PREM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under §240.14a-12

KNOWBE4, INC.

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check all boxes that apply):

 

No fee required.

 

Fee paid previously with preliminary materials.

 

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

 

 

LOGO

KNOWBE4, INC.

33 N. GARDEN AVENUE, SUITE 1200

CLEARWATER, FL 33755

To the Stockholders of KnowBe4, Inc.:

You are cordially invited to attend a special meeting of stockholders (together with any adjournment, postponement, or other delay thereof, the “Special Meeting) of KnowBe4, Inc., a Delaware corporation (“KnowBe4”). The Special Meeting will be held on [●], at [●], Eastern time. You may attend the Special Meeting via a live interactive webcast at http://www.virtualshareholdermeeting.com/KNBE2023SM. You will be able to listen to the Special Meeting live and vote online. We believe that a virtual meeting provides expanded access, improved communication and cost savings for our stockholders.

At the Special Meeting, you will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time), dated as of October 11, 2022 (the “Merger Agreement”), between Oranje Holdco, LLC (“Parent”), Oranje Merger Sub, Inc. (“Merger Sub”) and KnowBe4. Parent and Merger Sub are affiliates of Vista Equity Partners Management, LLC (“Vista”), a leading private equity firm focused on investments in software, data and technology-enabled companies. Pursuant to the Merger Agreement, Merger Sub will merge with and into KnowBe4, with KnowBe4 surviving such merger as a wholly owned subsidiary of Parent (the “Merger”). At the Special Meeting, you will also be asked to consider and vote on a proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger, and a proposal to adjourn the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement.

If the Merger is completed, at the effective time of the Merger, each issued and outstanding share of KnowBe4’s Class A common stock and each issued and outstanding share of KnowBe4’s Class B common stock (together, the “KnowBe4 common stock”), subject to certain exceptions specified in the Merger Agreement, will be canceled and extinguished and automatically converted into the right to receive cash in an amount equal to $24.90 per share, without interest and subject to any applicable withholding taxes. This amount represents a 44 percent premium to the unaffected closing price on September 16, 2022 of $17.30 per share of KnowBe4’s Class A common stock, the last full trading day before Vista publicly disclosed its initial non-binding acquisition proposal.

The proposed Merger is a “going-private transaction” under the rules of the Securities and Exchange Commission. If the Merger is completed, KnowBe4 will become a privately held company, wholly owned by Parent.

KnowBe4’s Board of Directors (the “KnowBe4 Board”) formed a Special Committee of the KnowBe4 Board comprised solely of independent and disinterested directors (the “Special Committee”) to engage with Vista, to consider other potential value creation opportunities and to take other actions that the Special Committee deemed appropriate. The Special Committee, as more fully described in the enclosed proxy statement, evaluated the Merger, with the assistance of its own independent financial and legal advisors. At the conclusion of its review, the Special Committee, among other things, unanimously (1) determined that the Merger Agreement, including the Merger, is advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders (as defined below); and (2) recommended that the KnowBe4 Board approve the Merger Agreement, including the Merger, and determine that the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders.


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The KnowBe4 Board, acting upon the recommendation of the Special Committee, (1) determined that the Merger Agreement, including the Merger, is advisable, fair to and in the best interests of KnowBe4 and its stockholders, including the Unaffiliated Stockholders; and (2) approved and declared advisable the Merger Agreement, including the Merger.

The KnowBe4 Board unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR” the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger; and (3) “FOR” the adjournment of the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Your vote is very important, regardless of the number of shares you own. The approval of the proposal to adopt the Merger Agreement requires the affirmative vote of (1) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) entitled to vote on the Merger Agreement; (2) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders (as defined below) and entitled to vote on the Merger Agreement; (3) the holders of at least a majority of the outstanding shares of KnowBe4 Class A common stock entitled to vote in accordance with the General Corporation Law of the State of Delaware (the “DGCL”); and (4) the holders of at least a majority of the outstanding shares of KnowBe4 Class B common stock entitled to vote in accordance with the DGCL. The “Unaffiliated Stockholders” means the holders of KnowBe4 common stock, excluding those shares of KnowBe4 common stock held, directly or indirectly, by or on behalf of (1) Vista, its investment fund affiliates and its portfolio companies majority owned by such investment fund affiliates, (2) KKR & Co. Inc. (“KKR & Co.”), its investment fund affiliates, its portfolio companies majority owned by such investment fund affiliates and those members of the KnowBe4 Board who are employees of KKR & Co. or one of its investment fund affiliates, (3) the Elephant Funds, their investment fund affiliates, the portfolio companies majority owned by such investment fund affiliates and those members of the KnowBe4 Board who are employees of the Elephant Funds or one of their investment fund affiliates, and (4) any person that KnowBe4 has determined to be an “officer” of KnowBe4 within the meaning of Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended. Each record holder of KnowBe4 Class A common stock is entitled to one (1) vote for each share of KnowBe4 Class A common stock owned of record as of the close of business on [●] (the “Record Date”) and each record holder of KnowBe4 Class B common stock is entitled to ten (10) votes for each share of KnowBe4 Class B common stock owned of record as of the close of business on the Record Date. If you fail to vote on the proposal to adopt the Merger Agreement, the effect will be the same as a vote against such proposal.

The accompanying proxy statement provides detailed information about the Special Meeting, the Merger Agreement and the Merger, and the other proposals to be considered at the Special Meeting. A copy of the Merger Agreement is attached as Annex A to the proxy statement. The accompanying proxy statement also describes the actions and determinations of the KnowBe4 Board and the Special Committee in connection with their evaluation of, among other things, the Merger Agreement and the Merger. Please read the proxy statement and its annexes, including the Merger Agreement, carefully and in their entirety, as they contain important information.

In connection with execution of the Merger Agreement, certain of KnowBe4’s existing stockholders entered into support agreements, pursuant to which the applicable stockholders agreed to vote all of their respective shares of KnowBe4 common stock in favor of the adoption of the Merger Agreement, subject to certain terms and conditions contained in the support agreements, “rollover” a portion of their existing equity in KnowBe4 into an ownership interest in the parent company of Parent, or purchase equity in Parent. Copies of the support agreements are attached as Annex C, Annex D, Annex E, and Annex F to the accompanying proxy statement.

Even if you plan to attend the Special Meeting, please sign, date and return, as promptly as possible, the enclosed proxy card (a prepaid reply envelope is provided for your convenience) or grant your proxy electronically over the internet or by telephone (using the instructions found on the proxy card). If you attend the Special Meeting and vote at the Special Meeting, your vote will revoke any proxy that you have previously submitted. If you fail to return your proxy or to attend the Special Meeting, your shares will not be counted for purposes of


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determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against the adoption of the Merger Agreement.

If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of shares held in “street name.” If you hold your shares in “street name,” you will receive instructions from your bank, broker or other nominee that you must follow in order to submit your voting instructions and have your shares counted at the Special Meeting. Your bank, broker or other nominee cannot vote on any of the proposals to be considered at the Special Meeting without your instructions. As a result, if you do not provide your bank, broker or other nominee with any voting instructions, your shares will not be counted for purposes of a quorum and will not be voted at the Special Meeting, which will have the same effect as a vote against the adoption of the Merger Agreement.

If you have any questions or need assistance voting your shares, please contact our proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders call: (877) 750-8338 (toll-free from the U.S. and Canada) or

+1 (412) 232-3651 (from other countries)

Banks and brokers call collect: (212) 750-5833

On behalf of KnowBe4’s Board of Directors, thank you for your support.

Very truly yours,

Sjoerd Sjouwerman

Chief Executive Officer and Chairperson of the Board

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

 

LOGO

KNOWBE4, INC.

33 N. GARDEN AVENUE, SUITE 1200

CLEARWATER, FL 33755

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON []

Notice is given that a special meeting of stockholders (together with any adjournment, postponement or other delay thereof, the “Special Meeting”) of KnowBe4, Inc., a Delaware corporation (“KnowBe4”), will be held on [●], at [●], Eastern time, for the following purposes:

 

  1.

To consider and vote on the proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), dated as of October 11, 2022, among Oranje Holdco, LLC, Oranje Merger Sub, Inc., and KnowBe4 (the “Merger Proposal”);

 

  2.

To consider and vote on the proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the merger (the “Merger”) of Oranje Merger Sub, Inc., a wholly owned subsidiary of Oranje Holdco, LLC, with and into KnowBe4 (the “Compensation Proposal”);

 

  3.

To consider and vote on any proposal to adjourn the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting (the “Adjournment Proposal”); and

 

  4.

To transact any other business that may properly come before the Special Meeting.

Approval of the Merger Proposal requires the affirmative vote of (1) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) entitled to vote on the Merger Agreement; (2) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders (as defined below) and entitled to vote on the Merger Agreement; (3) the holders of at least a majority of the voting power of the outstanding shares of KnowBe4 Class A common stock entitled to vote in accordance with the General Corporation Law of the State of Delaware (the “DGCL”); and (4) the holders of at least a majority of the outstanding shares of KnowBe4 Class B common stock entitled to vote in accordance with the DGCL. The “Unaffiliated Stockholders” means the holders of KnowBe4 common stock, excluding those shares of KnowBe4 common stock held, directly or indirectly, by or on behalf of (1) Vista, its investment fund affiliates and its portfolio companies majority owned by such investment fund affiliates, (2) KKR & Co. Inc. (“KKR & Co.”), its investment fund affiliates, its portfolio companies majority owned by such investment fund affiliates and those members of the KnowBe4 Board who are employees of KKR & Co. or one of its investment fund affiliates, (3) the Elephant Funds, their investment fund affiliates, the portfolio companies majority owned by such investment fund affiliates and those members of the KnowBe4 Board who are employees of the Elephant Funds or one of their investment fund affiliates, and (4) any person that KnowBe4 has determined to be an “officer” of KnowBe4 within the meaning of Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended. Approval of each of the Compensation Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively for such proposal.

The Special Meeting will be held by means of a live interactive webcast on the internet at http://www.virtualshareholdermeeting.com/KNBE2023SM. The Special Meeting will begin promptly at [●],


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Eastern time. Online check-in will begin a few minutes prior to the Special Meeting. You will need the control number found on your proxy card or voting instruction form in order to participate in the Special Meeting (including voting your shares).

Only KnowBe4’s stockholders as of the close of business on [●] are entitled to notice of, and to vote at, the Special Meeting. A list of stockholders of record entitled to vote at the Special Meeting will be available at KnowBe4’s corporate offices located at 33 N. Garden Avenue, Clearwater, Florida 33755, during regular business hours for a period of no less than 10 days before the Special Meeting and on the virtual meeting website during the Special Meeting.

KnowBe4’s Board of Directors unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR” the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger; and (3) “FOR” the adjournment of the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

KnowBe4’s stockholders who do not vote in favor of the proposal to adopt the Merger Agreement and otherwise comply with the requirements under Section 262 of the DGCL will have the right to seek appraisal of the “fair value” of their shares of our common stock (exclusive of any element of value arising from the accomplishment or expectation of the Merger and together with interest (as described in the accompanying proxy statement) to be paid on the amount determined to be “fair value”) in lieu of receiving $24.90 per share in cash if the Merger is completed, as determined in accordance with Section 262 of the DGCL. To do so, a KnowBe4 stockholder must properly demand appraisal before the vote is taken on the Merger Agreement and comply with all other requirements of the DGCL, including Section 262 of the DGCL, which are summarized in the accompanying proxy statement, and certain conditions set forth in Section 262(g) of the DGCL must be satisfied. Section 262 of the DGCL may be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262 and is incorporated in this notice by reference.

Even if you plan to attend the Special Meeting, please sign, date and return, as promptly as possible, the enclosed proxy card (a prepaid reply envelope is provided for your convenience) or grant your proxy electronically over the internet or by telephone (using the instructions found on the proxy card). If you attend the Special Meeting and vote at the Special Meeting, your vote will revoke any proxy that you have previously submitted. If you fail to return your proxy or to attend the Special Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against the Merger Proposal.

If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of shares held in “street name.” If you hold your shares in “street name,” you will receive instructions from your bank, broker or other nominee that you must follow in order to submit your voting instructions and have your shares counted at the Special Meeting. Your bank, broker or other nominee cannot vote on any of the proposals to be considered at the Special Meeting without your instructions. As a result, if you do not provide your bank, broker or other nominee with any voting instructions, your shares will not be counted for purposes of a quorum and will not be voted at the Special Meeting, which will have the same effect as a vote against the Merger Proposal.

By Order of the Board of Directors,

Sjoerd Sjouwerman

Chief Executive Officer and Chairperson of the

Board of Directors

Dated: [●]

Clearwater, Florida


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

 

 

LOGO

KNOWBE4, INC.

PROXY STATEMENT

FOR

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON []

 

 

This proxy statement is dated [] and, together with the enclosed form of proxy card,

is first being sent to stockholders on or about [].

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.


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TABLE OF CONTENTS

 

DEFINED TERMS

     iv  

SUMMARY TERM SHEET

     1  

Introduction

     1  

The Parties to the Merger

     1  

The Special Meeting

     2  

Votes Required

     3  

Intent of KnowBe4’s Directors and Executive Officers and Certain Stockholders to Vote in Favor of the Merger

     3  

Reasons for the Merger; Recommendations of the Special Committee and the KnowBe4 Board

     4  

Opinion of Morgan Stanley & Co. LLC

     4  

Position of the Purchaser Filing Parties as to the Fairness of the Merger

     5  

Certain Effects of the Merger

     5  

Treatment of Shares and Equity Awards

     6  

Effect on KnowBe4 if the Merger is Not Completed

     8  

Interests of KnowBe4’s Directors and Executive Officers in the Merger

     8  

The Support Agreements

     9  

Material U.S. Federal Income Tax Consequences of the Merger

     9  

Restrictions on Solicitation of Other Acquisition Offers

     10  

Change in the KnowBe4 Board’s Recommendation

     10  

Limited Guarantees

     11  

Financing of the Merger

     11  

Conditions to the Closing of the Merger

     12  

Termination of the Merger Agreement

     13  

Termination Fees and Remedies

     13  

Appraisal Rights

     14  

QUESTIONS AND ANSWERS

     16  

SPECIAL FACTORS

     27  

Background of the Merger

     27  

Reasons for the Merger; Recommendation of the Special Committee and the KnowBe4 Board

     44  

Opinion of Morgan Stanley & Co. LLC

     53  

Position of the Purchaser Filing Parties as to the Fairness of the Merger

     64  

Plans for KnowBe4 After the Merger

     67  

Certain Effects of the Merger

     68  

Certain Effects on KnowBe4 if the Merger is Not Completed

     70  

Unaudited Prospective Financial Information

     71  

Interests of KnowBe4’s Directors and Executive Officers in the Merger

     74  

Intent of KnowBe4’s Directors and Executive Officers to Vote in Favor of the Merger

     81  

Intent of Certain Stockholders to Vote in Favor of the Merger

     82  

Closing and Effective Time of the Merger

     82  

Accounting Treatment

     82  

Material U.S. Federal Income Tax Consequences of the Merger

     82  

Regulatory Approvals Required for the Merger

     85  

Limited Guarantees

     86  

Financing of the Merger

     87  

Delisting and Deregistration of KnowBe4’s Common Stock

     88  

Fees and Expenses

     88  

FORWARD-LOOKING STATEMENTS

     89  

 

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THE PARTIES TO THE MERGER

     91  

KnowBe4

     91  

Parent Entities

     91  

THE SPECIAL MEETING

     92  

Date, Time and Place

     92  

Purpose of the Special Meeting

     92  

Attending the Special Meeting

     92  

Record Date; Shares Entitled to Vote; Quorum

     92  

Votes Required

     93  

Abstentions

     93  

Broker Non-Votes

     93  

Shares Held by KnowBe4’s Directors and Executive Officers

     94  

Voting of Proxies

     94  

Revocability of Proxies

     94  

Adjournment

     95  

Solicitation of Proxies

     95  

Anticipated Date of Completion of the Merger

     95  

Appraisal Rights

     96  

Other Matters

     97  

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on [●]

     97  

Householding of Special Meeting Materials

     97  

Questions and Additional Information

     97  

THE MERGER AGREEMENT

     98  

Closing and Effective Time of the Merger

     98  

Effects of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers

     99  

Treatment of Shares and Equity Awards

     99  

Payment Agent, Exchange Fund and Exchange and Payment Procedures

     101  

Representations and Warranties

     102  

Conduct of Business Pending the Merger

     106  

Restrictions on Solicitation of Other Acquisition Offers

     107  

The KnowBe4 Board’s Recommendation; KnowBe4 Recommendation Change

     109  

Stockholder Meeting

     111  

Employee Benefits

     111  

Efforts to Close the Merger

     112  

Indemnification and Insurance

     114  

Conditions to the Closing of the Merger

     115  

Termination of the Merger Agreement

     116  

Termination Fees and Remedies

     117  

Fees and Expenses

     118  

No Third Party Beneficiaries

     119  

Amendment and Waiver

     119  

Governing Law and Venue

     119  

Waiver of Jury Trial

     119  

THE SUPPORT AGREEMENTS

     120  

PROVISIONS FOR UNAFFILIATED STOCKHOLDERS

     121  

IMPORTANT INFORMATION REGARDING KNOWBE4

     122  

Company Background

     122  

Directors and Executive Officers

     122  

Security Ownership of Certain Beneficial Owners and Management

     125  

Prior Public Offerings

     127  

Transactions in KnowBe4 Common Stock

     128  

 

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Past Contracts, Transactions, Negotiations and Agreements

     132  

Book Value Per Share

     132  

Market Price of the KnowBe4 Class A Common Stock

     133  

Dividends

     133  

IMPORTANT INFORMATION REGARDING THE PURCHASER FILING PARTIES

     134  

Parent Entities

     134  

Vista Filing Parties

     134  

KKR Filing Parties

     135  

Elephant Filing Parties

     135  

Sjouwerman Filing Parties

     135  

APPRAISAL RIGHTS

     137  

Written Demand

     139  

Notice by the Surviving Corporation

     140  

Filing a Petition for Appraisal

     140  

Determination of Fair Value

     141  

PROPOSAL 1: THE MERGER PROPOSAL

     143  

PROPOSAL 2: THE COMPENSATION PROPOSAL

     144  

PROPOSAL 3: THE ADJOURNMENT PROPOSAL

     145  

STOCKHOLDER PROPOSALS AND NOMINATIONS

     146  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     147  

MISCELLANEOUS

     149  

ANNEX A—AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX B—OPINION OF MORGAN STANLEY & CO. LLC

     B-1  

ANNEX C—SUPPORT AGREEMENT (THE FOUNDER)

     C-1  

ANNEX D—SUPPORT AGREEMENT (THE KKR INVESTOR)

     D-1  

ANNEX E—SUPPORT AGREEMENT (THE ELEPHANT FUNDS)

     E-1  

ANNEX F—SUPPORT AGREEMENT (THE VEPF FUNDS)

     F-1  

 

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DEFINED TERMS

Unless stated otherwise, whenever used in this proxy statement, the following terms have the meanings set forth below:

Adjournment Proposal means the proposal to approve the adjournment of the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Compensation Proposal means the proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger.

Certificate of Merger means a certificate of merger in such form as required by and in accordance with the applicable provisions of the DGCL.

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

Debt Commitment Letter means the amended and restated commitment letter, dated October 14, 2022, pursuant to which the lenders party to that letter committed to provide Parent, at or prior to the closing of the Merger, with debt financing of $1.125 billion.

DGCL means the General Corporation Law of the State of Delaware.

DOJ means the Antitrust Division of the Department of Justice.

Elephant Filing Parties means the Elephant Funds, Elephant Partners II-B, L.P., and Jeremiah Daly, as further described in the section of this proxy statement captioned “Important Information Regarding the Purchaser Filing Entities—Elephant Filing Parties.”

Elephant Funds means, collectively, Elephant Partners I, L.P., Elephant Partners II, L.P. for itself and as nominee for Elephant Partners II-B, L.P. and Elephant Partners 2019 SPV-A, L.P.

Equity Commitment Letters mean, collectively, the KKR Equity Commitment Letter and the Vista Equity Commitment Letter.

ESPP means KnowBe4’s 2021 Employee Stock Purchase Plan, as amended.

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

Excluded Shares means, collectively, the shares of KnowBe4 common stock (1) held by KnowBe4 as treasury stock; (2) owned by Parent or Merger Sub; (3) owned by any direct or indirect wholly owned subsidiary of Parent or Merger Sub; or (4) held by stockholders who have neither voted in favor of the Merger nor consented thereto in writing and who have properly demanded appraisal of such shares of KnowBe4 common stock pursuant to, and in accordance with, Section 262 of the DGCL, if any.

FTC means the Federal Trade Commission.

Founder means, collectively, Sjouwerman Enterprises Limited Partnership and Sjoerd Sjouwerman.

GAAP means U.S. generally accepted accounting principles.

Guarantors means, collectively, Vista Equity Partners Fund VII, L.P. and Vista Equity Partners Fund VIII, L.P.

 

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HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

IRS means the Internal Revenue Service.

KKR means Kohlberg Kravis Roberts & Co. L.P., together with its affiliates.

KKR & Co. means KKR & Co. Inc.

KKR Equity Commitment Letter means the equity commitment letter by and between KnowBe4 and the KKR Investor, dated as of October 11, 2022.

KKR Investor means KKR Knowledge Investors L.P.

KKR Filing Parties means KKR Investor and Stephen Shanley, as further described in the section of this proxy statement captioned “Important Information Regarding the Purchaser Filing Parties—KKR Filing Parties.”

KnowBe4 means KnowBe4, Inc.

KnowBe4 Board means the board of directors of KnowBe4, Inc.

KnowBe4 Class A common stock means KnowBe4’s Class A common stock, par value $0.00001 per share.

KnowBe4 Class B common stock means KnowBe4’s Class B common stock, par value $0.00001 per share.

KnowBe4 common stock means, collectively, the KnowBe4 Class A common stock and the KnowBe4 Class B common stock.

KnowBe4 Option Award means a stock option award issued under KnowBe4’s Amended and Restated 2016 Equity Incentive Plan or KnowBe4’s 2021 Equity Incentive Plan, as applicable, exercisable for shares of KnowBe4 Class B common stock.

KnowBe4 RSU Award means an award of restricted stock units that is subject only to time-based vesting issued under KnowBe4’s 2021 Equity Incentive Plan covering shares of KnowBe4 Class A common stock.

KnowBe4 PSU Award means an award of restricted stock units that is subject to performance-based vesting conditions issued under KnowBe4’s 2021 Equity Incentive Plan covering shares of KnowBe4 Class A common stock.

Limited Guarantees means the Limited Guarantees, dated as of October 11, 2022, entered into by each of the Guarantors in favor of KnowBe4.

Merger means the merger of Merger Sub with and into KnowBe4 pursuant to the Merger Agreement in accordance with the applicable provisions of the DGCL, with KnowBe4 surviving the Merger as a direct, wholly owned subsidiary of Parent.

Merger Agreement means the Agreement and Plan of Merger, dated as of October 11, 2022, by and among KnowBe4, Parent, and Merger Sub, as it may be amended from time to time.

Merger Proposal means the proposal to adopt the Merger Agreement, pursuant to which Merger Sub will merge with and into KnowBe4, with KnowBe4 continuing as the surviving corporation and becoming a wholly owned subsidiary of Parent.

Merger Sub means Oranje Merger Sub, Inc., a wholly owned subsidiary of Parent.

Morgan Stanley means Morgan Stanley & Co. LLC, the Special Committee’s financial advisor.

Nasdaq means the NASDAQ Global Select Market.

 

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Parent means Oranje Holdco, LLC.

Parent Entities means Merger Sub and Parent.

