20,833 shares on January 7, 2002, vests as to 33,333 shares each
month thereafter for 24 months and then vests as to 20,833 shares each month thereafter.





Under the agreement, as
amended, all shares subject to Mr. Guptas options will vest in full 90 days following a sale of us if Mr. Gupta is not the Chief Executive Officer of the resulting combined company. If his employment is terminated by us without cause or
through his voluntary termination, and if he assists in the transition to a successor Chief Executive Officer, vesting of the shares subject to his options will continue for an additional 12 months. If his employment is terminated by us without
cause or due to his death or through his constructive termination due to a material reduction in his salary or benefits or a material change in his responsibilities, the shares subject to his options will vest in an amount equal to the number that
would vest during the six months following this termination. If his employment is terminated by us for cause or due to his disability or through his voluntarily termination, the vesting of any shares subject to his options will cease on the date of
termination.





Change-of-Control Arrangements





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




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SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Mateo, State of California, on this 28th day of January, 2003.





KEYNOTE SYSTEMS, INC.By:

/s/    UMANG GUPTAUmang Gupta Chairman of the Board and Chief Executive Officer (Principal Executive Officer)By:

/s/    JOHN J. FLAVIOJohn J. Flavio Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer)By:

/s/    PETER J. MALONEYPeter J. Maloney Vice President of Finance (Principal Accounting Officer)




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CERTIFICATION





I, Umang Gupta, certify that:





1.    I have reviewed this annual report on Form 10-K of Keynote Systems, Inc.;





2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual report;





3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this annual report;





4.    The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:





a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;





b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and





c)    presented in this annual
report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):





a)    all significant deficiencies in the
design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal
controls; and





b)    any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and





6.    The registrants
other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: January 28, 2003





/S/    UMANG GUPTA


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Umang Gupta


Chairman of the Board and Chief Executive Offer




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CERTIFICATION





I, John J. Flavio, certify that:





1.    I have reviewed this annual
report on Form 10-K of Keynote Systems, Inc.;





2.    Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;





3.    Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;





4.    The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and have:





a)    designed such disclosure
controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being
prepared;





b)    evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and





c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in internal controls; and





b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.    The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: January 28, 2003





/S/    JOHN J. FLAVIO


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John J.
Flavio


Senior Vice President and Chief Financial Officer




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