Per Share Price means $24.90 in cash per share of KnowBe4 common stock.

Purchaser Filing Parties means (1) the Parent Entities, (2) the Vista Filing Parties, (3) the Elephant Filing Parties, (4) the KKR Filing Parties, and (5) the Sjouwerman Filing Parties.

Record Date means [●].

Rollover Shares means the shares contributed to Parent by the Rollover Stockholders pursuant to the Support Agreements.

Rollover Stockholders means the VEPF Funds, the Elephant Funds, the KKR Investor and the Founder.

SEC means the United States Securities and Exchange Commission.

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

Sjouwerman Filing Parties means (1) Sjouwerman Enterprises Limited Partnership, a Florida limited partnership, (2) Sjouwerman Management, LLC, a Florida limited liability company and the sole general manager of Sjouwerman Enterprises Limited Partnership, and (3) Sjoerd Sjouwerman and Rebecca Weiss Sjouwerman, managers of Sjouwerman Management, LLC., as further described in the section of this proxy statement captioned “Important Information Regarding the Purchaser Filing Parties—Sjouwerman Filing Parties.

Special Committee means a committee established by the KnowBe4 Board comprised solely of independent and disinterested members of the KnowBe4 Board.

Special Meeting means the special meeting of the stockholders of KnowBe4 to be held on [●] at [●], Eastern time, and any adjournment, postponement or other delay thereof.

Support Agreements means, collectively, the support agreements, dated October 11, 2022, entered into in connection with the Merger Agreement (1) by Parent and KnowBe4 with each of the Founder, KKR Investor and the Elephant Funds, respectively, and (2) by KnowBe4 with the VEPF Funds.

Unaffiliated Stockholders means the holders of KnowBe4 common stock, excluding those shares of KnowBe4 common stock held, directly or indirectly, by or on behalf of (1) Vista, its investment fund affiliates and its portfolio companies majority owned by such investment fund affiliates, (2) KKR & Co., its investment fund affiliates, its portfolio companies majority owned by such investment fund affiliates and those members of the KnowBe4 Board who are employees of KKR & Co. or one of its investment fund affiliates, (3) the Elephant Funds, their investment fund affiliates, the portfolio companies majority owned by such investment fund affiliates and those members of the KnowBe4 Board who are employees of the Elephant Funds or one of their investment fund affiliates, and (4) any person that KnowBe4 has determined to be an “officer” of KnowBe4 within the meaning of Rule 16a-1(f) of the Exchange Act.

VEPF Funds means, collectively, VEPF VII SPV I, L.P. and VEPF VII SPV I Holdings, L.P., funds affiliated with Vista.

Vista means Vista Equity Partners Management, LLC.

Vista Equity Commitment Letter means the equity commitment letter by and among KnowBe4 and the Guarantors, dated as of October 11, 2022.

Vista Filing Parties means the VEPF Funds, Vista Equity Partners Fund VII GP, L.P., VEPF VII GP, Ltd., and Robert F. Smith, as further described in the section of this proxy statement captioned “Important Information Regarding the Purchaser Filing Entities—Vista Filing Parties.

 

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SUMMARY TERM SHEET

This summary term sheet discusses the material terms contained in this proxy statement and may not contain all of the information that may be important to you. Accordingly, we encourage you to carefully read this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement in their entirety.

Introduction

On October 11, 2022, KnowBe4 entered into the Merger Agreement, pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into KnowBe4, with KnowBe4 surviving the Merger as a wholly owned subsidiary of Parent. Parent is an affiliate of Vista, a leading private equity firm focused on investments in software, data and technology-enabled companies. If the Merger is completed, each outstanding share of KnowBe4 common stock (other than as described below) will be converted into the right to receive the Per Share Price, without interest and subject to any applicable withholding taxes, and KnowBe4 will become a privately held company. KnowBe4 is asking its stockholders to consider and vote on the adoption of the Merger Agreement.

The KnowBe4 Board formed the Special Committee to engage with Vista, to consider other potential value creation opportunities and to take other actions that the Special Committee deemed appropriate. As more fully described below, the Special Committee evaluated among other things, the Merger, with the assistance of its own independent financial and legal advisors and, where appropriate, KnowBe4 management and KnowBe4’s outside legal advisor. At the conclusion of its review, the Special Committee, among other things, unanimously (1) determined that the Merger Agreement, including the Merger, is advisable, fair to and in the best interests of KnowBe4 and the Unaffiliated Stockholders; and (2) recommended that the KnowBe4 Board approve the Merger Agreement, including the Merger, and determine that the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders. The KnowBe4 Board, acting upon the recommendation of the Special Committee, (1) determined that the Merger Agreement, including the Merger, is advisable, fair to and in the best interests of KnowBe4 and its stockholders, including the Unaffiliated Stockholders; and (2) approved and declared advisable the Merger Agreement, including the Merger.

Because the transactions contemplated by the Merger Agreement constitute a “going private” transaction under the rules of the SEC, the Purchaser Filing Parties have filed with the SEC a Transaction Statement on Schedule 13E-3 with respect to such transactions. You may obtain additional information about the Schedule 13E-3 under the caption “Where You Can Find Additional Information.”

The Parties to the Merger

 

   

KnowBe4. KnowBe4 was formed as a limited liability company in Delaware in August 2010 under the name SEQRIT, LLC and subsequently changed its name to KnowBe4, LLC. KnowBe4 then converted into a Delaware corporation under the name KnowBe4, Inc. in January 2016. KnowBe4 has developed the leading security awareness platform enabling organizations to assess, monitor and minimize the ongoing cybersecurity threat of social engineering attacks. KnowBe4 is pioneering an integrated approach to security awareness that incorporates cloud-based software, machine learning, artificial intelligence, advanced analytics and insights with engaging content. KnowBe4’s platform is purpose-built to drive awareness, change human behavior and enable a security-minded culture that results in a reduction of social engineering risks. The KnowBe4 Class A common stock is listed on Nasdaq under the symbol “KNBE.” KnowBe4’s corporate offices are located at 33 N. Garden Avenue, Suite 1200, Clearwater, FL 33755. For more information about KnowBe4, see the sections of this proxy statement captioned “The Parties to the Merger—KnowBe4” and “Important Information Regarding KnowBe4.”

 

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Parent. Oranje Holdco, LLC was formed on September 30, 2022 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than as incidental to its formation and in connection with the transactions contemplated by the Merger Agreement and arranging of the equity financing and the debt financing in connection with the Merger. Parent is an affiliate of Vista. Parent’s address is c/o Vista Equity Partners Management, LLC, Four Embarcadero Center, 20th Floor, San Francisco, CA 94111, and its telephone number is (415) 765-6500. For more information about Parent, see the sections of this proxy statement captioned “The Parties to the Merger—Parent Entities” and “Important Information Regarding the Purchaser Filing Parties—Parent Entities.”

 

   

Merger Sub. Oranje Merger Sub, Inc. is a wholly owned subsidiary of Parent and was formed on September 30, 2022 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. Merger Sub has not engaged in any business activities other than as incidental to its formation and in connection with the transactions contemplated by the Merger Agreement. Merger Sub is affiliated with Vista. Merger Sub’s address is c/o Vista Equity Partners Management, LLC, Four Embarcadero Center, 20th Floor, San Francisco, CA 94111, and its telephone number is (415) 765-6500. For more information about Merger Sub, see the sections of this proxy statement captioned “The Parties to the Merger—Parent Entities” and “Important Information Regarding the Purchaser Filing Parties—Parent Entities.”

 

   

Parent and Merger Sub are each affiliated with the Guarantors. In connection with the transactions contemplated by the Merger Agreement, the Guarantors have committed to provide Parent, at or prior to the closing of the Merger, with an aggregate equity contribution of up to approximately $2.18 billion, on the terms and subject to the conditions set forth in the Equity Commitment Letters. This amount will be used to fund a portion of the aggregate purchase price and the other payments contemplated by the Merger Agreement (in each case, pursuant to certain terms and conditions as described further in this proxy statement under the caption “Special Factors—Financing of the Merger”).

The Special Meeting

 

   

Date, Time and Place. The Special Meeting will be held on [●] at [●], Eastern time. You may attend the Special Meeting solely via a live interactive webcast on the internet at http://www.virtualshareholdermeeting.com/KNBE2023SM. You will need the control number found on your proxy card or voting instruction form in order to participate in the Special Meeting (including voting your shares). KnowBe4 believes that a virtual meeting provides expanded access, improved communication and cost savings for its stockholders.

 

   

Purpose. At the Special Meeting, KnowBe4 will ask stockholders to vote on the following proposals:

 

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The Merger Proposal: the proposal to adopt the Merger Agreement, pursuant to which Merger Sub will merge with and into KnowBe4, with KnowBe4 continuing as the surviving corporation and becoming a wholly owned subsidiary of Parent;

 

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The Compensation Proposal: the proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger; and

 

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The Adjournment Proposal: the proposal to approve the adjournment of the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

   

Record Date; Shares Entitled to Vote; Quorum. You are entitled to vote at the Special Meeting if you owned shares of KnowBe4 common stock as of the close of business on the Record Date. As of the

 

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Record Date, there were [●] shares of KnowBe4 Class A common stock and [●] shares of KnowBe4 Class B common stock outstanding and entitled to vote at the Special Meeting. For each share of KnowBe4 Class A common stock that you owned as of the close of business on the Record Date, you will have one vote on each matter submitted for a vote at the Special Meeting. For each share of KnowBe4 Class B common stock that you owned as of the close of business on the Record Date, you will have ten votes on each matter submitted for a vote at the Special Meeting. The presence, in person or by proxy, of the holders of a majority of the voting power of KnowBe4’s capital stock issued and outstanding and entitled to vote will constitute a quorum for the Special Meeting. For the separate vote by holders of KnowBe4 Class A common stock and holders of KnowBe4 Class B common stock, a majority of the voting power of the outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum with respect to that vote.

Votes Required

 

   

The Merger Proposal. Approval of the Merger Proposal requires the affirmative vote of (1) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) entitled to vote on the Merger Agreement; (2) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement; (3) the holders of at least a majority of the outstanding shares of KnowBe4 Class A common stock entitled to vote in accordance with the DGCL; and (4) the holders of at least a majority of the outstanding shares of KnowBe4 Class B common stock entitled to vote in accordance with the DGCL.

 

   

The Compensation Proposal. Approval of the Compensation Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively on such proposal. This vote will be on a non-binding, advisory basis.

 

   

The Adjournment Proposal. Approval of the Adjournment Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively on such proposal.

Intent of KnowBe4’s Directors and Executive Officers and Certain Stockholders to Vote in Favor of the Merger

 

   

Intent of KnowBe4’s Directors and Executive Officers to Vote in Favor of the Merger. KnowBe4’s directors and executive officers have informed KnowBe4 that, as of the date of this proxy statement, they intend to vote all of the shares of KnowBe4 common stock owned directly by them in favor of the Merger Proposal, the Compensation Proposal and the Adjournment Proposal. As of the Record Date, KnowBe4’s directors and executive officers beneficially owned and were entitled to vote, in the aggregate, approximately [●] percent of the voting power of the shares of KnowBe4 common stock outstanding as of the Record Date. For more information, see the section of this proxy statement captioned “Special Factors—Intent of KnowBe4’s Directors and Executive Officers to Vote in Favor of the Merger.

 

   

Intent of Certain Stockholders to Vote in Favor of the Merger. The Rollover Stockholders, who hold, in the aggregate, approximately [●] percent of the voting power of the outstanding shares of KnowBe4 common stock as of the Record Date, have entered into Support Agreements pursuant to which they have agreed to vote all of their shares of KnowBe4 common stock in favor of the Merger Proposal, subject to certain terms and conditions contained in the Support Agreements. However, approval of the Merger Proposal also requires the affirmative vote of the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement (the “Unaffiliated Stockholder Vote”), which excludes all of the shares of KnowBe4 common stock held by the Rollover

 

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Stockholders and certain of their affiliates, as well as KnowBe4’s officers. For more information, see the section of this proxy statement captioned “Special Factors—Intent of KnowBe4’s Directors and Executive Officers to Vote in Favor of the Merger.

Reasons for the Merger; Recommendations of the Special Committee and the KnowBe4 Board

 

   

Special Committees Recommendation. The Special Committee, pursuant to resolutions adopted at a meeting of the Special Committee held on October 11, 2022, unanimously (1) determined that the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders; and (2) recommended that the KnowBe4 Board approve the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, and determine that the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders. The Special Committee also recommended that, subject to approval by the KnowBe4 Board, the KnowBe4 Board submit the Merger Agreement to the stockholders of KnowBe4 for their adoption and approval and recommend that KnowBe4’s stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL. In reviewing the Merger, the Special Committee consulted with its independent financial and legal advisors and, where appropriate, with KnowBe4 management and KnowBe4’s outside legal advisor and considered other potential value creation opportunities. In addition, the Special Committee believes that the Merger is fair to KnowBe4 and the “unaffiliated security holders” as defined in Rule 13e-3 of the Exchange Act. For a description of the reasons considered by the Special Committee, see the section of this proxy statement captioned “Special Factors—Reasons for the Merger; Recommendations of the Special Committee and the KnowBe4 Board.”

 

   

KnowBe4 Boards Recommendation. The KnowBe4 Board, acting upon the recommendation of the Special Committee, unanimously (1) determined that the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of KnowBe4 and its stockholders, including the Unaffiliated Stockholders; (2) approved and declared advisable the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger; (3) directed that the adoption of the Merger Agreement be submitted to a vote of KnowBe4’s stockholders at a meeting of KnowBe4’s stockholders; and (4) recommended that KnowBe4’s stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL. In addition, the KnowBe4 Board believes that the Merger is fair to KnowBe4 and the “unaffiliated security holders” as defined in Rule 13e-3 under the Exchange Act. For a description of the reasons considered by the KnowBe4 Board, see the section of this proxy statement captioned “Special Factors—Reasons for the Merger; Recommendations of the Special Committee and the KnowBe4 Board.”

The KnowBe4 Board unanimously recommends that you vote: (1) “FOR” the approval of the Merger Proposal; (2) “FOR” the approval of the Compensation Proposal; and (3) “FOR” the approval of the Adjournment Proposal.

Opinion of Morgan Stanley & Co. LLC

 

   

In connection with the Merger, Morgan Stanley rendered to the Special Committee its oral opinion, subsequently confirmed in writing, that as of October 11, 2022, and based upon and subject to the various matters, limitations, qualifications and assumptions set forth in the written opinion, the Per

 

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Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to such holders of KnowBe4’s common stock, as set forth in such opinion as more fully described in the section of this proxy statement captioned “Special Factors—Opinion of Morgan Stanley & Co. LLC.”

 

   

The full text of the written opinion of Morgan Stanley, dated as of October 11, 2022, which sets forth, among other things, the various matters, limitations, qualifications and assumptions, is attached to this proxy statement as Annex B and is incorporated by reference in this proxy statement in its entirety. The summary of the opinion of Morgan Stanley in this proxy statement is qualified in its entirety by reference to the full text of the written opinion. You are encouraged to read Morgan Stanley’s opinion carefully and in its entirety. Morgan Stanley’s opinion was rendered to the Special Committee, in its capacity as such, and addresses only the fairness, from a financial point of view, of the Per Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement as of the date of the opinion and does not address the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. It was not intended to, and does not, constitute an opinion or a recommendation as to how KnowBe4’s stockholders should vote at the Special Meeting.

 

   

For more information, see the section of this proxy statement captioned “Special Factors—Opinion of Morgan Stanley & Co. LLC.”

Position of the Purchaser Filing Parties as to the Fairness of the Merger

The Purchaser Filing Parties believe that the Merger is substantively and procedurally fair to KnowBe4’s “unaffiliated security holders,” as defined in Rule 13e-3 of the Exchange Act. However, none of the Purchaser Filing Parties has undertaken any formal evaluation of the fairness of the Merger to KnowBe4’s unaffiliated security holders or engaged a financial advisor for such purpose. Moreover, none of the Purchaser Filing Parties participated in the deliberation of the Special Committee or received advice from the Special Committee’s or KnowBe4’s respective legal or financial advisors in connection with the Merger. The belief of the Purchaser Filing Parties as to the procedural and substantive fairness of the Merger is based on the factors discussed in the section of this proxy statement captioned “Special Factors—Reasons for the Merger; Recommendations of the Special Committee and the KnowBe4 Board.”

Certain Effects of the Merger

 

   

If the conditions to the completion of the Merger are either satisfied or waived, at the effective time of the Merger: (1) Merger Sub will merge with and into KnowBe4; (2) the separate existence of Merger Sub will cease; and (3) KnowBe4 will continue as the surviving corporation in the Merger and as a wholly owned subsidiary of Parent. As a result of the Merger, KnowBe4 will cease to be a publicly traded company. If the Merger is completed, you will not own any shares of capital stock of the surviving corporation as a result of the Merger.

 

   

The time at which the Merger becomes effective will occur upon the filing of the Certificate of Merger with, and its acceptance by, the Secretary of State of the State of Delaware (or at a later time as KnowBe4, Parent and Merger Sub may agree and specify in the Certificate of Merger).

 

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Treatment of Shares and Equity Awards

 

   

Common Stock. The Merger Agreement provides for the following treatment of shares of KnowBe4 common stock in connection with the Merger:

 

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At the effective time of the Merger, each share of KnowBe4 common stock issued and outstanding immediately prior to the effective time of the Merger (other than the Excluded Shares and the Rollover Shares) will be canceled and extinguished and automatically converted into the right to receive cash in an amount equal to the Per Share Price, without interest and subject to any applicable withholding taxes. This amount constitutes a premium of approximately 44 percent to the unaffected closing price of KnowBe4 Class A common stock on September 16, 2022 of $17.30 per share, the last full trading day before Vista publicly disclosed its initial non-binding acquisition proposal. For more information, see the sections of this proxy statement captioned “Special Factors—Certain Effects of the Merger” and “The Merger Agreement—Treatment of Shares and Equity Awards.”

 

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At or prior to the closing date of the Merger, a sufficient amount of cash will be deposited with a designated payment agent to pay the aggregate Per Share Price. Once a stockholder has provided the payment agent with any documentation required by the payment agent, the payment agent will pay the stockholder the appropriate portion of the aggregate Per Share Price in exchange for the shares of KnowBe4 common stock held by that stockholder. For more information, see the section of this proxy statement captioned “The Merger Agreement—Payment Agent, Exchange Fund and Exchange and Payment Procedures.”

 

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After the Merger is completed, you will have the right to receive the Per Share Price for each share of KnowBe4 common stock that you own, but you will no longer have any rights as a stockholder (except that KnowBe4’s stockholders who have neither voted in favor of the Merger nor consented thereto in writing, properly demanded appraisal of such shares of KnowBe4 common stock pursuant to, and in accordance with, Section 262 of the DGCL, and do not validly withdraw or otherwise lose, their appraisal rights may have the right to receive a payment for the “fair value” of their shares as determined pursuant to an appraisal proceeding as contemplated by the DGCL, as described in the section of this proxy statement captioned “Appraisal Rights”).

 

   

Treatment of KnowBe4 RSU Awards and KnowBe4 PSU Awards. The Merger Agreement provides for the following treatment of KnowBe4 RSU Awards and KnowBe4 PSU Awards in connection with the Merger:

 

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KnowBe4 RSU Awards and PSU Awards Vested, Not Settled. Each KnowBe4 RSU Award and each KnowBe4 PSU Award, to the extent vested but not yet settled as of the effective time of the Merger (or which vests upon the consummation of the Merger), will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock then subject to the then-vested portion of such award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

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Unvested KnowBe4 RSU Awards. At the effective time of the Merger, each outstanding KnowBe4 RSU Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 RSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 RSU Award immediately prior to the effective time of the Merger.

 

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  o

Unvested KnowBe4 PSU Awards. At the effective time of the Merger, each KnowBe4 PSU Award, to the extent not then vested, will be deemed to have the performance metrics achieved at 100 percent of target, and will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 PSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment conditions but excluding performance vesting conditions) as applied to the KnowBe4 PSU Award immediately prior to the effective time of the Merger.

 

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For more information about the treatment of KnowBe4 RSU Awards and KnowBe4 PSU Awards, see the sections of this proxy statement captioned “Special Factors—Certain Effects of the Merger,” “The Merger Agreement—Treatment of Shares and Equity Awards” and “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger.”

 

   

Treatment of KnowBe4 Option Awards. The Merger Agreement provides for the following treatment of KnowBe4 Option Awards in connection with the Merger:

 

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Vested KnowBe4 Option Awards. At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent then vested, will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of such vested KnowBe4 Option Award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

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Unvested KnowBe4 Option Awards. At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of the unvested portion of such KnowBe4 Option Award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 Option Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 Option Award immediately prior to the effective time of the Merger.

 

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For more information about the treatment of KnowBe4 Option Awards, see the sections of this proxy statement captioned “Special Factors—Certain Effects of the Merger,” “The Merger Agreement—Treatment of Shares and Equity Awards” and “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger.”

 

   

Treatment of the ESPP. The Merger Agreement provides for the following treatment of the ESPP in connection with the Merger:

 

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From and after the date of the Merger Agreement, (1) no further offering period or purchase period will commence pursuant to the ESPP and (2) no further contributions will be made to the ESPP by payroll deductions or other methods.

 

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No later than November 21, 2022, KnowBe4 will apply any funds within each ESPP participant’s account to the purchase of whole shares of KnowBe4 Class A common stock in accordance with the terms of the ESPP. These shares will be deposited into the applicable participant’s account and will be treated in the same manner as any other outstanding share of KnowBe4 Class A common

 

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stock in connection with the consummation of the Merger. Any amounts not used for the purchase of shares of KnowBe4 Class A common stock will be refunded.

 

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For more information about the treatment of the ESPP, see the sections of this proxy statement captioned “Special Factors—Certain Effects of the Merger,” “The Merger Agreement—Treatment of Shares and Equity Awards” and “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger.”

Certain Effects on KnowBe4 if the Merger is Not Completed

 

   

If the Merger Agreement is not adopted by the requisite votes of KnowBe4’s stockholders, or if the Merger is not completed for any other reason, KnowBe4’s stockholders will not receive any payment for their shares of KnowBe4 common stock in connection with the Merger. Instead, (1) KnowBe4 will remain an independent public company; (2) the KnowBe4 Class A common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act; and (3) KnowBe4 will continue to file periodic reports with the SEC. For more information, see the section of this proxy statement captioned “Special Factors—Certain Effects on KnowBe4 if the Merger is Not Completed.”

Interests of KnowBe4’s Directors and Executive Officers in the Merger

 

   

In considering the recommendations of the Special Committee and the KnowBe4 Board with respect to the Merger, you should be aware that, aside from their interests as holders of KnowBe4 common stock and equity awards, KnowBe4’s directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. In particular:

 

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Stu Sjouwerman, KnowBe4’s Chief Executive Officer and Chairman of the KnowBe4 Board, is a Rollover Stockholder in his personal capacity as a holder of Rollover Shares and in his capacity as co-manager of the Sjouwerman Enterprises Limited Partnership;

 

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Jeremiah Daly, a member of the KnowBe4 Board, is an affiliate of, and has a financial interest in, the shares of KnowBe4 common stock held by the Elephant Funds, each of which is a Rollover Stockholder, and

 

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Stephen Shanley, a member of the KnowBe4 Board, is a partner at KKR, which is an affiliate of the KKR Investor, a Rollover Stockholder.

 

   

In addition to the foregoing, other interests of KnowBe4’s directors and executive officers that may be different from or in addition to your interests as a stockholder include, but are not limited to, the following:

 

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members of the Special Committee are entitled to receive a fee in connection with their service on the Special Committee;

 

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KnowBe4’s directors and executive officers are entitled to continued indemnification and insurance coverage under the Merger Agreement and indemnification agreements between such individuals and KnowBe4;

 

  o

pursuant to KnowBe4’s director compensation policy and the terms of the applicable equity award agreements between KnowBe4 and certain directors, vesting of unvested KnowBe4 RSU Awards, KnowBe4 PSU Awards and KnowBe4 Option Awards held by KnowBe4’s non-employee directors will accelerate upon the effectiveness of the Merger;

 

  o

KnowBe4’s executive officers have entered into employment agreements and equity award agreements that provide for the acceleration of vesting of their respective KnowBe4 RSU Awards and KnowBe4 PSU Awards (as well as certain severance benefits) upon an involuntary termination (as defined in the section of this proxy statement captioned “Interests of KnowBe4’s

 

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Directors and Executive Officers in the Merger—Change in Control and Severance Benefits under Existing Agreements”) following the Merger; and KnowBe4’s executive officers may be eligible to participate in a cash retention bonus program to be instituted by KnowBe4 prior to the effective time of the Merger; and

 

  o

KnowBe4’s executive officers as of the effective time of the Merger will be the executive officers of the surviving corporation as of the consummation of the Merger.

 

   

For a more detailed description of the interests of KnowBe4’s executive officers and directors in the Merger, see “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger.”

The Support Agreements

 

   

In connection with entering into the Merger Agreement, on October 11, 2022, Parent, KnowBe4 and the Rollover Stockholders entered into Support Agreements, pursuant to which the Rollover Stockholders agreed to vote all of their shares of KnowBe4 common stock in favor of the transaction (representing approximately [●] percent of the voting power of the outstanding shares of KnowBe4 common stock as of the Record Date), subject to certain terms and conditions contained in the Support Agreements. In addition, the Founder and the Elephant Funds agreed to “roll over” a portion of their existing equity in KnowBe4 into an ownership interest in the parent company of Parent. Pursuant to its Support Agreement, the KKR Investor has the ability to “roll over” a portion of its existing equity in KnowBe4 into an ownership interest in the parent company of Parent. If the KKR Investor “rolls over” a portion of its equity, then the amount of the KKR Investor’s equity contribution to Parent pursuant to the KKR Equity Commitment Letter will be reduced dollar-for-dollar.

 

   

For more information, see the section of this proxy statement captioned “The Support Agreements” and the full text of the Support Agreements, attached as Annex C, Annex D, Annex E, and Annex F, which are incorporated by reference in this proxy statement in their entirety.

Material U.S. Federal Income Tax Consequences of the Merger

 

   

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined in the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”) in exchange for such U.S. Holder’s shares of KnowBe4 common stock in the Merger generally will result in the recognition of gain or loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of KnowBe4 common stock surrendered in the Merger.

 

   

A Non-U.S. Holder (as defined in the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of KnowBe4 common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States, but may be subject to backup withholding tax unless the Non-U.S. Holder complies with certain certification procedures or otherwise establishes a valid exemption from backup withholding tax.

 

   

For more information, see the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger.” Stockholders should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any territory, state, local or non-U.S. taxing jurisdiction.

 

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Restrictions on Solicitation of Other Acquisition Offers

 

   

Upon the execution of the Merger Agreement, KnowBe4 became subject to customary “no-shop” restrictions on its ability (and the ability of its subsidiaries and representatives), except as permitted by the Merger Agreement, to, among other things, (1) solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist any alternative acquisition proposals from third parties; (2) furnish any non-public information relating to KnowBe4 or any of its subsidiaries or afford to any third party access to the business, properties, assets, books, records or other non-public information, or to any personnel, of KnowBe4 or any of its subsidiaries, (3) participate or engage in discussions or negotiations with any third party with respect to any alternative acquisition proposal or with respect to any inquiries from third parties relating to any offer, indication of interest or proposal relating to any alternative acquisition proposal; (4) approve, endorse or recommend any offer, inquiry, indication of interest or proposal that constitutes, or would reasonably be expected to lead to, any alternative acquisition proposal; (5) enter into any letter of intent, memorandum of understanding, merger agreement, acquisition agreement or other contract (whether written, oral, binding or non-binding) relating to any alternative acquisition proposal); or (6) authorize or commit to do any of the foregoing. For more information about the restrictions on KnowBe4’s solicitation of alternative acquisition proposals, see the section of this proxy statement captioned “The Merger Agreement—Restrictions on Solicitation of Other Acquisition Offers.”

 

   

However, prior to the adoption of the Merger Agreement by KnowBe4’s stockholders, KnowBe4 and the KnowBe4 Board (or a committee thereof, including the Special Committee) may, directly or indirectly through one or more of their respective representatives (including a financial advisor), following the execution of an acceptable confidentiality agreement, participate or engage in discussions or negotiations with, furnish non-public information about KnowBe4 to, and afford access to KnowBe4’s books, records and personnel to, any person or its representatives that has made, renewed or delivered to KnowBe4 a bona fide written acquisition proposal after the date of the Merger Agreement that did not result from a breach in any material respect of the applicable restrictions under the Merger Agreement. KnowBe4 and the KnowBe4 Board (or a committee thereof, including the Special Committee) may only take such actions if the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee has determined in good faith, and after consultation with its financial advisor and outside legal counsel, that (1) such acquisition proposal either constitutes a superior proposal (as defined in the section of this proxy statement captioned “The Merger Agreement—Restrictions on Solicitation of Other Acquisition Offers”) or is reasonably likely to lead to a superior proposal; and (2) the failure to take such actions would reasonably be expected to be inconsistent with its fiduciary duties pursuant to applicable law. For more information, see the section of this proxy statement captioned “The Merger Agreement—Restrictions on Solicitation of Other Acquisition Offers.”

 

   

KnowBe4 is not entitled to terminate the Merger Agreement to enter into an agreement for a superior proposal unless it complies with certain procedures in the Merger Agreement, including engaging in good faith negotiations with Parent during a specified period. If KnowBe4 terminates the Merger Agreement in order to accept a superior proposal from a third party, it must pay a termination fee to Parent. For more information, see the section of this proxy statement captioned “The Merger Agreement—The KnowBe4 Boards Recommendation; Board Recommendation Change.”

Change in the KnowBe4 Board’s Recommendation

 

   

The KnowBe4 Board (or a committee thereof, including the Special Committee) may not amend, modify or withdraw its recommendation that KnowBe4’s stockholders adopt the Merger Agreement or take certain similar actions other than, under certain circumstances, if the KnowBe4 Board, acting upon

 

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the recommendation of the Special Committee, or the Special Committee determines in good faith, after consultation with its financial advisor and outside legal counsel, that failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties pursuant to applicable law and the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee complies with the terms of the Merger Agreement.

 

   

Moreover, the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee cannot withdraw the KnowBe4 Board’s recommendation that KnowBe4’s stockholders adopt the Merger Agreement or take certain similar actions unless the KnowBe4 Board complies with certain procedures in the Merger Agreement, including engaging in good faith negotiations with Parent during a specified period. If KnowBe4 or Parent terminates the Merger Agreement under certain circumstances, including because the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee, amends, modifies or withdraws the KnowBe4 Board’s recommendation that KnowBe4’s stockholders adopt the Merger Agreement, then KnowBe4 must pay to Parent a termination fee.

 

   

For more information, see the section of this proxy statement captioned “The Merger Agreement—The KnowBe4 Board’s Recommendation; Board Recommendation Change.”

Limited Guarantees

 

   

Pursuant to the Limited Guarantees and subject to the terms and conditions set forth therein, each Guarantor agreed to guarantee a pro rata share of the payment of the termination fee if and when payable by Parent to KnowBe4 pursuant to the terms of the Merger Agreement and certain other liabilities and obligations of Parent and Merger Sub under the Merger Agreement an aggregate limit of up to $281 million for both Limited Guarantees. For more information, please see the section of this proxy statement captioned “Special Factors—Limited Guarantees.”

Financing of the Merger

 

   

The transactions contemplated by the Merger Agreement, including the payment of consideration due to KnowBe4’s stockholders and the holders of equity awards under the Merger Agreement, the repayment of all obligations under KnowBe4’s existing credit agreement and the payment of all related fees and expenses, will be funded with the proceeds of committed equity and debt financing, together with cash on hand at KnowBe4. The equity and debt financing commitments will be funded through a combination of the following:

 

  o

Equity Commitment Letters. Pursuant to the Equity Commitment Letters and subject to the terms and conditions set forth therein, each of (1) the Guarantors committed to provide Parent, at or prior to the closing date of the Merger, with an equity contribution of up to approximately $2.18 billion and (2) the KKR Investor committed to provide Parent, at or prior to the closing date of the Merger, with an equity contribution of up to approximately $300 million (which commitment may be assigned to affiliates of the KKR Investor, and which amount may be reduced dollar-for-dollar by the value of any Rollover Shares contributed by the KKR Investor pursuant to its Support Agreement). For more information, please see the section of this proxy statement captioned “Special Factors—Financing of the Merger—Equity Commitment.”

 

  o

Debt Commitment Letter. Pursuant to the Debt Commitment Letter, the financial institutions party thereto (the “debt financing sources”) have severally and not jointly committed (1) to provide to Parent (or one or more of its direct or indirect wholly-owned subsidiaries) on the closing date of the Merger a senior secured term facility in an aggregate principal amount of approximately $1 billion; and (2) to make available to Parent and its restricted subsidiaries a

 

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senior secured revolving credit facility in an aggregate principal amount of approximately $125 million, in each case, on the terms and subject to the conditions set forth in the Debt Commitment Letter. For more information, please see the section of this proxy statement captioned “Special Factors—Financing of the Merger—Debt Commitment.”

Conditions to the Closing of the Merger

 

   

Obligations of Parent, Merger Sub and KnowBe4. The obligations of Parent, Merger Sub and KnowBe4, as applicable, to consummate the Merger are subject to the satisfaction or waiver of certain conditions, including:

 

  o

the adoption of the Merger Agreement by the requisite approvals of KnowBe4’s stockholders;

 

  o

the expiration or termination of the waiting periods, if any, applicable to the Merger pursuant to the HSR Act; and

 

  o

the absence of any temporary restraining order, preliminary or permanent injunction issued by any court of competent jurisdiction or other order, legal or regulatory restraint or prohibition preventing the consummation of the Merger, any action taken by any governmental authority of competent jurisdiction, and any law enacted, entered, enforced or deemed applicable to the Merger, that, in each case, prevents, materially restrains or materially impairs the consummation of the Merger.

 

   

Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of each of the following additional conditions, any of which may be waived by Parent:

 

  o

the accuracy of the representations and warranties of KnowBe4 in the Merger Agreement, subject to applicable materiality or other qualifiers, as of the effective time of the Merger or to the extent that any such representation and warranty expressly speaks as of an earlier date;

 

  o

KnowBe4 having performed and complied in all material respects with all covenants under the Merger Agreement required to be performed and complied with by it at or prior to the closing of the Merger;

 

  o

receipt by Parent and Merger Sub of a customary closing certificate of KnowBe4;

 

  o

the absence of any Company Material Adverse Effect (as defined in the section of this proxy statement captioned “The Merger Agreement—Representations and Warranties”) having occurred after the date of the Merger Agreement that is continuing; and

 

  o

receipt by Parent and Merger Sub of a certificate, dated as of the effective time of the Merger, satisfying the requirements of Treasury Regulations Sections 1.897-2(h) and 1.1445-2(c)(3).

 

   

Obligations of KnowBe4. The obligations of KnowBe4 to consummate the Merger are subject to the satisfaction or waiver of each of the following additional conditions, any of which may be waived by KnowBe4:

 

  o

the accuracy of the representations and warranties of Parent and Merger Sub in the Merger Agreement, subject to applicable materiality or other qualifiers, as of the effective time of the Merger or to the extent that any such representation and warranty expressly speaks as of an earlier date;

 

  o

Parent and Merger Sub having performed and complied in all material respects with all obligations under the Merger Agreement required to be performed and complied by Parent and Merger Sub prior to the effective time of the Merger; and

 

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  o

the receipt by KnowBe4 of a customary closing certificate of Parent and Merger Sub.

 

   

For more information, see the section of this proxy statement captioned “The Merger Agreement—Conditions to the Closing of the Merger.”

Termination of the Merger Agreement

 

   

The Merger Agreement may be terminated at any time prior to the effective time of the Merger under certain circumstances, including, but not limited to, the following:

 

  o

KnowBe4 or Parent may terminate the Merger Agreement if, subject to the terms and conditions of the Merger Agreement, (1) the merger is not consummated by 11:59 p.m. Eastern time on August 11, 2023; (2) a regulatory restraint has become final and non-appealable, and (3) KnowBe4 fails to receive all of the requisite stockholder votes on the Merger Agreement.

 

  o

KnowBe4 may terminate the Merger Agreement if, subject to the terms and conditions of the Merger Agreement, (1) subject to a cure period, Parent or Merger Sub has breached or failed to perform any of its representations, warranties or covenants contained in the Merger Agreement such that the related closing condition would not be satisfied; (2) the KnowBe4 Board, acting upon the recommendation of the Special Committee, authorizes KnowBe4 to enter into any alternative acquisition agreement to consummate any alternative acquisition transaction contemplated by a superior proposal (as defined in the section of this proxy statement captioned “The Merger Agreement—Restrictions on Solicitation of Other Acquisition Offers”) in compliance with the terms of the Merger Agreement and pays the applicable termination fee; or (3) Parent and Merger Sub fail to consummate the Merger as required, subject to certain conditions.

 

  o

Parent may terminate the Merger Agreement if, subject to the terms and conditions of the Merger Agreement, (1) subject to a cure period, KnowBe4 has breached or failed to perform any of its representations, warranties or covenants contained in the Merger Agreement such that the related closing condition would not be satisfied; or (2) the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee effects a change to the KnowBe4 Board’s recommendation that the stockholders adopt the Merger Agreement or taking certain similar actions.

 

   

For more information, see the section of this proxy statement captioned “The Merger Agreement—Termination of the Merger Agreement.

Termination Fees and Remedies

 

   

Payment of Termination Fee by KnowBe4. Pursuant to the Merger Agreement, upon valid termination of the Merger Agreement under specified circumstances, KnowBe4 will be required to pay Parent a termination fee of $138 million. Specifically, this termination fee will be payable by KnowBe4 to Parent if the Merger Agreement is terminated:

 

  o

(1) by Parent or KnowBe4 upon the failure to obtain the requisite stockholder approvals of the Merger Proposal, or (2) by Parent, if KnowBe4 has breached or failed to perform any of its representations, warranties or covenants under the Merger Agreement, resulting in the failure of a closing condition and, if in the case of each of the foregoing clauses (1) and (2), an alternative acquisition has been publicly announced following the date of the Merger Agreement but prior to such termination and within one year of such termination, KnowBe4 consummates or enters into a definitive agreement for an alternative acquisition,

 

  o

by Parent, following the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee effecting a change to the KnowBe4 Board’s

 

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recommendation that the stockholders adopt the Merger Agreement or taking certain similar actions, or

 

  o

by KnowBe4, following the decision by the KnowBe4 Board, acting upon the recommendation of the Special Committee, to authorize KnowBe4 to enter into an alternative acquisition to consummate the acquisition contemplated by a superior proposal.

In addition, if the Merger Agreement is terminated by Parent or KnowBe4 upon KnowBe4’s failure to obtain the requisite stockholder approvals of the Merger Proposal, KnowBe4 will be required to reimburse Parent for its reasonable and documented third party transaction expenses incurred in connection with the negotiation of the transactions contemplated by the Merger Agreement, up to $15 million.

 

   

Payment of Termination Fee by Parent. Pursuant to the Merger Agreement, upon valid termination of the Merger Agreement under other specified circumstances, Parent will be required to pay KnowBe4 a termination fee of $276 million, the payment of which has been guaranteed pursuant to, and subject to the terms and conditions of, the Limited Guarantees. Specifically, this termination fee is payable by Parent to KnowBe4 if the Merger Agreement is terminated by KnowBe4:

 

  o

following Parent or Merger Sub’s material breach of its representations, warranties or covenants in a manner that would cause the related closing conditions to not be satisfied; or

 

  o

once all of the conditions to closing are satisfied (other than those conditions that by their terms are to be satisfied at closing), following Parent’s failure to consummate the Merger as required pursuant to, and in the circumstances specified in, the Merger Agreement.

 

   

Specific Performance. The Merger Agreement also provides that KnowBe4, on one hand, or Parent and Merger Sub, on the other hand, may specifically enforce the obligations under the Merger Agreement, except that KnowBe4 may only cause Parent and Merger Sub to consummate the Merger, and the Guarantors and the KKR Investor to cause the equity financing to be funded pursuant to the Equity Commitment Letters (or, in the case of the KKR Investor, satisfied with Rollover Shares pursuant to the Support Agreement), if certain conditions are satisfied, including the funding or availability of the debt financing.

 

   

For more information, see the section of this proxy statement captioned “The Merger Agreement—Termination Fees and Remedies.

Appraisal Rights

 

   

If the Merger is consummated, holders of record or beneficial owners of KnowBe4 common stock who (1) do not vote in favor of the Merger Proposal (whether by voting against the Merger Proposal, abstaining or otherwise not voting with respect to the Merger Proposal), (2) continuously hold (in the case of holders of record) or continuously own (in the case of beneficial owners) their applicable shares of KnowBe4 common stock through the effective date of the Merger, (3) properly demand appraisal of their applicable shares, (4) meet certain statutory requirements described in this proxy statement, and (5) do not withdraw their demands or otherwise lose their rights to appraisal will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 of the DGCL if certain conditions set forth in Section 262(g) of the DGCL are satisfied. The requirements under Section 262 of the DGCL for perfecting and exercising appraisal rights are described in further detail the section of this proxy statement captioned “Appraisal Rights,” which description is qualified in its entirety by Section 262 of the DGCL, the relevant section of the DGCL regarding appraisal rights, which may be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262.

 

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This means that these holders of record and beneficial owners may be entitled to have their shares of KnowBe4 common stock appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of KnowBe4 common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with (unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown) interest on the amount determined by the Delaware Court of Chancery to be fair value from the effective date of the Merger through the date of payment of the judgment at a rate of five percent over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and the date of payment of the judgment, compounded quarterly (except that, if at any time before the entry of judgment in the proceeding, the surviving corporation makes a voluntary cash payment to persons entitled to appraisal, interest will accrue thereafter only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery; and (2) interest theretofore accrued, unless paid at that time). The surviving corporation is under no obligation to make such voluntary cash payment prior to such entry of judgment. Due to the complexity of the appraisal process, any persons who wish to seek appraisal of their shares are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights. Persons considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares. For more information, see the section of this proxy statement captioned “Appraisal Rights—Determination of Fair Value.”

 

   

To exercise appraisal rights, a holder of record or a beneficial owner of KnowBe4 common stock must (1) submit a written demand for appraisal of such holder’s or owner’s shares of KnowBe4 common stock to KnowBe4 before the vote is taken on the Merger Proposal; (2) not vote, in person or by proxy, in favor of the Merger Proposal (whether by voting against the Merger Proposal, abstaining or otherwise not voting with respect to the Merger Proposal); (3) continuously hold (in the case of holders of record) or continuously own (in the case of beneficial owners) the subject shares of KnowBe4 common stock through the effective date of the Merger; and (4) strictly comply with all other procedures for exercising appraisal rights under the DGCL. If you are a beneficial owner of shares of KnowBe4 common stock and you wish to exercise your appraisal rights in such capacity, in addition to the foregoing requirements, your demand for appraisal must also (1) reasonably identify the holder of record of the shares of KnowBe4 common stock for which the demand is made, (2) be accompanied by documentary evidence of your beneficial ownership of stock and a statement that such documentary evidence is a true and correct copy of what it purports to be, and (3) provide an address at which you consent to receive notices given by the surviving corporation hereunder and to be set forth on the verified list required by Section 262(f) of DGCL. The failure to follow exactly the procedures specified under the DGCL may result in the loss of appraisal rights. The requirements under Section 262 of the DGCL for perfecting and exercising appraisal rights are described in further detail in the section of this proxy statement captioned “Appraisal Rights,” which description is qualified in its entirety by Section 262 of the DGCL, the relevant section of the DGCL regarding appraisal rights, a copy of which may be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262.

 

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QUESTIONS AND ANSWERS

The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that are important to you. KnowBe4 encourages you to carefully read the more detailed information contained elsewhere in this proxy statement, including the annexes to this proxy statement and the other documents to which KnowBe4 refers in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions in the section of this proxy statement captioned “Where You Can Find Additional Information.”

 

Q:

Why am I receiving these materials?

 

A:

On October 11, 2022, KnowBe4 entered into the Merger Agreement. Under the Merger Agreement, Parent will acquire KnowBe4 for the Per Share Price. In order to complete the Merger, KnowBe4’s stockholders must vote to approve the adoption of the Merger Agreement at the Special Meeting pursuant to the requisite stockholder votes. This approval is a condition to the consummation of the Merger. See the section of this proxy statement captioned “The Merger Agreement—Conditions to the Closing of the Merger.” The KnowBe4 Board is furnishing this proxy statement and form of proxy card to the holders of shares of KnowBe4 common stock in connection with the solicitation of proxies of KnowBe4’s stockholders to be voted at the Special Meeting.

This proxy statement, which you should read carefully, contains important information about the Merger, the Merger Agreement, the Special Meeting and the matters to be voted on at the Special Meeting. The enclosed materials allow you to submit a proxy to vote your shares of KnowBe4 common stock without attending the Special Meeting and to ensure that your shares of KnowBe4 common stock are represented and voted at the Special Meeting.

Your vote is very important. Even if you plan to attend the Special Meeting, KnowBe4 encourages you to submit a proxy as soon as possible.

 

Q:

What is the Merger and what effects will it have on KnowBe4?

 

A:

The Merger is the acquisition of KnowBe4 by Parent. If the Merger Proposal is approved by KnowBe4’s stockholders and the other closing conditions under the Merger Agreement are satisfied or waived, Merger Sub will merge with and into KnowBe4, with KnowBe4 continuing as the surviving corporation. As a result of the Merger, KnowBe4 will become a wholly owned subsidiary of Parent, and KnowBe4 Class A common stock will no longer be publicly traded and will be delisted from Nasdaq. In addition, KnowBe4 Class A common stock will be deregistered under the Exchange Act, and KnowBe4 will no longer file periodic reports with the SEC.

 

Q:

What will I receive if the Merger is completed?

 

A:

Upon completion of the Merger, you will be entitled to receive the Per Share Price, without interest and less any applicable withholding taxes, for each share of KnowBe4 common stock that you own (other than the Excluded Shares and the Rollover Shares), unless you have properly perfected and exercised, and not validly withdrawn or subsequently lost, your appraisal rights under the DGCL, and certain other conditions under the DGCL are satisfied. For example, if you own 100 shares of KnowBe4 common stock, you will receive $2,490.00 in cash in exchange for your shares of KnowBe4 common stock, without interest and less any applicable withholding taxes.

 

Q:

How does the Per Share Price compare to the market price of the KnowBe4 Class A common stock?

 

A:

This amount constitutes a premium of approximately 44 percent to the unaffected closing price of KnowBe4 Class A common stock of $17.30 per share on September 16, 2022, the last full trading day before Vista publicly disclosed its initial non-binding acquisition proposal.

 

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Q:

What will happen to KnowBe4 RSU Awards, KnowBe4 PSU Awards and KnowBe4 Option Awards?

 

A:

Generally speaking, KnowBe4 RSU Awards, KnowBe4 PSU Awards and KnowBe4 Option Awards will be treated as follows:

 

   

At the effective time of the Merger each KnowBe4 RSU Award and each KnowBe4 PSU Award, to the extent vested but not yet settled as of the effective time of the Merger (or which vests upon the consummation of the Merger), will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock then subject to the then-vested portion of such award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

   

At the effective time of the Merger, each outstanding KnowBe4 RSU Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 RSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 RSU Award immediately prior to the effective time of the Merger.

 

   

At the effective time of the Merger, each KnowBe4 PSU Award, to the extent not then vested, will be deemed to have the performance metrics achieved at 100 percent of target, and will be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 PSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment conditions but excluding performance vesting conditions) as applied to the KnowBe4 PSU Award immediately prior to the effective time of the Merger.

 

   

At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent then vested, will be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of such vested KnowBe4 Option Award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

   

At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent not then vested, will be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of the unvested portion of such KnowBe4 Option Award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 Option Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 Option Award immediately prior to the effective time of the Merger.

 

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Q:

What will happen to the ESPP?

 

A:

Generally speaking, the ESPP will be treated as follows:

 

   

From and after the date of the Merger Agreement, (1) no further offering period or purchase period will commence pursuant to the ESPP and (2) no further contributions will be made to the ESPP by payroll deductions or other methods.

 

   

No later than November 21, 2022, KnowBe4 will apply any funds within each ESPP participant’s account to the purchase of whole shares of KnowBe4 Class A common stock in accordance with the terms of the ESPP. These shares will be deposited into the applicable participant’s account and will be treated in the same manner as any other outstanding share of KnowBe4 Class A common stock in connection with the consummation of the Merger. Any amounts not used for the purchase of shares of KnowBe4 Class A common stock will be refunded.

 

Q:

What am I being asked to vote on at the Special Meeting?

 

A:

You are being asked to vote on the following proposals:

 

   

The Merger Proposal: the proposal to adopt the Merger Agreement, pursuant to which Merger Sub will merge with and into KnowBe4, with KnowBe4 continuing as the surviving corporation and becoming a wholly owned subsidiary of Parent;

 

   

The Compensation Proposal: the proposal to approve, on a non-binding, advisory basis, the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger; and

 

   

The Adjournment Proposal: the proposal to approve the adjournment of the Special Meeting, from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

Q:

When and where is the Special Meeting?

 

A:

The Special Meeting will take place virtually on [●] at [●] Eastern time. You may attend the Special Meeting solely via a live interactive webcast on the Internet at http://www.virtualshareholdermeeting.com/KNBE2023SM. You will be able to listen to the Special Meeting live and vote online. You will need the control number found on your proxy card or voting instruction form in order to participate in the Special Meeting (including voting your shares).

 

Q:

Who is entitled to vote at the Special Meeting?

 

A:

All of KnowBe4’s stockholders as of the close of business on [●], which is the Record Date for the Special Meeting, are entitled to vote their shares of KnowBe4 common stock at the Special Meeting. As of the Record Date, there were [●] shares of KnowBe4 Class A common stock and [●] shares of KnowBe4 Class B common stock outstanding and entitled to vote at the Special Meeting. For each share of KnowBe4 Class A common stock that you owned as of the close of business on the Record Date, you will have one vote on each matter submitted for a vote at the Special Meeting. For each share of KnowBe4 Class B common stock that you owned as of the close of business on the Record Date, you will have ten votes on each matter submitted for a vote at the Special Meeting.

 

Q:

What vote is required to approve the Merger Proposal?

 

A:

Approval of the Merger Proposal requires the affirmative vote of (1) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) entitled to vote on the Merger Agreement; (2) the holders of a majority of the voting power of the outstanding shares of

 

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KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement; (3) the holders of at least a majority of the outstanding shares of KnowBe4 Class A common stock entitled to vote in accordance with the DGCL; and (4) the holders of at least a majority of the outstanding shares of KnowBe4 Class B common stock entitled to vote in accordance with the DGCL.

 

Q:

What vote is required to approve each of (1) the Compensation Proposal and (2) the Adjournment Proposal?

 

A:

Approval of the Compensation Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively on such proposal. This vote will be on a non-binding, advisory basis.

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively on such proposal.

 

Q:

What happens if I fail to vote or abstain from voting on a proposal?

 

A:

If you (1) are a stockholder of record and fail to submit a signed proxy card, grant a proxy over the internet or by telephone, or vote your shares at the Special Meeting, or if you (2) hold in “street name” and you fail to instruct your broker, bank or other nominee on how to vote your shares, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting, and such failure to vote will have the same effect as voting “AGAINST” the Merger Proposal, but will not have any effect on the outcome of the vote on the Compensation Proposal or the Adjournment Proposal (assuming a quorum is present).

With respect to the Merger Proposal, if you abstain from voting, your shares will be counted as present for purposes of determining the presence of a quorum, but such abstention will have the same effect as voting “AGAINST” the Merger Proposal. With respect to the Compensation Proposal and the Adjournment Proposal, if you abstain from voting, your shares will be counted as present for purposes of determining the presence of a quorum, but abstentions are not considered votes cast affirmatively or negatively and therefore will not have any effect on the outcome of such proposals.

 

Q:

How will KnowBe4’s Directors and Executive Officers and the Rollover Stockholders vote on the Merger Proposal?

 

A:

KnowBe4’s directors and executive officers have informed KnowBe4 that, as of the date of this proxy statement, they intend to vote all of the shares of KnowBe4 common stock owned directly by them in favor of the Merger Proposal, the Compensation Proposal and the Adjournment Proposal. As of the Record Date, KnowBe4’s directors and executive officers beneficially owned and were entitled to vote, in the aggregate, approximately [●] percent of the voting power of the shares of KnowBe4 common stock outstanding as of the Record Date. For more information, see the section of this proxy statement captioned “Special Factors—Intent of KnowBe4’s Directors and Executive Officers to Vote in Favor of the Merger.

The Rollover Stockholders, who hold, in the aggregate, approximately [●] percent of the voting power of the outstanding shares of KnowBe4 common stock as of the Record Date, have entered into Support Agreements pursuant to which they have agreed to vote all of their shares of KnowBe4 common stock in favor of the Merger Proposal, subject to certain terms and conditions contained in the Support Agreements. However, approval of the Merger Proposal also requires the Unaffiliated Stockholder Vote which excludes all of the shares of KnowBe4 common stock held by the Rollover Stockholders and certain of their affiliates, as well as KnowBe4’s officers. For more information, see the section of this proxy statement captioned “Special Factors—Intent of Certain Stockholders to Vote in Favor of the Merger.

 

Q:

What do I need to do now?

 

A:

We encourage you to read this proxy statement, the annexes to this proxy statement and the documents that KnowBe4 refers to in this proxy statement carefully and consider how the Merger affects you. Then, even if

 

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you expect to attend the Special Meeting, please sign, date and return, as promptly as possible, the enclosed proxy card (a prepaid reply envelope is provided for your convenience), or grant your proxy electronically over the internet or by telephone (using the instructions found on the proxy card), so that your shares can be voted at the Special Meeting. If you hold your shares in “street name,” please refer to the voting instruction form provided by your bank, broker or other nominee for information on how to vote your shares. Please do not send your stock certificates with your proxy card.

 

Q:

What is the Special Committee, and what role did it play in evaluating the Merger?

 

A:

In July 2022, the KnowBe4 Board formed the Special Committee to engage with Vista, to consider other potential value creation opportunities, and to take other actions that the Special Committee deemed appropriate. As more fully described in the section of this proxy statement captioned “Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the KnowBe4 Board,” the Special Committee evaluated the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, with the assistance of its own independent financial and legal advisors and, where appropriate, KnowBe4 management and KnowBe4’s outside legal advisor. At the conclusion of its review, the Special Committee, among other things, unanimously (1) determined that the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders; and (2) recommended that the KnowBe4 Board approve the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, and determine that the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders. The KnowBe4 Board, acting upon the recommendation of the Special Committee, (1) determined that the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of KnowBe4 and its stockholders, including the Unaffiliated Stockholders; and (2) approved and declared advisable the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger.

 

Q:

How does the KnowBe4 Board recommend that I vote?

 

A:

The KnowBe4 Board unanimously recommends that you vote:

 

   

FOR” the approval of the Merger Proposal;

 

   

FOR” the approval of the Compensation Proposal; and

 

   

FOR” the approval of the Adjournment Proposal.

You should read the section of this proxy statement captioned “Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the KnowBe4 Board” for a discussion of the factors that the Special Committee and the KnowBe4 Board considered in deciding to recommend and/or approve, as applicable, the approval of the adoption of the Merger Agreement.

 

Q:

What happens if the Merger is not completed?

 

A:

If the Merger Agreement is not adopted by the requisite votes of KnowBe4’s stockholders or if the Merger is not completed for any other reason, KnowBe4’s stockholders will not receive any payment for their shares of KnowBe4 common stock. Instead: (1) KnowBe4 will remain an independent public company; (2) KnowBe4 Class A common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act; and (3) KnowBe4 will continue to file periodic reports with the SEC.

 

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In specified circumstances in which the Merger Agreement is terminated, KnowBe4 has agreed to pay Parent a termination fee. In specified circumstances in which the Merger Agreement is terminated, Parent has agreed to pay KnowBe4 a reverse termination fee, the payment of which has been guaranteed by the Guarantors. For more information, see the section of this proxy statement captioned “The Merger Agreement—Termination Fees and Remedies.”

 

Q:

What is the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger?

 

A:

The compensation that will or may become payable by KnowBe4 to KnowBe4’s named executive officers in connection with the Merger is certain compensation that is tied to or based on the Merger and payable to certain of KnowBe4’s named executive officers pursuant to underlying plans and arrangements that are contractual in nature. Compensation that will or may become payable by Parent or its affiliates (including, following the consummation of the Merger, the surviving corporation) to KnowBe4’s named executive officers in connection with or following the Merger is not subject to this advisory vote. For further information, see the section of this proxy statement captioned “Proposal 2: The Compensation Proposal.”

 

Q:

Why am I being asked to cast a vote to approve the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger?

 

A:

KnowBe4 is required to seek approval, on a non-binding, advisory basis, of compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger. Approval of the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger is not required to consummate the Merger.

 

Q:

What will happen if KnowBe4’s stockholders do not approve the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger?

 

A:

Approval of the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger is not a condition to consummation of the Merger. This is an advisory vote and will not be binding on KnowBe4 or Parent. The underlying plans and arrangements providing for such compensation are contractual in nature and are not, by their terms, subject to stockholder approval.

Accordingly, if the Merger Agreement is adopted by KnowBe4’s stockholders and the Merger is consummated, the compensation that will or may become payable by KnowBe4 to its named executive officers in connection with the Merger will or may be paid to KnowBe4’s named executive officers even if KnowBe4’s stockholders do not approve such compensation.

 

Q:

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A:

If your shares are registered directly in your name with KnowBe4’s transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, to be the “stockholder of record.” If you are a stockholder of record, this proxy statement and your proxy card have been sent directly to you by or on behalf of KnowBe4. As a stockholder of record, you may attend the Special Meeting and vote your shares at the Special Meeting using the control number on the enclosed proxy card.

If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of shares of KnowBe4 common stock held in “street name.” If you are a beneficial owner of shares of KnowBe4 common stock held in “street name,” this proxy statement has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting. You are also invited to attend the Special Meeting.

 

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However, because you are not the stockholder of record, you may not vote your shares at the Special Meeting unless you provide a “legal proxy” from your bank, broker or other nominee giving you the right to vote your shares at the Special Meeting.

 

Q:

If my broker holds my shares in “street name,” will my broker vote my shares for me?

 

A:

No. Your bank, broker or other nominee is permitted to vote your shares on any proposal currently scheduled to be considered at the Special Meeting only if you instruct your bank, broker or other nominee how to vote. You should follow the procedures provided by your bank, broker or other nominee to vote your shares.

If you do not provide your bank, broker or other nominee with voting instructions, your shares will not be voted on any of the proposals, which will have the same effect as if you voted “AGAINST” the Merger Proposal but will have no effect on the outcome of the vote on the Compensation Proposal or the Adjournment Proposal, except to the extent affecting the obtaining of a quorum at the meeting.

 

Q:

How may I vote?

 

A:

If you are a stockholder of record (that is, if your shares of KnowBe4 common stock are registered in your name with Computershare Trust Company, N.A., KnowBe4’s transfer agent), there are four ways to vote:

 

   

by signing, dating and returning the enclosed proxy card (a prepaid reply envelope is provided for your convenience);

 

   

by visiting the internet address on your proxy card;

 

   

by calling the toll-free (within the United States. or Canada) phone number on your proxy card; or

 

   

by attending the Special Meeting and voting at the Special Meeting using the control number on the enclosed proxy card.

The control number located on your proxy card is designed to verify your identity and allow you to vote your shares of KnowBe4 common stock and to confirm that your voting instructions have been properly recorded when voting electronically over the internet or by telephone. Although there is no charge for voting your shares, if you vote electronically over the internet or by telephone, you may incur costs such as internet access and telephone charges for which you will be responsible.

Even if you plan to attend the Special Meeting, you are strongly encouraged to vote your shares of KnowBe4 common stock by proxy. If you are a stockholder of record or if you provide a “legal proxy” to vote shares that you beneficially own, you may vote your shares of KnowBe4 common stock at the Special Meeting even if you have previously voted by proxy. If you attend the Special Meeting and vote at the Special Meeting, your vote will revoke any previously submitted proxy.

If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting instruction form provided by your bank, broker or other nominee, or, if such a service is provided by your bank, broker or other nominee, electronically over the internet or by telephone. To vote over the internet or by telephone through your bank, broker or other nominee, you should follow the instructions on the voting instruction form provided by your bank, broker or nominee. However, because you are not the stockholder of record, you may not vote your shares at the Special Meeting unless you provide a “legal proxy” from your bank, broker or other nominee giving you the right to vote your shares at the Special Meeting.

 

Q:

May I attend the Special Meeting and vote at the Special Meeting?

 

A:

Yes. You may attend the Special Meeting via live interactive webcast on the internet at http://www.virtualshareholdermeeting.com/KNBE2023SM. You will be able to listen to the Special

 

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Meeting live and vote online. The Special Meeting will begin at [●], Eastern time, on [●]. Online check-in will begin a few minutes prior to the Special Meeting. You will need the control number found on your proxy card or voting instruction form in order to participate in the Special Meeting (including voting your shares). As the Special Meeting is virtual, there will be no physical meeting location.

Even if you plan to attend the Special Meeting, to ensure that your shares will be represented at the Special Meeting, KnowBe4 encourages you to promptly sign, date and return the enclosed proxy card (a prepaid reply envelope is provided for your convenience) or grant your proxy electronically over the internet or by telephone (using the instructions found on the proxy card). If you attend the Special Meeting and vote at the Special Meeting, your vote will revoke any proxy previously submitted.

If, as of the Record Date, you are a beneficial owner of shares held in “street name,” you may not vote your shares at the Special Meeting unless you provide a “legal proxy” from your bank, broker or other nominee giving you the right to vote your shares at the Special Meeting. Otherwise, you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form provided by your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals to be considered at the Special Meeting without your instructions.

 

Q:

Why did KnowBe4 choose to hold a virtual Special Meeting?

 

A:

The KnowBe4 Board decided to hold the Special Meeting virtually in order to facilitate stockholder attendance and participation by enabling stockholders to participate fully, and equally, from virtually any location around the world, at no cost. However, you will bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies. KnowBe4 believes this is the right choice for a company with a global footprint. A virtual Special Meeting makes it possible for more stockholders (regardless of size, resources or physical location) to have direct access to information, while saving KnowBe4 and its stockholders time and money. KnowBe4 also believes that the online tools that it has selected will increase stockholder communication. KnowBe4 remains very sensitive to concerns that virtual meetings may diminish stockholder voice or reduce accountability. Accordingly, KnowBe4 has designed its virtual format to enhance, rather than constrain, stockholder access, participation and communication.

 

Q:

What is a proxy?

 

A:

A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of KnowBe4 common stock. The written document describing the matters to be considered and voted on at the Special Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of KnowBe4 common stock is called a “proxy card.” You may follow the instructions on the proxy card to designate a proxy by telephone or by the Internet in the same manner as if you had signed, dated and returned a proxy card. Sjoerd Sjouwerman and Robert Reich, each with full power of substitution and re-substitution, have been designated as proxy holders for the Special Meeting by the KnowBe4 Board.

 

Q:

May I change my vote after I have mailed my signed and dated proxy card?

 

A:

Yes. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by:

 

   

signing another proxy card with a later date and returning it to KnowBe4 prior to the Special Meeting;

 

   

submitting a new proxy electronically over the internet or by telephone after the date of the earlier submitted proxy;

 

   

delivering a written notice of revocation to KnowBe4’s Corporate Secretary; or

 

   

attending the Special Meeting and voting at the Special Meeting using the control number on the enclosed proxy card.

 

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If you hold your shares of KnowBe4 common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee giving you the right to vote your shares at the Special Meeting.

 

Q:

If a stockholder gives a proxy, how are the shares voted?

 

A:

Regardless of the method you choose to grant your proxy, the individuals named on the enclosed proxy card, with full power of substitution and re-substitution, will vote your shares in the way that you direct.

If you sign and date your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted as recommended by the KnowBe4 Board with respect to each proposal. This means that they will be voted: (1) “FOR the approval of the Merger Proposal; (2) “FOR the approval of the Compensation Proposal; and (3) “FOR the approval of the Adjournment Proposal, and in the proxyholders’ discretion with respect to any other business that may properly come before the Special Meeting.

 

Q:

Should I send in my stock certificates now?

 

A:

No. After the Merger is completed, any holders of physical stock certificates will receive a letter of transmittal containing instructions for how to send your stock certificates to the payment agent in order to receive the appropriate cash payment for the shares of KnowBe4 common stock represented by your stock certificates. Unless you are seeking appraisal, you should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled. Please do not send your stock certificates with your proxy card. If you hold your shares of KnowBe4 common stock in book-entry form, you will not receive a letter of transmittal. Instead, the payment agent will pay you the appropriate portion of the aggregate Per Share Price (subject to any applicable withholding taxes) upon receipt of a customary “agent’s message” and any other items specified by the payment agent.

 

Q:

What happens if I sell or transfer my shares of KnowBe4 common stock after the Record Date but before the Special Meeting?

 

A:

The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the expected effective date of the Merger. If you sell or transfer your shares of KnowBe4 common stock after the Record Date but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or transfer your shares and each of you notifies KnowBe4 in writing of such special arrangements, you will transfer the right to receive the Per Share Price with respect to such shares, if the Merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote those shares at the Special Meeting. Even if you sell or transfer your shares of KnowBe4 common stock after the Record Date, KnowBe4 encourages you to sign, date and return the enclosed proxy card (a prepaid reply envelope is provided for your convenience) or grant your proxy electronically over the internet or by telephone (using the instructions found on the proxy card).

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

Please sign, date and return (or grant your proxy electronically over the internet or by telephone for) each proxy card and voting instruction form that you receive to ensure that all of your shares are voted.

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction forms, if your shares are registered differently or are held in more than one account. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please vote all voting materials that you receive.

 

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Q:

Where can I find the voting results of the Special Meeting?

 

A:

If available, KnowBe4 may announce preliminary voting results at the conclusion of the Special Meeting. KnowBe4 intends to publish final voting results in a Current Report on Form 8-K to be filed with the SEC following the Special Meeting. All reports that KnowBe4 files with the SEC are publicly available when filed. See the section of this proxy statement captioned “Where You Can Find Additional Information.”

 

Q:

Will I be subject to U.S. federal income tax upon the exchange of common stock for cash pursuant to the Merger?

 

A:

If you are a U.S. Holder (as defined in the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”), the exchange of KnowBe4 common stock for cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes, which generally will require a U.S. Holder to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received by such U.S. Holder in the Merger and such U.S. Holder’s adjusted tax basis in the shares of KnowBe4 common stock surrendered in the Merger.

A Non-U.S. Holder (as defined in the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of KnowBe4 common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States, but may be subject to backup withholding tax unless the Non-U.S. Holder complies with certain certification procedures or otherwise establishes a valid exemption from backup withholding tax.

Because particular circumstances may differ, KnowBe4 recommends that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the Merger in light of your own particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any territory, state, local or foreign taxing jurisdiction. This discussion is provided for general information only and does not constitute legal advice to any holder. A more complete description of material U.S. federal income tax consequences of the Merger is provided in the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger.”

 

Q:

When do you expect the Merger to be completed?

 

A:

KnowBe4 currently expects to complete the Merger in 2023. However, the exact timing of completion of the Merger, if at all, cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of its control.

 

Q:

What governmental and regulatory approvals are required?

 

A:

Under the terms of the Merger Agreement, the Merger cannot be completed until the waiting period applicable to the Merger under the HSR Act has expired or been terminated.

 

Q:

Am I entitled to appraisal rights under the DGCL?

 

A:

If the Merger is consummated and certain conditions set forth in Section 262(g) of the DGCL are satisfied, holders of record and beneficial owners of KnowBe4 common stock who (1) do not vote in favor of the Merger Proposal (whether by voting against the Merger Proposal, abstaining or otherwise not voting with respect to the Merger Proposal); (2) continuously hold (in the case of holders of record) or continuously own (in the case of beneficial owners) their applicable shares of KnowBe4 common stock through the effective date of the Merger; (3) properly demand appraisal of their applicable shares; (4) meet certain statutory requirements as described in this proxy statement; and (5) do not withdraw their demands or otherwise lose

 

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their rights to appraisal, will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 of the DGCL. This means that such holders of record and beneficial owners will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of KnowBe4 common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with (unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown) interest on the amount determined by the Delaware Court of Chancery to be fair value from the effective date of the Merger through the date of payment of the judgment at a rate of five percent over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and the date of payment of the judgment, compounded quarterly (except that, if at any time before the entry of judgment in the proceeding, the surviving corporation makes a voluntary cash payment to each person seeking appraisal, interest will accrue thereafter only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery; and (2) interest theretofore accrued, unless paid at that time). The surviving corporation is under no obligation to make such voluntary cash payment prior to such entry of judgment. Persons who wish to seek appraisal of their shares are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. The DGCL requirements for perfecting and exercising appraisal rights are described in additional detail in the section of this proxy statement captioned “Appraisal Rights,” which description is qualified in its entirety by Section 262 of the DGCL regarding appraisal rights, which may be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262.

 

Q:

Do any of KnowBe4’s directors or officers have interests in the Merger that may differ from those of KnowBe4’s stockholders generally?

 

A:

Yes. In considering the recommendations of the Special Committee and the KnowBe4 Board with respect to the Merger, you should be aware that, aside from their interests as holders of KnowBe4 common stock and equity awards, KnowBe4’s directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. The Special Committee and the KnowBe4 Board were aware of and considered these interests to the extent that they existed at the time, among other matters. For more information, see the section of this proxy statement captioned “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger.”

 

Q:

Who can help answer my questions?

 

A:

If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of the accompanying proxy statement or need help submitting your proxy or voting your shares of KnowBe4 common stock, please contact KnowBe4’s proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders call toll-free: (877) 456-3427

Banks and brokers call collect: (212) 750-5833

 

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SPECIAL FACTORS

Background of the Merger

The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. This chronology does not purport to catalogue every conversation of or among the KnowBe4 Board, the Special Committee, the representatives of KnowBe4 or the Special Committee, or other parties, including Vista and the Rollover Stockholders.

The KnowBe4 Board regularly evaluates KnowBe4’s strategic direction and ongoing business plans with a view toward strengthening KnowBe4’s business and enhancing stockholder value. As part of this evaluation, the KnowBe4 Board has, from time to time, considered a variety of strategic alternatives. These have included, among others, (1) the continuation of, and potential improvements to, our current business plan, with KnowBe4 remaining an independent entity; (2) the investment in, and development of, new products and services, and expansion into new markets; (3) capital raising activities; (4) potential expansion opportunities through acquisitions, partnerships or other commercial relationships; and (5) business combinations and other financial and strategic alternatives, including the sale of KnowBe4.

Vista, through the VEPF funds, first became an investor in KnowBe4 prior to KnowBe4’s initial public offering in 2021 (the “IPO”). Prior to that investment, Vista and KnowBe4 discussed, in general terms, a variety of different transactions, including the possible acquisition of KnowBe4 by Vista. These discussions never advanced beyond the preliminary stage. Vista, through the VEPF funds, purchased additional shares of KnowBe4 Class A common stock as a participant in the IPO. In addition to conversations with Vista pre-IPO, KnowBe4 had a small number of high-level conversations with other potential acquirors.

On May 6, 2021, Vista, through the VEPF Funds, filed a Schedule 13D that reflected its ownership of KnowBe4 common stock.

On May 20, 2022 and June 1, 2022, Stephen Shanley, a member of the KnowBe4 Board and an employee of KKR, spoke with representatives of Vista at Vista’s request, in connection with Vista’s routine process for evaluating its current investments. During these conversations, the parties discussed KnowBe4’s business and the industry generally, and the representatives of Vista discussed potential opportunities for the company, including raising whether the company was potentially interested in pursuing a sale transaction.

On May 26, 2022, Krish Venkataraman, a member of the KnowBe4 Board, and representatives of Vista spoke in connection with Vista’s routine process for evaluating its current investments. During this conversation, the parties discussed KnowBe4’s business. The parties did not discuss any potential acquisition of KnowBe4 at this time.

On June 8, 2022, Jeremiah Daly, a member of the KnowBe4 Board and the co-founder and general partner of Elephant, spoke with representatives of Vista at Vista’s request, in connection with Vista’s routine process for evaluating its current investments. During this meeting, the parties discussed KnowBe4’s business and the industry generally, and a representative of Vista discussed potential opportunities for the company, including raising whether the company was potentially interested in pursuing a sale transaction.

Following these discussions, Messrs. Shanley and Daly both recommended that representatives of Vista meet with Sjoerd Sjouwerman, Chairperson of the KnowBe4 Board and Chief Executive Officer of KnowBe4, whom they had never met in person.

On June 16, 2022, Messrs. Shanley, Daly and Sjouwerman spoke with representatives of Vista, at Vista’s request, in connection with Vista’s routine process for evaluating its current investments. During this meeting, the parties discussed KnowBe4’s business and the industry generally, and a representative of Vista discussed potential opportunities for the company, including raising whether the company was potentially interested in pursuing a sale transaction.

 

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On June 22, 2022, Messrs. Daly and Sjouwerman met in person with representatives of Vista. During this meeting, the representatives of Vista discussed, in general terms, the industry in which KnowBe4 operates and Vista’s existing investment in KnowBe4. During this conversation, representatives of Vista expressed their confidence in KnowBe4’s business and indicated that if KnowBe4 were ever to be interested in a transaction, Vista would want to be included. The representatives of Vista did not propose an acquisition or any other transaction involving KnowBe4 or discuss any potential acquisition terms during this meeting.

On June 22, 2022, Mr. Daly reached out to a representative at Wilson Sonsini Goodrich & Rosati, Professional Corporation (“Wilson Sonsini”), outside legal advisor to KnowBe4, to inform them as to the conversations with Vista up to that point. Wilson Sonsini then coordinated a special meeting of the Board on June 28, 2022. At that meeting, the KnowBe4 Board discussed the recent conversations between certain Board members and Vista and confirmed that the participants in those meetings did not engage in any discussions regarding any economic or other terms of a potential transaction. Representatives of Wilson Sonsini reviewed the KnowBe4 Board’s fiduciary duties and obligations in connection with a potential sale of KnowBe4 and discussed certain potential conflicts of interest that could arise in connection with the exploration of a potential sale. Each of Messrs. Sjouwerman, Daly and Shanley indicated that, if Vista were interested in acquiring KnowBe4 and there was an opportunity for them to rollover equity in such transactions, such individual or the entities that they represent (as applicable) may be interested in “rolling” all or a part of their equity interests in KnowBe4 in such a transaction. In response to such expressions of interest, representatives of Wilson Sonsini discussed the merits of forming a special committee of the KnowBe4 Board to oversee any efforts by KnowBe4 to explore or pursue a potential sale of KnowBe4.

On July 5, 2022, the KnowBe4 Board held a special meeting by video conference with representatives of Wilson Sonsini. At the request of the KnowBe4 Board, representatives of Wilson Sonsini provided an overview of, among other things, (1) the KnowBe4 Board’s fiduciary duties; (2) the potential conflicts of interest involving members of the KnowBe4 Board with respect to a potential sale of KnowBe4, including if any of the existing significant stockholders of KnowBe4 elected to rollover any portion of their equity in KnowBe4 in a potential transaction; (3) approaches for mitigating or neutralizing such conflicts of interest, including creating a special committee of independent and disinterested members of the KnowBe4 Board, including the relevance of Kahn v. M&F Worldwide Corp. and its progeny (“MFW”) to a potential transaction; (4) the disclosure obligations of a Schedule 13D filer in the context of potential strategic discussions; and (5) an overview of Rule 13e-3 promulgated under the Securities Act of 1933 and its potential application to a possible transaction. The KnowBe4 Board determined that a sale of KnowBe4 could be attractive and merited further consideration, including as a result of general conditions in the market overall. The KnowBe4 Board determined to form the Special Committee for the purposes of reviewing, evaluating and, if appropriate, negotiating a strategic transaction, which could involve a sale of KnowBe4. After discussion at the meeting, the KnowBe4 Board determined that each of Gerhard Watzinger, Kevin Klausmeyer and Krish Venkataraman were independent and disinterested for purposes of a possible transaction with Vista and appointed them to the Special Committee. The KnowBe4 Board requested additional time for consideration and review of the scope of authority and other related matters for the Special Committee. Immediately following the completion of the KnowBe4 Board meeting, the Special Committee held a meeting by video conference to discuss the retention of legal and financial advisors to advise the Special Committee. Members of the KnowBe4 Board and representatives of Wilson Sonsini also attended this meeting. The Special Committee determined to contact the representatives of Potter Anderson & Corroon LLP (“Potter Anderson”) and Morgan Stanley to ask each advisor to interview with the Special Committee to serve as the Special Committee’s independent legal advisor and financial advisor, respectively. The Special Committee did not seek to interview any other advisors at this time.

On July 7, 2022, the Special Committee held a meeting by video conference with representatives of Potter Anderson to interview Potter Anderson to serve as its independent legal advisor and to discuss the Special Committee’s process. Representatives of Morgan Stanley also attended a portion of the meeting to interview to serve as the Special Committee’s independent financial advisor and to discuss the Special

 

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Committee’s process. Representatives of Potter Anderson provided the Special Committee with an overview of a number of process-related matters, including discussing the scope of the Special Committee’s expected mandate, the relevance of MFW to a potential transaction, and the engagement of an independent financial advisor to advise the Special Committee. Representatives of Potter Anderson also reviewed Potter Anderson’s independence and qualifications, experience and expertise. Representatives of Morgan Stanley joined the meeting and provided the Special Committee with an overview of Morgan Stanley’s independence and qualifications, experience and expertise, including with respect to serving as a financial advisor to technology, cybersecurity and software companies, advising companies on M&A transactions and serving as an independent financial advisor to special committees of boards of directors. Following Morgan Stanley’s departure from the meeting, the Special Committee discussed Morgan Stanley’s qualifications, experience and expertise, Morgan Stanley’s prior experience in serving as an advisor to KnowBe4, and its earlier discussions with Morgan Stanley at the meeting. Following such discussion, the Special Committee determined to engage Morgan Stanley, subject to (1) receipt of Morgan Stanley’s relationships disclosure memorandum and the Special Committee’s satisfaction with the independence of Morgan Stanley; and (2) the negotiation of a mutually acceptable engagement letter. Given Morgan Stanley’s experience, expertise and qualifications and familiarity with KnowBe4, the Special Committee determined not to interview other potential financial advisors.

Following this meeting, the Special Committee also determined to engage Potter Anderson as its independent legal advisor and an engagement letter with Potter Anderson was executed on July 7, 2022.

On July 11, 2022, the KnowBe4 Board adopted, by unanimous written consent, resolutions setting forth the formal delineation of the scope of the KnowBe4 Board’s delegation of authority to the Special Committee which empowered the Special Committee to, among other things, review, evaluate and negotiate the structure, form, terms and conditions of (1) a potential acquisition of KnowBe4 and (2) any potential acquisition of KnowBe4 that included a transaction or series of transactions in which one or more significant stockholders of KnowBe4 may have an interest that is in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole (such a transaction, a “Specified Transaction”). The resolutions provided that the KnowBe4 Board would not approve, or recommend for approval by KnowBe4’s stockholders, a potential acquisition of KnowBe4 or a Specified Transaction without a prior favorable recommendation by the Special Committee. The resolutions further provided that the Special Committee had the authority to select and engage its own advisors and that KnowBe4 would not effectuate a Specified Transaction unless it had first been approved or recommended by the Special Committee and approved by the holders of a majority of the voting power of the outstanding shares of KnowBe4 held by the disinterested stockholders (as determined by the Special Committee). Finally, the resolutions provided that the Chairperson of the Special Committee would be Mr. Watzinger, who would receive compensation of $39,000 per month, and the other members of the Special Committee would receive compensation of $36,000 per month, with such amounts payable regardless of the determinations reached by the Special Committee and in no way contingent on the Special Committee approving or recommending a potential transaction.

On July 12, 2022, representatives of Morgan Stanley delivered Morgan Stanley’s customary relationships disclosures memorandum to the Special Committee, which provided an overview of Morgan Stanley’s relationships (or lack thereof) with KnowBe4, Vista and certain of its affiliates, KKR and certain of its affiliates, and Elephant Funds and certain of their affiliates.

On July 13, 2022, the Special Committee held a meeting by video conference with representatives of Potter Anderson. Representatives of Potter Anderson provided the Special Committee with, among other things, an overview of (1) the Special Committee’s fiduciary duties in connection with the Special Committee’s process and a potential sale transaction; (2) the MFW framework under Delaware law; and (3) the nature of the potential conflicts in a Specified Transaction. Representatives of Potter Anderson conducted an additional independence review of the Special Committee members and, after such review, the Special Committee concluded that each member was independent and disinterested for purposes of evaluating a potential acquisition of the Company.

 

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Representatives of Potter Anderson also reviewed with the Special Committee its mandate from the KnowBe4 Board. The Special Committee and representatives of Potter Anderson discussed certain preliminary valuation considerations involving KnowBe4 and a potential transaction, as well as certain initial price discovery strategies and considerations. The Special Committee and representatives of Potter Anderson also reviewed Morgan Stanley’s relationships disclosure memorandum and Morgan Stanley’s draft engagement letter. Following such review, the Special Committee determined that no conflicts had been disclosed in Morgan Stanley’s relationship disclosure memorandum that would affect the ability of Morgan Stanley to fulfill its responsibilities as an independent financial advisor to the Special Committee and to engage Morgan Stanley as the Special Committee’s independent financial advisor. The Special Committee executed an engagement letter with Morgan Stanley on July 15, 2022.

On July 14, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley to discuss certain initial process matters for the Special Committee’s consideration of a potential acquisition of the Company, including (1) an initial outreach to representatives of Vista and the substance of the communication for such initial outreach; (2) price discovery considerations for a potential acquisition; (3) Vista’s potential public disclosure obligations; and (4) the roles of KKR and Elephant Funds in a potential acquisition of KnowBe4, including whether either would be interested in an independent bid for KnowBe4, whether either anticipated being a “seller-only” in a potential acquisition, or whether either contemplated rolling some or all of their equity in a potential acquisition. In addition, the representatives of Morgan Stanley also provided Morgan Stanley’s preliminary view as to the most likely potential strategic parties and financial sponsor acquirers of KnowBe4, which potential acquirers were arranged in certain tiers, based on (1) Morgan Stanley’s judgment and experience; (2) the strategic fit of KnowBe4 with each potential acquirer; and (3) the ability and likelihood of each potential acquirer to engage in, and consummate, an acquisition of KnowB4. The Special Committee, after discussion at the meeting, authorized Morgan Stanley to have a preliminary discussion with Vista regarding Vista’s interest in acquiring KnowBe4 and to convey to Vista that any transaction proposed by Vista in which certain significant existing stockholders of KnowBe4 would roll some or all of their equity in KnowBe4 would have to be made subject to, and conditioned upon, the MFW framework.

Later that day, representatives of Morgan Stanley met with representatives of Vista to discuss whether Vista would be interested in exploring a potential acquisition of KnowBe4. Representatives of Vista reiterated that Vista was evaluating its existing investment in KnowBe4, and noted that it would be open to exploratory conversations regarding a potential acquisition of KnowBe4. Vista noted that, in the case of a potential acquisition scenario, while Vista would likely be open to exploratory discussions regarding certain stockholders of KnowBe4 rolling their equity interests in KnowBe4, if Vista determined it was interested in pursuing a potential transaction it would not expect to condition any such possible transaction on any stockholder rolling a specific amount of equity. The representatives of Morgan Stanley and Vista did not discuss any specific terms or valuation with respect to a potential transaction.

On July 18, 2022, representatives of Gibson Dunn & Crutcher LLP (“Gibson Dunn”), outside legal advisor to KKR, met with representatives of Potter Anderson to discuss a potential acquisition of KnowBe4, during which meeting Gibson Dunn conveyed that KKR anticipated that it would be supportive of a potential acquisition of KnowBe4, subject to agreement on acceptable terms, and that under certain circumstances and subject to obtaining all required internal approvals, KKR or its affiliates would consider maintaining an equity interest in KnowBe4 in connection with any such potential acquisition, including in connection with a potential acquisition of KnowBe4 by Vista.

Also on July 18, 2022, representatives of Vista met with representatives of Morgan Stanley to convey that Vista wanted to have six weeks for due diligence before Vista would be able to complete its evaluation of its existing investment in KnowBe4 and to determine, among other possibilities, whether or not it was interested in potentially submitting a proposal to the Special Committee. Representatives of each of Morgan Stanley and Vista also discussed Vista’s public disclosure obligations and the impact of amending Vista’s existing non-disclosure

 

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agreement with KnowBe4, which was entered into on March 12, 2020 prior to the IPO, for the purposes of exploration of a possible sale or investment transaction in connection with its diligence for its evaluation of its existing investment in KnowBe4. This non-disclosure agreement did not include a “standstill” or other restriction on Vista’s ability to make public or private proposals to acquire KnowBe4.

Later on July 18, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of each of Potter Anderson and Morgan Stanley reported on their communications with Gibson Dunn and Vista, respectively. Representatives of Potter Anderson reviewed the nature of KKR’s potential conflict of interest. Representatives of Morgan Stanley discussed certain process and procedural matters, including the scope of an initial outreach to potential bidders other than Vista and the advantages of contacting other potential bidders at this juncture. Representatives of Morgan Stanley recommended that the Special Committee conduct an initial, limited outreach to four potential bidders at this time regarding a potential interest in an acquisition of KnowBe4. The initial four potential bidders contacted consisted of four financial sponsors (including two financial sponsors that owned strategic parties to KnowBe4), which Morgan Stanley had identified as the potential bidders that would likely have a significant level of interest in KnowBe4 and were the most likely to engage in, and complete, an acquisition of KnowBe4. The Special Committee and its advisors discussed additional process matters, including the ramifications of any public disclosure concerning Vista’s potential interest in acquiring KnowBe4 at this juncture and the need to work with KnowBe4 management to receive KnowBe4 management’s long-term financial projections for KnowBe4. After discussion at the meeting, the Special Committee authorized (1) Potter Anderson to contact Wilson Sonsini to discuss the process for approving management’s long-term financial projections and Vista’s potential public disclosure considerations; (2) Morgan Stanley to conduct an outreach to four identified financial sponsors to gauge their respective interest in pursuing a potential acquisition of KnowBe4; and (3) Morgan Stanley to conduct an additional outreach to Mr. Shanley to confirm KKR’s position with respect to a potential acquisition of KnowBe4.

In the days following the Special Committee meeting on July 18, 2022, representatives of Morgan Stanley, acting upon the authorization of the Special Committee, conducted an outreach to the four financial sponsors previously discussed with the Special Committee. Based on the feedback and interest received following the initial outreach to the four potential bidders and a continual evaluation of the market outreach conducted by Morgan Stanley, including reports and updates from Morgan Stanley on the feedback received from potential bidders, the Special Committee, during its meetings on July 28, 2022 and August 4, 2022, authorized the representatives of Morgan Stanley to contact additional financial sponsors and strategic parties regarding such sponsors’ and parties’ potential interest in a potential acquisition of KnowBe4. The decision to contact those additional financial sponsors and strategic parties at those respective times reflected recommendations from Morgan Stanley on those financial sponsors and strategic parties that would likely have an interest in KnowBe4 and would be capable of engaging in, and completing, an acquisition of KnowBe4, albeit in a descending order of interest in KnowBe4 and/or in capability of engaging in, and completing, an acquisition. This decision also reflected, among other things, the level of interest shown, the engagement (or the lack thereof) by potential bidders (including by the four potential bidders initially contacted), the number of potential bidders in the process at any given time, and that potential bidders had passed on pursuing a potential acquisition of KnowBe4 at various junctures in the Special Committee’s process. The other potential financial sponsor and strategic party bidders passed on pursuing a potential acquisition of KnowBe4 for, among other reasons in the aggregate, (1) questions about the ultimate size of the total available market, (2) current and future competition, (3) challenges with respect to future growth at-scale, (4) high exposure to small and midsize business market and (5) technology content and differentiation; (6) such bidder’s lack of a compelling rationale for an acquisition; and/or (7) such bidder’s view that it could not see itself paying a meaningful premium in an acquisition based on KnowBe4’s current market trading price. In the aggregate, the representatives of Morgan Stanley contacted 12 financial sponsors (not including Vista), including two financial sponsors that owned strategic parties, and four strategic parties to determine their interest in a potential acquisition of KnowBe4. Nine of the non-Vista financial sponsors contacted executed non-disclosure agreements to allow them to engage further with KnowBe4 regarding a

 

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potential acquisition. These non-disclosure agreements included a “standstill” or other restriction on the applicable financial sponsor’s ability to make public proposals to acquire KnowBe4 but such restrictions would fall away under certain circumstances, including the date that KnowBe4 announces a definitive written agreement with any unaffiliated third party (or, in some cases, just a third party) to consummate a transaction that would result in such third party obtaining a majority of the outstanding number of KnowBe4’s voting securities. However, all of these non-disclosure agreements permitted the applicable financial sponsor to make a direct proposal to the KnowBe4 Board, provided that it was on a confidential, non-public basis. Eight of the non-Vista financial sponsors contacted had an initial meeting with KnowBe4 management to discuss KnowBe4’s business and operations. Two of the non-Vista financial sponsors contacted submitted additional due diligence requests on KnowBe4 following the initial management presentation, all of which were responded to by management. However, following the delivery of these responses, each of these non-Vista financial sponsors declined to pursue a transaction and did not submit a proposal or access a virtual data room. No financial sponsors (other than Vista) ultimately submitted a proposal for a potential acquisition. None of the strategic bidders contacted executed a non-disclosure agreement, held an initial meeting with KnowBe4 management, conducted due diligence on KnowBe4, or submitted an acquisition proposal.

On July 21, 2022, representatives of Morgan Stanley met with Mr. Shanley, who indicated that KKR would not pursue a full acquisition of KnowBe4. Mr. Shanley also indicated that, subject to obtaining all required internal approvals, KKR or its affiliates would consider maintaining an equity interest in KnowBe4 in connection with a potential acquisition of KnowBe4 by Vista, but could not commit to maintaining an equity interest in KnowBe4 in connection with any other potential acquisition of KnowBe4 without knowing the identity of the acquiror in any such transaction.

On July 24, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Wilson Sonsini also participated for a portion of the meeting to discuss (1) whether to amend Vista’s current non-disclosure agreement; and (2) potential disclosure obligations in connection with Vista’s exploration of a potential acquisition of KnowBe4. The Special Committee authorized representatives of each of Potter Anderson and Wilson Sonsini to contact Vista’s outside legal advisor to discuss considerations with respect to Vista’s exploration of a potential acquisition of KnowBe4. Following Wilson Sonsini’s departure from the meeting, representatives of Morgan Stanley provided an update on its initial outreach to the non-Vista potential bidders and reported on their discussion with Mr. Shanley concerning KKR’s views on participation in a transaction.

On July 26, 2022, representatives of each of Potter Anderson, Wilson Sonsini, Gibson Dunn and Latham & Watkins LLP (“Latham”), outside legal advisor to Elephant Funds, held a telephonic meeting to discuss the Special Committee’s process generally. The representatives of Gibson Dunn and Latham requested that the representatives of Potter Anderson and Wilson Sonsini provide periodic updates, as determined to be appropriate by the Special Committee, with respect to the Special Committee’s progress and transaction matters.

On July 27, 2022, representatives of each of Potter Anderson, Wilson Sonsini and Kirkland & Ellis LLP (“Kirkland”), outside legal advisor to Vista, held an introductory meeting to discuss the process and timeline for Vista’s exploration of a potential acquisition of KnowBe4.

On July 28, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley provided an overview of certain process matters for a potential acquisition of KnowBe4, including a process timeline for potential bidders, including Vista. The Special Committee and representatives of Potter Anderson also discussed considerations related to Vista’s public disclosure obligations, as informed by discussions with Wilson Sonsini, given Vista’s existing Schedule 13D filing. The Special Committee and its advisors also discussed providing periodic updates to Latham and Gibson Dunn, generally, on the Special Committee’s progress and transaction matters. After discussion of the benefits and considerations of such updates, including that the Special Committee believed that it was prudent to keep the two largest stockholders of KnowBe4 who collectively owned a majority of the voting

 

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power of the Company generally apprised of the Special Committee’s progress and transaction matters, the Special Committee directed Potter Anderson to provide Latham and Gibson Dunn with periodic, general updates on the Special Committee’s process. Representatives of Morgan Stanley then (1) provided an update on Morgan Stanley’s communications with Vista and the other four potential bidders that Morgan Stanley had contacted; (2) discussed Morgan Stanley’s preliminary views on KnowBe4’s valuation based on historical or publicly available information; and (3) reviewed a number of KnowBe4-specific and market-specific financial benchmarks. The Special Committee and its advisors then discussed KnowBe4’s current stock price, a range of potential illustrative transaction prices, the implied premiums resulting from such illustrative transaction prices, and how this analysis may impact preliminary price communications with Vista. As discussed earlier in this background section, the Special Committee, acting upon the recommendation of Morgan Stanley, authorized the representatives of Morgan Stanley to contact an additional set of financial sponsors and a set of strategic parties regarding their potential interest in an acquisition of KnowBe4, which such recommendation reflected Morgan Stanley’s belief that those financial sponsors and strategic parties would likely have an interest in KnowBe4 and would be capable of engaging in, and completing, an acquisition of KnowBe4.

Consistent with the Special Committee’s authorization, representatives of each of Potter Anderson, Wilson Sonsini, Gibson Dunn and Latham held periodic meetings throughout the Special Committee’s process to discuss, generally, the Special Committee’s progress and transaction matters. The Special Committee also provided the KnowBe4 Board with periodic updates throughout the Special Committee’s process, which updates discussed, generally, the Special Committee’s progress and transaction matters. In connection with these updates, the Special Committee requested that the members of the KnowBe4 Board not have any discussions with Vista, or other potential counterparties, independently from the Special Committee.

On July 29, 2022, representatives of each of Potter Anderson, Wilson Sonsini and Kirkland met to discuss (1) amending Vista’s existing non-disclosure agreement with KnowBe4 in order to allow Vista to receive diligence information in connection with its evaluation of its existing investment in KnowBe4 and, among other possibilities, potential exploratory discussions with respect to an acquisition of KnowBe4, and (2) other process considerations, including potential public disclosure obligations if Vista were to decide to pursue an acquisition, including making a proposal to acquire KnowBe4. Representatives of Kirkland conveyed that Vista was prepared to amend its existing non-disclosure agreement to (1) provide the Special Committee with a consent right before Vista spoke with potential sources of debt or equity financing, including discussions with existing stockholders of KnowBe4 regarding a potential rollover, for any potential acquisition; and (2) grant KnowBe4 the advance right to review and comment on any Schedule 13D filing by Vista. The representatives of Kirkland conveyed, however, that Vista did not wish to extend the term beyond the approximately six-month period remaining on the existing non-disclosure agreement.

Also, on July 29, 2022, the Special Committee held a meeting by video conference with a representative of Potter Anderson to discuss process matters relating to an upcoming update to Mr. Sjouwerman. The Special Committee determined that it would provide Mr. Sjouwerman with (1) a high level, process-focused overview of the Special Committee’s work to date; (2) the list of names of the financial sponsors and strategic bidders that the Special Committee had instructed Morgan Stanley to approach; and (3) an overview of an illustrative timeline for a potential acquisition.

On August 2, 2022, a representative of Morgan Stanley contacted a representative of Vista and requested that Vista extend the term for the proposed amendment to Vista’s non-disclosure agreement from a period of approximately six months to one year from the date it was entered into. A representative of Vista confirmed that such request was acceptable to Vista.

On August 4, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Wilson Sonsini also attended a portion of the meeting. Representatives of Wilson Sonsini reported on Potter Anderson and Wilson Sonsini’s communications with Kirkland in respect of a possible amendment to Vista’s existing non-disclosure agreement. The Special

 

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Committee and representatives of Wilson Sonsini discussed the proposed terms for the amendment, and, after discussion, the Special Committee authorized representatives of Wilson Sonsini and Potter Anderson to draft and negotiate the amendment. The Special Committee and representatives of Morgan Stanley and Wilson Sonsini discussed the timing for holding preliminary pricing discussions, and the Special Committee noted that it wanted to avoid unnecessary expenses and management distractions if there was not a possible deal at an attractive price. Following Wilson Sonsini’s departure from the meeting, the Special Committee and its advisors discussed a potential update meeting involving the Special Committee and Messrs. Shanley and Daly. The Special Committee and its advisors further discussed the scope of the topics for that informational, update meeting and it was determined that representatives of Morgan Stanley would also attend this meeting. Representatives of Morgan Stanley provided the Special Committee with a process overview, an overview of an illustrative process timeline, and a review of the potential bidders contacted. As discussed earlier in this background section, the Special Committee, acting upon the recommendation of Morgan Stanley, authorized the representatives of Morgan Stanley to contact an additional set of financial sponsors regarding their potential interest in an acquisition of KnowBe4, which such recommendation reflected Morgan Stanley’s belief that those financial sponsors would likely have an interest in KnowBe4 and would be capable of engaging in, and completing, an acquisition of KnowBe4.

On August 5, 2022, the Special Committee and representatives of Morgan Stanley met with Messrs. Shanley and Daly to update them, generally, on the Special Committee’s process and expected timeline for such process.

Also on August 5, 2022, representatives of each of Potter Anderson, Wilson Sonsini and Kirkland met to discuss an amendment to Vista’s existing non-disclosure agreement with KnowBe4.

Later on August 5, 2022, KnowBe4 management provided the Special Committee with management’s draft three-year financial projections for KnowBe4 for use in connection with the Special Committee’s consideration of a potential acquisition of KnowBe4 (the “Management Plan”). From August 6, 2022, through August 8, 2022, the Special Committee and members of KnowBe4 management discussed and reviewed the Management Plan. Following such discussion and review, the Special Committee approved the Management Plan.

On August 8, 2022, the KnowBe4 Board held a special meeting by video conference with Robert Reich, Chief Financial Officer of KnowBe4, and representatives of each of Potter Anderson and Wilson Sonsini. Mr. Watzinger provided the KnowBe4 Board with an overview of the work performed by KnowBe4 management on the Management Plan and noted that the Special Committee had the opportunity to review and discuss the assumptions embedded in the Management Plan with KnowBe4 management. Mr. Watzinger noted that the next step in the Special Committee’s process was to present the Management Plan to the KnowBe4 Board for its review and, if the KnowBe4 Board was supportive of the Management Plan, then it would be provided to Morgan Stanley and could be shared with potential bidders (including Vista) that had executed a non-disclosure agreement in connection with a potential acquisition of KnowBe4. Members of KnowBe4 management provided an overview of the Management Plan and members of the KnowBe4 Board asked questions and provided feedback. After discussion at the meeting, including a review of the Special Committee’s and KnowBe4 management’s recommendation, the KnowBe4 Board approved the use of the Management Plan in connection with the Special Committee’s consideration of a potential acquisition of KnowBe4, and authorized its sharing with potential bidders (including Vista) that had executed a non-disclosure agreement and its use by Morgan Stanley for purposes of its financial analysis of KnowBe4.

Also on August 8, 2022, KnowBe4 and Vista entered into an amendment to Vista’s existing non-disclosure agreement with KnowBe4. Vista began its due diligence discussions with KnowBe4 on this date, including for purposes of evaluating its existing investment in KnowBe4 and evaluating whether it would potentially be interested in pursuing a potential acquisition of KnowBe4, and held meetings with members of KnowBe4 management and representatives of Morgan Stanley, to further understand KnowBe4’s business.

On August 11, 2022, representatives of Morgan Stanley provided an informal briefing to the Special Committee on Vista’s progress and the progress of other potential bidders.

 

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Following this briefing, on August 11, 2022, the Special Committee held a telephonic meeting. The Special Committee discussed the briefing that it had received from Morgan Stanley earlier in the day and (1) reviewed Vista’s engagement in due diligence on KnowBe4; (2) discussed Morgan Stanley’s outreach to potential bidders for an acquisition of KnowBe4; and (3) noted that meetings had been scheduled between certain of such potential bidders and KnowBe4 management over the next two weeks. The Special Committee also reviewed the feedback that Morgan Stanley had received from certain potential strategic bidders regarding a potential acquisition of KnowBe4, including that, while the strategic parties had positive views of KnowBe4 and KnowBe4’s business, they did not see a compelling rationale for acquiring the business.

On August 17, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley reported on Morgan Stanley’s outreach efforts to potential bidders for an acquisition of KnowBe4 and reviewed those potential bidders that remained in the process at this time and those bidders that had passed on pursuing an acquisition of KnowBe4 at this time. Representatives of Morgan Stanley also reported on Vista’s due diligence progress, the due diligence progress of the other potential bidders and the status of Vista’s due diligence progress relative to other potential bidders. The Special Committee and representatives of Morgan Stanley reviewed the feedback that Morgan Stanley had received from financial sponsors and strategic bidders, including those that had either passed on pursuing an acquisition of KnowBe4 or had not expressed a continuing interest in pursuing an acquisition of KnowBe4. The Special Committee and representatives of Morgan Stanley discussed when in the Special Committee’s process it would be appropriate to signal the Special Committee’s general views on valuation for a potential acquisition of KnowBe4 to potential bidders, and discussed the timing for seeking bids from potential bidders. Representatives of Morgan Stanley also provided an update on Morgan Stanley’s work on its preliminary financial analyses of KnowBe4 and the types of financial analyses that Morgan Stanley had considered utilizing. The Special Committee and representatives of Morgan Stanley reviewed the management presentations held to date and certain process matters in connection therewith, including that representatives of Morgan Stanley should hold periodic meetings with Mr. Sjouwerman to receive his input on the potential acquisition of KnowBe4.

On August 19, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley (1) provided an update on Morgan Stanley’s outreach efforts to potential bidders for a potential acquisition of KnowBe4; (2) reviewed the due diligence progress of Vista and the other potential bidders; and (3) reviewed the feedback received from potential bidders, including (a) certain positive attributes of KnowBe4, which were noted to be (i) growth above its peer group at greater than 35 percent year-over-year, (ii) a highly recurring business model, (iii) strong profits, and (iv) a category leader, and (b) certain considerations regarding KnowBe4, which were noted to be (i) questions about the ultimate size of the total available market, (ii) current and future competition, (iii) challenges with respect to future growth at-scale, (iv) high exposure to small and midsize business market, and (iv) technology content and differentiation. Representatives of Morgan Stanley also reviewed with the Special Committee Morgan Stanley’s preliminary financial analyses of KnowBe4, including the valuation methodologies utilized and the value ranges produced under such methodologies. The Special Committee and its advisors also discussed whether this was the appropriate time in the Special Committee’s process to convey the Special Committee’s views on valuation to Vista. In that regard, the Special Committee noted that the Special Committee’s process was utilizing KnowBe4 resources and KnowBe4 management’s time, and that it would not make sense to proceed further with Vista unless Vista was prepared to submit a proposal at a price that the Special Committee found attractive. The Special Committee discussed its views on valuation, including that it believed that a transaction with a value in the mid-to-high $20’s per share range was appropriate for a potential acquisition of KnowBe4 based upon, among other things, Morgan Stanley’s financial analysis and the Special Committee’s views on KnowBe4’s business, and that it did not make sense to proceed further with Vista, given Vista’s existing knowledge of KnowBe4 and its due diligence progress at that point in time, unless it shared a similar view to the Special Committee on valuation. After discussion at the meeting, the Special Committee authorized representatives of Morgan Stanley to convey the Special Committee’s view and message on valuation to Vista following its meeting and to other potential bidders at the appropriate time as determined by Morgan Stanley in its professional judgment.

 

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While other potential bidders remained in the process at this time, such bidders had shown only preliminary levels of interest in an acquisition of KnowBe4, and no other potential bidder had shown the level of engagement that Vista had shown at this time. Therefore, no other potential bidder received the Special Committee’s view and message on valuation at this time. No potential bidder (other than Vista) would go on to demonstrate a significant level of engagement. As a result, the Special Committee did not believe there was any benefit to shifting its perspective on valuation with potential bidders that had expressed only a preliminary level of interest in a potential acquisition of KnowBe4 (if any interest at all) and given the potential risks to the Special Committee’s process of sharing such information, no other potential bidder received the Special Committee’s view and message on valuation.

Later on August 19, 2022, representatives of Morgan Stanley conveyed to representatives of Vista the Special Committee’s view and message on valuation. Representatives of Vista did not respond to the view and message on valuation delivered by Morgan Stanley on behalf of the Special Committee and noted that they would need to continue to conduct diligence to determine if they were interested in pursuing an acquisition of KnowBe4.

On August 26, 2022, representatives of Morgan Stanley met with representatives of Vista. Representatives of Vista reported that Vista was continuing to evaluate its investment in KnowBe4 and wished to proceed with further due diligence. Representatives of each of Morgan Stanley and Vista discussed, and were aligned, that if Vista decided to pursue an acquisition of KnowBe4, any such acquisition in which KKR and Elephant Funds were asked to roll some or all of their equity in KnowBe4 would be subject to a non-waivable condition of approval by a “majority of the minority” of KnowBe4’s stockholders. No response by Vista to the Special Committee’s pricing message was discussed during this meeting. Representatives of Vista noted that Vista targeted September 9, 2022, as a date on which Vista would be able to provide further feedback to the Special Committee as to whether it was interested in pursuing any type of transaction involving KnowBe4. Representatives of Vista conveyed that, if Vista were to determine to pursue an acquisition and make a proposal to acquire KnowBe4, it would want approximately three weeks between the decision to move forward with an acquisition and the execution of any definitive agreement, if an agreement could be reached, to conduct confirmatory due diligence and to engage with potential sources of financing.

On August 26, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley reported on Morgan Stanley’s communications with Vista. The Special Committee and its advisors discussed that Vista’s proposed time period between the decision to move forward in pursuing an acquisition of KnowBe4 and the execution of any definitive agreement could have significant benefits to KnowBe4, as any proposal submitted by Vista would be publicly filed as an amendment to Vista’s existing Schedule 13D and could be evaluated by any other potential acquirers. The Special Committee and representatives of Morgan Stanley reviewed certain tactics that Vista may employ in connection with submitting a proposal, and representatives of Morgan Stanley also reviewed an analysis of precedent Vista price negotiations. Representatives of Morgan Stanley also provided an update on the other potential bidders for an acquisition of KnowBe4 and noted that no other potential bidder had expressed as much interest, or had been as active, as Vista.

On August 30, 2022, the Special Committee directed KnowBe4 management to provide Vista and its representatives with access to an electronic data room for purposes of its continued evaluation of its investment in KnowBe4 and its continued evaluation of whether it would potentially be interested in pursuing a potential acquisition of KnowBe4.

On September 2, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley (1) discussed Vista’s due diligence progress and the due diligence progress by certain potential bidders for an acquisition of KnowBe4; and (2) provided an update on the other potential bidders for an acquisition of KnowBe4, including that one bidder had recently held an initial meeting with KnowBe4 management and another bidder had recently passed on pursuing an acquisition of KnowBe4 at this time. The Special Committee and representatives of Morgan Stanley

 

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discussed the anticipated timeline for the submission of an acquisition proposal by Vista and whether to expedite the work to be performed by the non-Vista potential bidders in light of the fact that Vista had communicated that it would be able to provide feedback on September 9, 2022 as to whether it was interested in pursuing a potential transaction. After discussion of the benefits and considerations, the Special Committee determined that it would continue to allow each potential bidder to proceed at its own pace. The Special Committee and its advisors discussed the matters that they expected to be set forth in any Vista acquisition proposal and reviewed certain factors that they believed would influence Vista to submit a proposal at a competitive price.

On September 7, 2022, the representatives of each of Morgan Stanley and Vista met. Representatives of Vista requested that representatives of Morgan Stanley contact KKR and Elephant Funds to inquire into KKR’s and Elephant Funds’ views on a potential rollover of some or all of their equity in a potential acquisition of KnowBe4 and the potential quantum for any such potential rollover. They also discussed Vista’s progress on diligence.

On September 8, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley provided an update on the potential bidders for an acquisition of KnowBe4, including a review of the progress of those bidders that remained in the process (including Vista) and those bidders that had recently dropped out of the process. Representatives of Morgan Stanley reviewed a process framework in connection with the submission of a potential acquisition proposal by Vista and discussed Vista’s request that representatives of Morgan Stanley contact KKR and Elephant Funds on a potential rollover. The Special Committee’s advisors discussed certain signaling effects of a significant rollover of KKR’s, Elephant Funds’ and Mr. Sjouwerman’s equity in a potential acquisition of KnowBe4 by Vista and how conveying this information in advance of Vista’s proposal or an agreement on price may impact the pricing for the transaction. After discussion at the meeting, the Special Committee authorized an outreach to Messrs. Shanley and Daly to discuss Vista’s request of a potential equity rollover and the potential quantum of such rollover by KKR and Elephant Funds in a potential acquisition of KnowBe4 by Vista. Representatives of Morgan Stanley also previewed Morgan Stanley’s preliminary financial analyses, including that Morgan Stanley had included extrapolations of the Management Plan to 10 years for purposes of its discounted cash flow analysis and that KnowBe4 management had approved such extrapolations. Representatives of Potter Anderson also discussed the drafting process for the merger agreement for a potential acquisition of KnowBe4 and Potter Anderson’s recommendation that the draft did not need to include a go-shop provision, given the Special Committee’s active pre-signing market check and the anticipated passive pre-signing market check between the submission of a Vista proposal and the execution of any definitive agreement for a potential acquisition, if any.

On September 9, 2022, representatives of Morgan Stanley and Vista discussed Vista’s progress on due diligence, certain process and timing matters, the meeting between KnowBe4 management and Vista, and Vista’s plan to hold an internal investment committee meeting the following week to discuss the diligence conducted so far, its evaluation of its existing investment in KnowBe4 and exploratory conversations that had taken place with respect to a potential transaction involving KnowBe4.

On September 13, 2022, representatives of Morgan Stanley held separate meetings with Messrs. Shanley and Daly to discuss KKR’s and Elephant Funds’ potential interest in an equity rollover in connection with a potential acquisition of KnowBe4 by Vista and the potential quantum of such equity rollover. Following such meetings, representatives of Morgan Stanley conveyed such interest and potential quantum to representatives of Vista.

On September 15, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley (1) provided an update on the remaining potential bidders for an acquisition of KnowBe4; and (2) reported on their communications with representatives of KKR and Elephant Funds regarding their preliminary interest in a potential rollover in connection with a potential acquisition of KnowBe4 by Vista and the potential quantum for such equity rollover, which the Special Committee and its advisors then discussed. The Special Committee and its advisors also discussed the possibility of receiving a proposal from Vista and strategies and tactics with respect to the negotiations with Vista if such a proposal were received. Representatives of Morgan Stanley also provided the

 

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Special Committee with an overview of Morgan Stanley’s market outreach to date, including that (1) Morgan Stanley, at the Special Committee’s direction, had contacted all of the financial sponsors and strategic parties identified in its highest tiers as bidders that were likely to have an interest in KnowBe4 and had the capability to engage in, and complete, an acquisition of KnowBe4, (2) Morgan Stanley believed that it had contacted the most likely bidders for a potential acquisition of KnowBe4, (3) it was not necessary to contact certain identified financial sponsor and strategic parties that were on Morgan Stanley’s lower tiers given the market outreach and feedback received, and (4) any additional parties would be able to contact KnowBe4, the Special Committee and their respective advisors following the public announcement of a proposal from Vista if they were interested in pursuing an acquisition. Representatives of Morgan Stanley reviewed with the Special Committee Morgan Stanley’s preliminary financial analyses of KnowBe4, including the valuation methodologies utilized and the value ranges produced under such valuation methodologies. Representatives of Morgan Stanley also reviewed certain illustrative scenarios with respect to a potential rollover of some or all of the equity interests held by Vista, KKR, Elephant Funds, Mr. Sjouwerman, and Lars Letonoff, Co-President and Chief Revenue Officer of KnowBe4, in a potential acquisition of KnowBe4 by Vista and discussed these scenarios with the Special Committee.

On September 16, 2022, representatives of each of Morgan Stanley and Vista held a meeting by video conference, during which Vista verbally conveyed its intention to submit a proposal to acquire all of the outstanding shares of capital stock of KnowBe4 for cash consideration of $24.00 per share (the “Proposal”). The Proposal also reflected that Vista had not yet spoken with debt or equity financing sources and was conditioned on satisfactory completion of those discussions. The Proposal further reflected that Vista was open to certain of KnowBe4’s significant stockholders rolling over a portion of their current investment and, to the extent applicable as a result of their doing so, Vista would expect the transaction to be expressly conditioned on the MFW framework. During this meeting, representatives of Morgan Stanley conveyed to Vista that the pricing in the Proposal fell outside the pricing guidance that the Special Committee, through Morgan Stanley, had previously provided to Vista. Representatives of Vista later submitted the Proposal in a written letter to the Special Committee.

On September 17, 2022, representatives of Vista provided representatives of Morgan Stanley with a list of debt and equity financing sources and sought the Special Committee’s approval to contact such financing sources. Representatives of Vista also requested the Special Committee’s approval to contact Elephant Funds, KKR and Mr. Sjouwerman regarding a potential rollover of their equity in a potential transaction.

Later on September 17, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley reported on their meeting with Vista and provided an overview of the Proposal. The Special Committee and representatives of Morgan Stanley discussed certain process matters in connection with the Special Committee’s receipt of the Proposal, including KnowBe4’s public response to such Proposal and the due diligence requests submitted by a representative of KKR to KnowBe4 management in connection with a potential equity co-investment with Vista in the potential transaction. The Special Committee and representatives of Morgan Stanley also discussed (1) potential responses to the Proposal; (2) soliciting feedback from KKR, Mr. Sjouwerman and Elephant Funds on the Proposal; and (3) potential communications between or among Vista, KKR and/or Elephant Funds regarding a potential rollover of some or all of their equity in connection with the Proposal. The Special Committee and its advisors discussed certain potential risks with respect to unchaperoned communications between or among Vista and KKR, and/or Elephant Funds regarding a potential rollover at this juncture in the Special Committee’s negotiations. After discussions of potential responses, the Special Committee determined to submit a verbal counterproposal to Vista that would have Vista acquire KnowBe4 for cash consideration of $26.50 per share, provided guidance on the timing for a response, and authorized Morgan Stanley to make that counterproposal. The Special Committee and representatives of Morgan Stanley discussed Vista’s proposed list of debt and equity financing sources, and, after discussion, the Special Committee authorized Morgan Stanley to convey that Vista should reduce its proposed list of equity financing sources to contact at this time. The Special Committee and its advisors also discussed the proposed “majority-of-the-minority” stockholder voting condition and certain matters

 

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in connection with seeking and securing such vote. The Special Committee authorized representatives of Morgan Stanley to discuss the Proposal with Messrs. Sjouwerman, Shanley and Daly. The Special Committee and its representatives also discussed a potential retention bonus pool for members of KnowBe4 management and the timing for raising this proposal with Vista.

Following the Special Committee meeting on September 17, 2022, representatives of Morgan Stanley provided an update to Mr. Sjouwerman, Mr. Shanley, and Mr. Daly.

In addition, on September 17, 2022, representatives of Morgan Stanley delivered the Special Committee’s counterproposal to Vista.

Further on September 17, 2022, representatives of Kirkland distributed to representatives of each of Potter Anderson and Wilson Sonsini a draft of an amendment to Vista’s Schedule 13D, which included the Proposal and information related thereto.

Later on September 17, 2022, the Special Committee conveyed its approval of Vista’s outreach to certain identified potential sources of debt financing to the representatives of Morgan Stanley.

On September 18, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley (1) reported on their meeting with Vista and Vista’s process for responding to the Special Committee’s counterproposal on price; and (2) confirmed with the Special Committee that it had the authority to convey the Special Committee’s written approval of Vista’s outreach to certain identified potential sources of debt financing to Vista. Representatives of Morgan Stanley also reported on Morgan Stanley’s communications with Mr. Shanley, including that Mr. Shanley with the representatives of Morgan Stanley that KKR would need to perform due diligence on KnowBe4 in connection with a potential equity co-investment with Vista. Representatives of Morgan Stanley discussed that Vista had requested the Special Committee’s approval to speak with representatives of KKR and Elephant Funds regarding the Proposal. The Special Committee and its advisors discussed potential communications between or among Vista and KKR and/or Elephant Funds regarding the Proposal and a range of process guardrails in connection therewith. After discussion, the Special Committee determined that any communications between or among Vista and KKR and/or Elephant Funds would also need to include representatives of Morgan Stanley for the time being and authorized representatives of Morgan Stanley to inform the parties that the parties were not to discuss pricing for Vista’s proposed acquisition of KnowBe4 in any discussions held between the parties at that time until the Special Committee and Vista reached a preliminary agreement on pricing.

Also on September 18, 2022, representatives of Vista and Morgan Stanley held a meeting, during which Vista conveyed that it had, per the Special Committee’s request, proposed a more limited set of potential equity financing sources for Vista’s outreach and sought the Special Committee’s approval to contact such parties. Representatives of Vista again requested the approval of the Special Committee to contact representatives of Elephant Funds, KKR and Mr. Sjouwerman regarding a potential rollover of their equity in a potential transaction.

Early on September 19, 2022, Vista amended its Schedule 13D to publicly disclose the Proposal.

On September 19, 2022, Morgan Stanley conveyed to Vista the Special Committee’s approval of the more limited set of potential equity financing sources for Vista’s outreach. Representatives of Morgan Stanley also conveyed that the Special Committee approved of communications involving Vista and KKR, Elephant Funds or Mr. Sjouwerman at this time, but that such approval was conditioned on Morgan Stanley being included in those communications for the time being.

Also on September 19, 2022, representatives of each of Potter Anderson, Wilson Sonsini and Kirkland met to discuss certain due diligence, antitrust and regulatory, and other timing and process matters for an acquisition of KnowBe4 by Vista.

 

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On September 20, 2022, representatives of Morgan Stanley spoke, separately, with representatives of KKR, Vista and Elephant Funds. In response to a request to remove the chaperone restrictions at that time, the representatives of Morgan Stanley reiterated to KKR and Elephant Funds that, at the instruction of the Special Committee, until the Special Committee and Vista reached a preliminary agreement on pricing, KKR and Elephant Funds were not permitted to discuss pricing for an acquisition of KnowBe4. Each of KKR and Elephant Funds agreed to continue abiding by the chaperone restrictions until such conditions were met. Representatives of Vista conveyed to Morgan Stanley that Vista would expect Elephant Funds, KKR and Mr. Sjouwerman to enter into support agreements in connection with Vista’s potential acquisition of KnowBe4, and the representatives of Morgan Stanley conveyed to Vista the same message that Morgan Stanley had conveyed to KKR and Elephant Funds.

On September 22, 2022, representatives of Vista, KKR and Morgan Stanley met to discuss the Proposal and KKR’s role, if any, with respect to the Proposal.

On September 23, 2022, representatives of Morgan Stanley and Vista met to discuss a potential response from Vista to the Special Committee’s counterproposal. Representatives of Vista indicated that Vista would need more time to respond to the Special Committee’s counterproposal. Representatives of Morgan Stanley and Vista also discussed certain transaction matters, including Vista’s financing progress, Vista’s due diligence progress and the potential timing for a public announcement of an agreed-upon transaction if the parties were able to reach agreement on terms.

On September 25, 2022, representatives of Potter Anderson distributed an initial draft of the merger agreement to Kirkland.

On September 28, 2022, the Special Committee held a meeting by video conference with representatives of Potter Anderson. Representatives of Wilson Sonsini attended a portion of the meeting. Representatives of Wilson Sonsini provided an overview of the draft merger agreement. Following Wilson Sonsini’s departure from the meeting, representatives of Potter Anderson discussed certain matters relating to (1) the potential voting and support agreements for KKR, Elephant Funds and Mr. Sjouwerman and (2) the equal treatment provision for the shares of KnowBe4 Class A common stock and KnowBe4 Class B common stock in KnowBe4’s certificate of incorporation for a “Change of Control Transaction” and how that might be implicated in a potential acquisition of KnowBe4 by Vista that included a rollover of certain significant stockholders’ shares of Class B common stock.

Later on September 28, 2022, representatives of Morgan Stanley and Vista met to discuss Vista’s response to the Special Committee’s counterproposal. Representatives of Vista conveyed that Vista was prepared to acquire all of the outstanding shares of capital stock of KnowBe4 for cash consideration of $24.60 per share (the “Revised Proposal”). Representatives of Vista indicated that it would be prepared to provide executed debt and equity commitment letters at the time of signing of any definitive agreement for an acquisition and that the Revised Proposal reflected Vista’s expectation that certain of KnowBe4’s significant stockholders would rollover an aggregate amount of $675 million in equity (valued at a price of $24.60 per share in cash). Representatives of Morgan Stanley conveyed to Vista that they believed that there was more work to do on the pricing for a transaction. Representatives of Vista later distributed a written copy of the Revised Proposal to Morgan Stanley, which also reiterated that Vista expected the transaction to be expressly conditioned on the MFW framework, as previously described in the Proposal. Representatives of Vista also orally conveyed to the representatives of Morgan Stanley a proposal on the termination and reverse termination fees for the transaction, including that KnowBe4’s termination fee would be set at 3.5 percent of KnowBe4’s equity value and Parent’s reverse termination fee would be set at 5.5 percent of KnowBe4’s equity value.

On September 29, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley reported on their meeting with Vista and the terms of the Revised Proposal, including that, in response to questions from Morgan Stanley, representatives of Vista did not say that this was Vista’s best and final offer. The Special Committee and its advisors discussed a potential counterproposal to the Revised Proposal and potential messaging for such counterproposal. The Special Committee and representatives of Morgan Stanley also discussed the recent market

 

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volatility over the course of the Special Committee’s evaluation of a potential acquisition and that the market trading of the peer set of comparable companies had declined. The Special Committee also considered the risks posed by this market volatility and decline in market trading for the peer set of comparable companies when making its decision to deliver its counterproposal on price and related messaging to Vista. After discussion, the Special Committee determined to submit a counterproposal to Vista that would have Vista acquire KnowBe4 for cash consideration of $25.75 per share, and a message encouraging a response from Vista on pricing that went as far into the $25.00s as Vista could go. The Special Committee also determined to submit a counterproposal, and authorized Morgan Stanley to do so, on the termination and reverse termination fees for the transaction, with the Special Committee proposing that KnowBe4’s termination fee be set at 3.5 percent of KnowBe4’s equity value and Parent’s reverse termination fee be set at 7 percent of KnowBe4’s equity value, representing a 2x difference between the two fees. The Special Committee also authorized representatives of Morgan Stanley to discuss with Vista the concept of a retention bonus pool for members of KnowBe4 management, which would reward members of Company management who had assisted the Special Committee and KnowBe4 with the Special Committee’s process and incentivize such members of management of KnowBe4 to remain with KnowBe4 and assist with executing on any agreed-upon acquisition. The Special Committee asked Morgan Stanley to request a response on pricing from Vista that day.

Following the Special Committee meeting on September 29, 2022, representatives of Morgan Stanley conveyed the Special Committee’s counterproposal to Vista and also discussed the concept of a retention bonus pool with Vista.

Later on September 29, 2022, representatives of Vista delivered a response to the Special Committee’s counterproposal, which would have Vista acquire KnowBe4 for cash consideration of $24.80 per share. Representatives of Vista also conveyed that it (1) would not be in a position to submit a proposal at a price of $25.00 per share or above; and (2) agreed in principle with the construct of a retention bonus pool for members of KnowBe4 management. The representatives of Vista conveyed that they had accepted the Special Committee’s proposed 2x difference between KnowBe4’s termination fee and Parent’s reverse termination fee but proposed, instead, that KnowB4’s termination fee be set at 3 percent of KnowBe4’s equity value and Parent’s reverse termination fee be set at 6 percent of KnowBe4’s equity value. Representatives of Morgan Stanley asked whether this proposal represented Vista’s best and final offer, and representatives of Vista indicated that they were reluctant to characterize the proposal as such but that Vista did not have the capacity to make a similar increase in pricing as illustrated by their latest response on pricing.

Following the delivery of Vista’s counterproposal, the Special Committee reconvened its earlier meeting from that day by video conference with representatives of each of Potter Anderson and Morgan Stanley. Representatives of Morgan Stanley reported on Vista’s latest response on pricing and Morgan Stanley’s communications with Vista. The Special Committee and its advisors discussed a potential counterproposal to Vista and, after discussion, the Special Committee authorized representatives of Morgan Stanley to deliver a counterproposal to Vista at $24.90 per share in cash. The Special Committee also instructed that, assuming that an agreement on pricing could be reached, the Special Committee was supportive of releasing the chaperone restrictions, which would allow direct discussions among Vista, KKR, Elephant Funds, Mr. Sjouwerman and their respective representatives.

Following the end of the Special Committee’s meeting on September 29, 2022, representatives of Morgan Stanley conveyed the Special Committee’s counterproposal of $24.90 per share in cash to representatives of Vista. Vista accepted such counterproposal, reiterated its prior agreement on the concept of a bonus retention pool for KnowBe4 management, and noted that $682 million would be the required amount for an equity rollover and/or co-investment of certain significant stockholders of KnowBe4. The representatives of Vista also proposed that KnowBe4 would reimburse Vista for fees and expenses incurred in connection with the potential acquisition of KnowBe4 if the merger agreement was not approved by KnowBe4 stockholders. Representatives of Morgan Stanley conveyed that the Special Committee had approved of the release of the chaperone restrictions in light of the Special Committee and Vista reaching a preliminary agreement on pricing, which then allowed for direct discussions among Vista, KKR, Elephant Funds, Mr. Sjouwerman and their respective representatives.

 

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On September 30, 2022, representatives of Kirkland delivered a revised draft of the merger agreement to representatives of each of Potter Anderson and Wilson Sonsini, along with initial drafts of the limited guarantee and equity commitment letter. In the days that followed, representatives of each of Wilson Sonsini (with input from the Special Committee and Potter Anderson) and Kirkland, on behalf of KnowBe4 and Vista, respectively, negotiated the terms of the merger agreement, limited guarantee and equity commitment letter. Key terms of the merger agreement negotiated by the parties included (1) the circumstances in which the Special Committee or the KnowBe4 Board could evaluate and accept a “superior proposal” and in which a termination fee would be payable by KnowBe4 to Vista; (2) the definition of “material adverse effect”; (3) the conditions to each party’s obligation to consummate the merger and each party’s right to terminate the merger agreement; (4) the termination fees payable by each of Vista and KnowBe4 and the circumstances in which such fees would be payable; (5) the maximum amount of KnowBe4’s obligation to reimburse Vista for fees and expenses incurred if the merger agreement was not approved by KnowBe4 stockholders; (6) the nature and scope of the interim operating covenants applicable to KnowBe4 during the period prior to the closing of the merger; and (7) KnowBe4’s representations, warranties and covenants contained in the merger agreement.

On October 1, 2022, representatives of Kirkland delivered initial drafts of the support agreements for each of Vista, KKR, Elephant Funds and Mr. Sjouwerman to representatives of each of Potter Anderson, Wilson Sonsini, Latham, Gibson Dunn and Moulton Moore Stella LLP (“Moulton Moore”), outside legal advisor to Mr. Sjouwerman and other members of management. In the days that followed, these parties negotiated the terms of the respective support agreements.

On October 2, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson, Wilson Sonsini, and Morgan Stanley. Representatives of Wilson Sonsini provided an overview of, and discussed with the Special Committee and its advisors, Vista’s revised draft of the merger agreement. Representatives of Morgan Stanley reported that, following the public disclosure of Vista’s proposal to acquire KnowBe4, Morgan Stanley had not received, and was not otherwise aware of, any inbound interest from a potential third party who was interested in acquiring KnowBe4. Representatives of Morgan Stanley also reviewed that they had conducted a targeted outreach to certain potential strategic parties and financial sponsors that had been previously contacted regarding a potential acquisition of KnowBe4 following the submission of Vista’s public proposal and that those bidders had either not responded to Morgan Stanley’s outreach or had confirmed that they were not interested in pursuing an acquisition of KnowBe4. The Special Committee gave direction to representatives of each of Wilson Sonsini and Potter Anderson on how to negotiate various points in the merger agreement. The Special Committee and representatives of each of Wilson Sonsini and Morgan Stanley also discussed the bonus retention pool and certain ordinary course equity grants for members of KnowBe4 management, and the Special Committee instructed Morgan Stanley to discuss those matters with Vista.

On October 3, 2022, Vista requested the Special Committee’s permission to discuss the terms of Mr. Sjouwerman’s employment with KnowBe4 following its acquisition by Vista. The Special Committee provided its approval for these discussions on October 4, 2022.

On October 4, 2022, representatives of each of Wilson Sonsini, Potter Anderson and Kirkland met to discuss a revised draft of the merger agreement and other transaction matters.

Also on October 4, 2022, representatives of each of Vista and Morgan Stanley met to discuss certain parts of the draft merger agreement for the transaction.

On October 5, 2022, in connection with negotiations on the support agreements, Gibson Dunn informed KnowBe4 that KKR desired to build into the transaction documents the flexibility for KKR to fund its equity commitment by either rolling over a portion of its existing equity position in KnowBe4 or investing new capital through one or more KKR affiliates.

 

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Beginning on October 6, 2022, and continuing through the execution of the definitive documentation, representatives of each of Potter Anderson, Kirkland and Wilson Sonsini and, where appropriate, representatives of Gibson Dunn, Latham and Moulton Moore held regular meetings to discuss the draft transaction documentation and other transaction matters.

On October 7, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson, Morgan Stanley and Wilson Sonsini. Representatives of Wilson Sonsini reported on the recent discussions with Kirkland regarding the latest draft of the merger agreement. The Special Committee gave direction to representatives of each of Wilson Sonsini and Potter Anderson on how to negotiate various points in the merger agreement. The Special Committee, its advisors and representatives of Wilson Sonsini also discussed certain matters related to the equity compensation of KnowBe4 employees.

On October 8, 2022, representatives of Morgan Stanley met with representatives of Vista to discuss the status of negotiation of the draft transaction documentation and other related transaction matters.

On October 9, 2022, representatives of each of Kirkland, Wilson Sonsini and Potter Anderson met to discuss KnowBe4’s certificate of incorporation and its provisions that provided for equal treatment among the shares of KnowBe4’s Class A common stock and KnowBe4’s Class B common stock in a “Change of Control Transaction,” unless such equal treatment was approved by the holders of KnowBe4’s Class A common stock and KnowBe4’s Class B common stock, each voting separately as a class. Given the contemplated rollover by certain significant stockholders, representatives of Kirkland proposed that the transaction, in addition to the majority of the minority voting standard and the required statutory stockholder voting standard, include separate class votes of KnowBe4’s Class A common stock and KnowBe4’s Class B common stock. Representatives of Kirkland conveyed that Vista proposed that, prior to the record date for the KnowBe4 stockholder vote, (1) Vista would irrevocably “down-convert” all of its shares of KnowBe4’s Class B common stock into shares of KnowBe4’s Class A common stock; and (2) that Vista would request that each of the rollover stockholders also down-convert shares of KnowBe4’s Class B common stock that they would rollover in the transaction or a commensurate amount of shares equal to the value that such rollover stockholder expected to invest in KnowBe4 in connection with the transaction with Vista. The proposed down-converts by Vista, KKR, Mr. Sjouwerman and Elephant Funds would result in those holders having a higher percentage of the Class A common stock than they held before such time by irrevocably surrendering the superior voting rights associated with the shares of “down-converted” Class B stock. Following such down-converts, Vista, KKR, Mr. Sjouwerman and Elephant Funds would, in the aggregate, hold approximately 36 percent of the voting power of the outstanding shares of KnowBe4 Class A common stock. The proposed down-converts by KKR, Mr. Sjouwerman and Elephant Funds would have an immaterial impact on their respective aggregate voting power but the down-convert by Vista would cause Vista’s aggregate voting power to decrease from approximately 14.9 percent of KnowBe4’s voting power to approximately three percent.

On October 10, 2022, representatives of each of Morgan Stanley and Vista met to discuss certain outstanding transaction items, including certain outstanding economic points in the Merger Agreement related to the expense reimbursement provision and certain potential cost of living adjustments and Vista’s views on such points.

Also on October 10, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson, Morgan Stanley and Wilson Sonsini. Representatives of each of Wilson Sonsini and Morgan Stanley reported on their communications with representatives of each of Kirkland and Vista, respectively, regarding open points in the draft documentation for the transaction. Representatives of Wilson Sonsini also discussed the latest drafts of the transaction documentation and the negotiation of certain matters in those documents. Representatives of Morgan Stanley then provided the Special Committee with a presentation on Morgan Stanley’s financial analyses, including the methodologies utilized and the value ranges produced under such methodologies. Representatives of Morgan Stanley also reviewed, among other things, the rationale for KnowBe4 entering into the transaction with Vista and the outreach conducted by Morgan Stanley to date in support of a potential acquisition of KnowBe4.

 

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On October 11, 2022, the Special Committee held a meeting by video conference with representatives of each of Potter Anderson, Morgan Stanley and Wilson Sonsini. Representatives of Wilson Sonsini reported on the latest transaction matters and the negotiations of the draft transaction documents. At the request of the Special Committee, representatives of Morgan Stanley delivered Morgan Stanley’s oral fairness opinion, which was later confirmed in writing, to the effect that, as of the date of such opinion and based upon and subject to the various matters, limitations, qualifications and assumptions set forth in the opinion, the Per Share Price to be received by the holders of shares of KnowBe4 Common Stock (other than the holders of the Excluded Shares (as defined in the opinion) and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to such holders of shares of KnowBe4 Common Stock. Morgan Stanley’s opinion is more fully described in the section of this proxy statement titled “—Opinion of Morgan Stanley & Co. LLC.” Representatives of Morgan Stanley also confirmed that it had no material updates to its prior relationships disclosure memorandum that it had issued to the Special Committee on July 12, 2022. Representatives of Potter Anderson reviewed the form of Special Committee resolutions that had been previously circulated to the Special Committee, and, after discussion at the meeting, the Special Committee unanimously (1) determined that the Merger Agreement, the Support Agreements, the Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders; (2) recommended that the KnowBe4 Board approve the Merger Agreement, the Support Agreements, the Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, and determine that the Merger Agreement, the Support Agreements, the Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders; and (3) recommended that, subject to the approval of the KnowBe4 Board, the KnowBe4 Board submit the Merger Agreement to KnowBe4’s stockholders for their adoption and approval and recommend that KnowBe4’s stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL.

Following the Special Committee meeting on October 11, 2022, the KnowBe4 Board held a special meeting by video conference with representatives of each of Wilson Sonsini, Potter Anderson and Morgan Stanley. Mr. Watzinger provided an overview of the Special Committee’s process and recommendation to the KnowBe4 Board. Representatives of Wilson Sonsini provided an overview of the transaction documents for the acquisition and the material terms therein. Representatives of Morgan Stanley provided an overview of the Special Committee’s outreach to financial sponsor and strategic potential bidders and reviewed that Morgan Stanley had rendered an oral fairness opinion to the Special Committee. Representatives of Wilson Sonsini also provided a review of the KnowBe4 Board’s fiduciary duties and the MFW framework. After discussion at the meeting, the KnowBe4 Board unanimously (1) determined that the Merger Agreement, the Support Agreements, the Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and its stockholders, including the Unaffiliated Stockholders; (2) approved the Merger Agreement, the Support Agreements, the Guarantees and the transactions contemplated by the Merger Agreement, including the Merger; and (3) recommended that KnowBe4’s stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL.

Later on October 11, 2022, following the meeting of the KnowBe4 Board, Vista and KnowBe4 signed the merger agreement and the other transaction documents. The Support Agreements were also signed.

On October 12, 2022, KnowBe4 issued a press release announcing the transaction with Vista.

Reasons for the Merger; Recommendation of the Special Committee and the KnowBe4 Board

In evaluating the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, the Special Committee consulted with its independent financial advisor, Morgan Stanley, and its independent legal advisor, Potter Anderson, and, where appropriate, with members of KnowBe4 management and Wilson Sonsini, in its capacity as KnowBe4’s outside

 

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legal advisor. The Special Committee unanimously determined that the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders. In addition, the Special Committee believes that the Merger is fair to KnowBe4 and the “unaffiliated security holders” as defined in Rule 13e-3 of the Exchange Act.

The Special Committee also unanimously recommended that the KnowBe4 Board:

 

   

approve the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger;

 

   

determine that the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of KnowBe4 and the Unaffiliated Stockholders; and

 

   

subject to approval by the KnowBe4 Board, submit the Merger Agreement to our stockholders for their adoption and approval and recommend that our stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL.

In the course of reaching its determination and making its recommendations, the Special Committee considered the following non-exhaustive list of material factors, which are not presented in any relative order of importance and each of which the Special Committee viewed as being generally supportive of its determination and recommendations to the KnowBe4 Board:

 

   

Potential Strategic Alternatives. The assessment of the Special Committee that none of the possible alternatives to the Merger (including continuing to operate KnowBe4 as an independent company or pursuing a different transaction, and the desirability and perceived risks of those alternatives, as well as the potential benefits and risks to our stockholders of those alternatives and the timing and likelihood of effecting such alternatives) was reasonably likely to present superior opportunities for KnowBe4 to create greater value for our stockholders, taking into account execution risks as well as business, financial, industry, competitive and regulatory risks.

 

   

Outcome of Strategic Pre-Signing Market Check. At the direction of the Special Committee, Morgan Stanley conducted a pre-signing market check by contacting thirteen (13) financial sponsors, including Vista and two (2) financial sponsors that owned strategic parties, and four (4) strategic parties to gauge their interest in a potential acquisition of KnowBe4. No party contacted, other than Vista, submitted a proposal or an indication of interest to acquire KnowBe4. Further, the Special Committee considered that the time period between the announcement of Vista’s public proposal and the execution of definitive agreement with Vista acted as a passive pre-signing market check. KnowBe4, the Special Committee and their respective advisors did not receive any third-party proposals or indications of interests during this time period, despite public awareness of a proposal from Vista.

 

   

Certainty of Value. The consideration to be received by our stockholders in the Merger consists entirely of cash, which provides certainty of value and immediate liquidity at an attractive price measured against the ongoing business and financial execution risks of KnowBe4’s business plan and its continued operations as an independent company and allows our stockholders to realize that value immediately upon the consummation of the Merger. In that regard, the Special Committee noted that the amount of cash to be received for each outstanding share of KnowBe4 common stock is fixed and will not be reduced if the share price of KnowBe4 common stock declines prior to the effective time of the Merger.

 

   

Best Value Reasonably Obtainable. The belief of the Special Committee that the per share price represented Vista’s best and final offer and the best value that KnowBe4 could reasonably obtain from Vista for the shares of KnowBe4 common stock, taking into account (1) Vista’s statements and reputation; (2) the Special Committee’s assessment that other parties did not have the interest in, or

 

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capability to, acquire KnowBe4, including based on the regulatory, financing and other execution risks applicable to each party; and (3) the Special Committee’s familiarity with the business, operations, prospects, business strategy, assets, liabilities and general financial condition of KnowBe4 on a historical and prospective basis and its assessment of associated risks, including execution risks with respect to KnowBe4’s business plan. In forming this belief, the Special Committee also considered that (1) Vista was the only party out of 17 potential parties contacted to submit a proposal; (2) no other third party bidder submitted a proposal during this period to acquire KnowBe4, despite ample opportunity to do so; and (3) the Special Committee received feedback from certain potential third party bidders for a potential acquisition of KnowBe4 that such bidders could not see themselves paying a meaningful premium to the current market price of KnowBe4. The Special Committee believed that, after negotiations at the direction of the Special Committee and with the assistance of experienced independent legal and financial advisors, the Special Committee obtained the best terms and highest price that Vista was willing to pay for KnowBe4, pursuant to a thorough process and that further negotiations would have created a risk of causing Vista to abandon the Merger altogether or materially delay the entry into definitive transaction agreements with respect to the Merger. In addition, the Special Committee believed that, measured against the longer-term execution risks described above, the per share price reflects a fair and favorable price for the shares of KnowBe4 common stock. The Special Committee also considered that the per share price constitutes (1) a premium of approximately 44 percent to the closing price of KnowBe4 common stock of $17.30 per share on September 16, 2022, which was the last full trading day before Vista publicly disclosed its initial non-binding acquisition proposal; and (2) a premium of approximately 30 percent to KnowBe4’s 30-day trading average closing stock price of KnowBe4 Class A common stock of $19.10 per share ending on September 16, 2022.

 

   

Financial Condition, Results of Operations and Prospects of KnowBe4; Risks of Execution. The current, historical and projected financial condition, results of operations and business of KnowBe4, as well as KnowBe4’s prospects and risks if it were to remain an independent company. In particular, the Special Committee considered KnowBe4’s then-current business plan, including management’s then-current estimated projections of KnowBe4’s financial prospects, as reflected in the Unaudited Prospective Financial Information. As part of this, the Special Committee considered KnowBe4’s current business plan and the potential opportunities and risks that it presented against, among other things, various execution, operational and other risks to achieving the business plan and related uncertainties, including: (1) the impact of market, customer and competitive trends on KnowBe4; (2) the likelihood that the business plan could be achieved in the face of operational and execution risks, including loss of market share, customer dissatisfaction or employee attrition; and (3) general risks related to market conditions that could negatively impact our valuation or reduce the price of KnowBe4 common stock. In particular, the Special Committee considered the likelihood and timing of, and risks to, achieving the operational improvements, objectives and market share capture assumptions underlying the business plan, as well as the estimated projections of KnowBe4’s financial prospects, all as reflected in the Unaudited Prospective Financial Information.

 

   

Among the potential risks identified by the Special Committee were: KnowBe4’s competitive positioning and prospects as an independent company. Included among these risks were consideration of (1) KnowBe4’s size, as well as its financial resources, relative to those of its competitors; (2) new and evolving competitive threats; (3) changes in the industry in which KnowBe4 operates; (4) the substantial risks to achieving KnowBe4’s business plan; and (5) the ultimate size of the total available market for KnowBe4’s business.

 

   

The Special Committee also considered the challenges of a public company in making investments, operational changes, and improvements (including meaningful cost reductions) to achieve long-term growth and profitability. The Special Committee was aware that such investments, changes and improvements could lead to disruption in our performance and expose us to scrutiny based on our quarter-over-quarter operational and financial metrics and results. The

 

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Special Committee was also aware that the price of KnowBe4 common stock could be negatively impacted if we failed to meet investor expectations, including if we failed to meet our growth and profitability objectives.

 

   

Opinion of Morgan Stanley. The oral opinion of Morgan Stanley rendered to the Special Committee, subsequently confirmed by delivery of its written opinion, dated October 11, 2022, that, as of such date, and based upon and subject to the various matters, limitations, qualifications and assumptions set forth therein, the Per Share Price to be received by the holders of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to such holders of KnowBe4 common stock. The opinion is more fully described in the section of this proxy statement captioned “Special Factors—Opinion of Morgan Stanley & Co. LLC” and the full text of the opinion is attached as Annex B to this proxy statement.

 

   

Negotiations with Parent and Terms of the Merger Agreement. The terms of the Merger Agreement, which was the product of arm’s-length negotiations, and the belief of the Special Committee that the Merger Agreement contained terms and conditions that provided the Special Committee with a high level of closing certainty. The factors considered included:

 

   

KnowBe4’s ability, under certain circumstances, to furnish information to, and conduct negotiations with, third parties submitting unsolicited takeover proposals.

 

   

The Special Committee’s belief that the terms of the Merger Agreement would be unlikely to deter third parties from making a superior proposal.

 

   

The ability of the KnowBe4 Board, acting upon the recommendation of the Special Committee, and the Special Committee’s ability, in each case under certain circumstances, to change, withdraw or modify the recommendation that our stockholders vote in favor of the adoption of the Merger Agreement.

 

   

The KnowBe4 Board’s ability, acting upon the recommendation of the Special Committee, under certain circumstances, to terminate the Merger Agreement to enter into a definitive agreement with respect to a superior proposal. In that regard, the Special Committee believed that the termination fee payable by KnowBe4 in such instance was reasonable, consistent with or below similar fees payable in comparable transactions, and not preclusive of other offers.

 

   

The limited conditions to Parent’s obligation to consummate the Merger, making the Merger reasonably likely to be consummated.

 

   

The reverse termination fee of $276 million payable by Parent in certain circumstances, our ability to specifically enforce Parent’s obligations under the Merger Agreement in accordance with its terms and to cause the equity financing to be funded if the conditions to closing are satisfied and the debt financing is available, and the other remedies available to KnowBe4 under the Merger Agreement, including monetary damages. The Special Committee also considered the terms of the Limited Guarantees, which guarantee payment of the reverse termination fee.

 

   

The Special Committee also considered the terms of the (1) the Debt Commitment Letter, which commits the debt sources to lend a portion of the amounts needed by Parent to fund the transaction; and (2) the Equity Commitment Letters, which commit the Guarantors and the KKR Investor to invest the balance of the amounts needed by Parent to fund the transaction (including KnowBe4’s third-party beneficiary rights to enforce the Guarantors’ and the KKR Investor’s equity commitments under the Equity Commitment Letters in accordance with their terms and the terms of the Merger Agreement).

 

   

The terms of the Merger Agreement provide KnowBe4 with sufficient operating flexibility to conduct its business in the ordinary course until the earlier of the consummation of the Merger or the termination of the Merger Agreement.

 

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Reasonable Likelihood of Consummation. The belief of the Special Committee that an acquisition by Parent has a reasonable likelihood of closing, including that there were no anticipated substantive issues expected in connection with the required regulatory approvals. In that regard, the Special Committee considered Vista’s business reputation and financial resources, as well as those of Parent’s debt financing sources, all of which the Special Committee believed increased the likelihood that the required debt and equity financing for the Merger would be available.

 

   

Appraisal Rights. KnowBe4’s stockholders have the right to exercise their statutory appraisal rights under Section 262 of the DGCL and receive payment of the fair value of their shares of KnowBe4 common stock in lieu of the Per Share Price, subject to and in accordance with the terms and conditions of the Merger Agreement and the DGCL, unless and until any such KnowBe4 stockholder fails to perfect or effectively withdraws or loses such holder’s rights to appraisal and payment under the DGCL.

 

   

Current and Historical Market Prices. The current and historical market prices of KnowBe4’s Class A common stock, including as set forth in the table under “Important Information Regarding KnowBe4—Market Price of KnowBe4 Class A Common Stock” and “Special Factors—Opinion of Morgan Stanley & Co. LLC” taking into account the market performance of KnowBe4’s Class A common stock relative to the capital stock of other participants in the industries in which KnowBe4 operates and general market indices.

The Special Committee also considered a number of factors relating to the procedural safeguards that it believes were and are present to ensure the fairness of the Merger and to permit the Special Committee to represent effectively the interests of the Unaffiliated Stockholders and the unaffiliated security holders of KnowBe4. In the light of such procedural safeguards, the Special Committee did not consider it necessary to retain an unaffiliated representative to act solely on behalf of the Unaffiliated Stockholders and the unaffiliated security holders of KnowBe4 for purposes of negotiating the terms of the Merger Agreement or preparing a report concerning the fairness of the Merger Agreement and the Merger. The Special Committee believes these factors support its determinations and recommendations and provide assurance of the procedural fairness of the Merger to the Unaffiliated Stockholders and the unaffiliated security holders of KnowBe4:

 

   

Independence. The Special Committee, since its formation, has consisted solely of independent (for purposes of serving on the Special Committee) and disinterested directors that are not affiliated with, and are independent of, any of the potential counterparties to a potential acquisition of KnowBe4 (including a potential acquisition of KnowBe4 that has a transaction or series of transactions in which one or more significant stockholders of KnowBe4 have an interest that is in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole) and were otherwise disinterested and independent with respect to a potential acquisition of KnowBe4 (including a potential acquisition of KnowBe4 that has a transaction or series of transactions in which one or more significant stockholders of KnowBe4 have an interest that is in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole), other than as discussed in the section of this proxy statement captioned “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger”;

 

   

Negotiating Authority. The authority granted to the Special Committee by the KnowBe4 Board to, among other things, (1) review, evaluate and negotiate the structure, form, terms and conditions of a potential acquisition of KnowBe4 (including a potential acquisition of KnowBe4 that has a transaction or series of transactions in which one or more significant stockholders of KnowBe4 have an interest that is in addition to, and/or different from, the interests of the KnowBe4’s stockholders as a whole) and the form, terms and conditions of any definitive agreements or documents in connection therewith, (2) to determine not to proceed with any such process, procedures, review or evaluation, and (3) to consider and evaluate any alternative transactions.

 

   

Active Involvement and Oversight. The numerous meetings held by the Special Committee to discuss and evaluate, among other things, the Special Committee’s pre-signing market check and the proposals

 

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from Vista, and the Special Committee’s active oversight of the negotiation process. The Special Committee was actively engaged in this process on a regular basis and was provided with full access to KnowBe4 management and its advisors in connection with the evaluation process.

 

   

Independent Advice. The Special Committee selected and engaged its own independent legal and financial advisors and received the advice of such advisors throughout its review, evaluation and negotiation of a potential acquisition of KnowBe4.

 

   

Full Knowledge. The Special Committee made its evaluation of a potential acquisition of KnowBe4 by Vista based upon the factors discussed in this proxy statement and with the full knowledge of the interests of the Rollover Stockholders.

 

   

No Obligation to Recommend. The recognition by the Special Committee that it had no obligation to recommend to the KnowBe4 Board the approval of the Merger or any other transaction and had the authority to reject any proposals made.

 

   

Prior Special Committee Action. The KnowBe4 Board was not permitted to approve any potential acquisition of KnowBe4 (including a potential acquisition of KnowBe4 that also included a transaction or series of transactions in which one or more significant stockholders of KnowBe4 had an interest that was in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole) or recommend for approval any such transactions by KnowBe4’s stockholders without a prior favorable recommendation of the transaction by the Special Committee.

 

   

Communication Safeguards. The Special Committee requested that the Rollover Stockholders and their representatives not engage in direct, unchaperoned discussions with Vista and its representatives on the Rollover until after the Special Committee and the representatives of Vista had reached a preliminary agreement on pricing for the transaction and the Special Committee expressly authorized the Rollover Stockholders to have such discussions. The Rollover Stockholders and their representatives abided by the Special Committee’s request and did not have direct, unchaperoned discussions with Vista and its representatives until such events occurred.

 

   

Additional Procedural Safeguards. The KnowBe4 Board, in its authorizing resolutions for the Special Committee, determined that KnowBe4 would not effectuate an acquisition of KnowBe4 that included a transaction or series of transactions in which one or more significant stockholders of KnowBe4 had an interest that is in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole, unless it had been (1) approved or recommended by the Special Committee and (2) approved by holders of a majority of the voting power of the outstanding shares of the Company held by disinterested stockholders (as determined by the Special Committee).

 

   

Majority of the Minority Approval. The consummation of the Merger requires the approval by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on this Agreement.

In the course of reaching its determinations and making its recommendations, the Special Committee also considered the following non-exhaustive list of countervailing factors concerning the Merger Agreement and the Merger, which are not presented in any relative order of importance:

 

   

No Stockholder Participation in Future Growth or Earnings. The nature of the Merger as a cash transaction means that our stockholders (other than the Rollover Stockholders) will not participate in KnowBe4’s future earnings or growth and will not benefit from any appreciation in value of the surviving corporation. The Special Committee considered the other potential alternative strategies available to KnowBe4 as an independent company, which, despite significant uncertainty, had the potential to result in a more successful and valuable company.

 

   

No-Shop Restrictions. The restrictions in the Merger Agreement on KnowBe4’s ability to solicit competing transactions (subject to certain exceptions to allow the KnowBe4 Board, acting upon the

 

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recommendation of the Special Committee, or the Special Committee, to exercise their respective fiduciary duties and, in the case of KnowBe4 Board, acting upon the recommendation of the Special Committee, to accept a superior proposal, and then only upon the payment of a termination fee). The Special Committee was also aware that Vista’s indirect ownership interest in KnowBe4 (through the VEPF Funds) and the interests of the Rollover Stockholders in the Merger would likely be considered by third parties evaluating whether to make superior proposals.

 

   

Risk Associated with Failure to Consummate the Merger. The possibility that the Merger might not be consummated, and if it is not consummated, that: (1) KnowBe4’s directors, management team and other employees will have expended extensive time and effort and will have experienced significant distractions from their work on behalf of KnowBe4 during the pendency of the Merger; (2) KnowBe4 will have incurred significant transaction and other costs; (3) KnowBe4’s continuing business relationships with customers, business partners and employees may be adversely affected; (4) the trading price of KnowBe4 Class A common stock could be adversely affected; (5) the contractual and legal remedies available to KnowBe4 in the event of the breach or termination of the Merger Agreement may be insufficient, costly to pursue, or both; (6) the reverse termination fee of $276 million payable by Parent to KnowBe4 will not be available in all instances in which the Merger Agreement is terminated and such reverse termination fee may not be sufficient to compensate KnowBe4 for the damage suffered by its business as a result of the pendency of the Merger or of the strategic initiatives forgone by KnowBe4 during this period; and (7) the failure of the Merger to be consummated could result in an adverse perception among our customers, potential customers, employees and investors about KnowBe4’s prospects.

 

   

Regulatory Risks. The possibility that regulatory agencies may delay, object to, challenge or seek to enjoin the Merger, or may seek to impose terms and conditions on their approvals that are not acceptable to Parent, notwithstanding its obligations under the Merger Agreement.

 

   

Impact of Interim Restrictions on KnowBe4’s Business Pending the Completion of the Merger. The restrictions on the conduct of KnowBe4’s business prior to the consummation of the Merger, which may delay or prevent us from undertaking strategic initiatives before the completion of the Merger that, absent the Merger Agreement, we might have pursued, or from taking certain actions aimed at incentivizing and retaining our employees.

 

   

Effects of the Merger Announcement. The effects of the public announcement of the Merger, including the: (1) effects on our employees, customers, operating results and stock price; (2) impact on our ability to attract and retain key management, sales and marketing, and technical personnel; and (3) potential for litigation in connection with the Merger.

 

   

Termination Fee Payable by KnowBe4. The requirement that KnowBe4 pay Parent a termination fee of $138 million under certain circumstances following termination of the Merger Agreement, including if KnowBe4 terminates the Merger Agreement to accept a superior proposal. The Special Committee considered the potentially discouraging impact that this termination fee could have on a third party’s interest in making a competing proposal to acquire KnowBe4.

 

   

Taxable Consideration. The receipt of cash in exchange for shares of KnowBe4 common stock in the Merger will be a taxable transaction for U.S. federal income tax purposes for many of our stockholders.

 

   

Interests of KnowBe4’s Directors and Executive Officers. The interests that KnowBe4’s directors and executive officers may have in the Merger, which may be different from, or in addition to, those of our other stockholders.

 

   

Interests of Certain Significant Stockholders in the Merger. Certain significant stockholders of the KnowBe4 common stock were offered the opportunity, and elected, to participate in an equity rollover or equity reinvestment in Vista’s potential acquisition of KnowBe4, which such option to participate was not extended to all of KnowBe4’s stockholders. As noted in this section, these significant stockholders will be able to participate in the future growth or earnings of the post-closing company

 

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with respect to that portion of their equity that they are rolling over or reinvesting in the post-closing entity. However, those stockholders elected to forgo the certain value of the Per Share Price for such rollover shares, which value the Special Committee found compelling for KnowBe4’s stockholders.

 

   

Voting Obligations of Certain Significant Stockholders. Certain significant stockholders of KnowBe4 are parties to support agreements with KnowBe4 and Parent, which, under certain circumstances, obligate such holders to vote in favor of the adoption of the Merger Agreement and that those obligations do not automatically terminate in the event that the KnowBe4 Board, acting upon the recommendation of the Special Committee, or the Special Committee modifies, changes or withdraws KnowBe4’s recommendation with respect to the transaction.

 

   

Conversion of Class B Common Stock to Class A Common Stock. Certain significant stockholders of KnowBe4 are parties to support agreements with KnowBe4 and Parent or KnowBe4 only, which obligate such holders to convert certain amounts of shares of KnowBe4 Class B common stock to KnowBe4 Class A common stock.

Recommendation of the KnowBe4 Board

Based on the unanimous recommendation of the Special Committee and on the basis of the other factors described above, the KnowBe4 Board unanimously:

 

   

determined that the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of KnowBe4 and our stockholders, including the Unaffiliated Stockholders (and, accordingly, KnowBe4’s unaffiliated security holders, as defined in Rule 13e-3 under the Exchange Act);

 

   

approved and declared advisable the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger;

 

   

directed that the adoption of the Merger Agreement be submitted to a vote of our stockholders at a meeting of our stockholders; and

 

   

recommended that our stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL.

The KnowBe4 Board did not assess whether the “rollover” provisions of the Support Agreements with the Rollover Stockholders are advisable, fair to and in the best interests of the Rollover Stockholders.

In the course of reaching its determination and making its recommendations, the KnowBe4 Board considered the following non-exhaustive list of material factors and countervailing factors, which are not presented in any relative order of importance:

 

   

Determinations of the Special Committee. The Special Committee’s analysis (as to both substantive and procedural aspects of the Merger), conclusions and unanimous determination, which the KnowBe4 Board adopted, that the Merger Agreement, the Support Agreements, the Limited Guarantees and the other transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of KnowBe4 and the Unaffiliated Stockholders. The KnowBe4 Board also considered the Special Committee’s unanimous recommendation that the KnowBe4 Board approve the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger and, subject to KnowBe4 Board approval, that the Board submit the Merger Agreement to the stockholders of KnowBe4 for their adoption and approval and recommend that our stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger in accordance with the DGCL.

 

   

Procedural Protections. The procedural fairness of the Merger, including that (1) it was negotiated by the Special Committee consisting solely of independent (for purposes of serving on the Special

 

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Committee) and disinterested directors that are not affiliated with, and are independent of, any of the potential counterparties to a potential acquisition of KnowBe4 (including a potential acquisition of KnowBe4 that has a transaction or series of transactions in which one or more significant stockholders of KnowBe4 have an interest that is in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole) and were otherwise disinterested and independent with respect to a potential acquisition of KnowBe4 (including a potential acquisition of KnowBe4 that has a transaction or series of transactions in which one or more significant stockholders of KnowBe4 have an interest that is in addition to, and/or different from, the interests of KnowBe4’s stockholders as a whole), other than as discussed in the section titled “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger”; and (3) the Special Committee had the authority to select and engage, and was advised by, its own independent legal and financial advisors;

 

   

Other Factors Considered by the Special Committee. The other material factors and countervailing factors considered by the Special Committee and listed above.

The foregoing discussion of the information and factors considered by the Special Committee and by the KnowBe4 Board is not intended to be exhaustive and includes only the material factors considered. In the light of the variety of factors considered by the Special Committee and by the KnowBe4 Board and the complexity of these factors, neither the Special Committee nor the KnowBe4 Board found it practicable to, and did not, quantify or otherwise assign relative weights, ranks or values to the foregoing factors in reaching their respective determinations and recommendations. Moreover, each member of the Special Committee and of the KnowBe4 Board applied his or her own personal business judgment to the process and may have assigned different relative weights, ranks or values to the different factors, and the recommendations, determinations and approvals, where applicable, by the Special Committee and the KnowBe4 Board were based upon the totality of the information presented to, and considered by, the Special Committee and the KnowBe4 Board, respectively.

In the course of evaluating the Merger Agreement, the Support Agreements, the Limited Guarantees and the transactions contemplated by the Merger Agreement, including the Merger, and making the decisions, determinations and recommendations described above (as applicable), the KnowBe4 Board and the Special Committee did not consider the liquidation value of KnowBe4 because (1) they considered KnowBe4 to be a viable, going concern, (2) they believed that liquidation sales generally result in proceeds substantially less than sales of going concern, (3) they considered determining a liquidation value to be impracticable given the significant execution risk involved in any breakup of KnowBe4. For the foregoing reasons, the KnowBe4 Board and the Special Committee did not consider liquidation value to be a relevant factor. Further, the KnowBe4 Board and the Special Committee did not consider KnowBe4’s net book value, which is an accounting concept, as a factor because they believe (1) that net book value is not a material indicator of the value of KnowBe4 as a going concern but rather is indicative of historical costs and (2) net book value does not take into account the prospects of KnowBe4, market conditions, trends in the industry in which KnowBe4 operates or the business risks inherent in the industry. The KnowBe4 Board and the Special Committee believe that the trading price of the shares of KnowBe4 common stock at any given time represents the best available indicator of KnowBe4’s going concern value at that time so long as the trading price at that time is not impacted by speculation regarding the likelihood of a potential transaction. In addition, the KnowBe4 Board and the Special Committee implicitly considered the value of KnowBe4 as a going concern by taking into account the value of KnowBe4’s current and anticipated business, financial condition, results of operations, prospects, and other forward-looking matters.

Other than as described in this proxy statement, the KnowBe4 Board is not aware of any firm offer by any other person during the prior two years for (1) a merger or consolidation of KnowBe4 with another company; (2) the sale or transfer of all or substantially all of KnowBe4’s assets; or (3) a purchase of KnowBe4’s securities that would enable such person to exercise control of KnowBe4.

 

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Opinion of Morgan Stanley & Co. LLC

The Special Committee retained Morgan Stanley to provide it with financial advisory services and a financial opinion in connection with the possible sale of KnowBe4. The Special Committee selected Morgan Stanley to act as its financial advisor based on, among other things, Morgan Stanley’s independence, its prior experience advising KnowBe4, and its qualifications, experience and expertise, including with respect to serving as a financial advisor to technology, cybersecurity and software companies, advising companies on M&A transactions and serving as an independent financial advisor to special committees of boards of directors. At the meeting of the Special Committee on October 11, 2022, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of October 11, 2022, and based upon and subject to the various matters, limitations, qualifications and assumptions set forth in the written opinion, the Per Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares) and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to such holders of shares of KnowBe4 common stock.

The full text of the written opinion of Morgan Stanley, dated as of October 11, 2022, which sets forth, among other things, the various matters, limitations, qualifications and assumptions, is attached to this proxy statement as Annex B and is incorporated by reference in this proxy statement in its entirety. The summary of the opinion of Morgan Stanley in this proxy statement is qualified in its entirety by reference to the full text of the written opinion. You are encouraged to read Morgan Stanley’s opinion carefully and in its entirety. Morgan Stanley’s opinion was rendered to the Special Committee, in its capacity as such, and addresses only the fairness, from a financial point of view, of the Per Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement as of the date of the opinion and does not address the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. It was not intended to, and does not, constitute an opinion or a recommendation as to how KnowBe4’s stockholders should vote at the Special Meeting. The summary of the opinion of Morgan Stanley set forth below is qualified in its entirety by reference to the full text of the written opinion.

In connection with rendering its opinion, Morgan Stanley, among other things:

 

   

reviewed certain publicly available financial statements and other business and financial information of KnowBe4;

 

   

reviewed certain internal financial statements and other financial and operating data concerning KnowBe4;

 

   

reviewed the Management Plan and certain extrapolations prepared with guidance from the management of KnowBe4 (which were reviewed and approved for Morgan Stanley’s use by the management of KnowBe4, and which extrapolations, together with the Management Plan, are referred to collectively as the “Projections” or the “Unaudited Prospective Financial Information,” as more fully described in the section of this proxy statement captioned “—Unaudited Prospective Financial Information”);

 

   

discussed the past and current operations and financial condition and the prospects of KnowBe4 with senior executives of KnowBe4;

 

   

reviewed the reported prices for and trading activity of KnowBe4 Class A common stock;

 

   

compared the financial performance of KnowBe4 and the prices and trading activity of KnowBe4 Class A common stock with that of certain other publicly-traded companies comparable with KnowBe4, and their securities;

 

   

reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

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participated in certain discussions and negotiations among representatives of KnowBe4, Vista and their legal and other advisors;

 

   

participated in discussions with the Special Committee, independent legal counsel to the Special Committee and Know-Be4KnowBe4’s outside legal advisor;

 

   

reviewed the Merger Agreement substantially in the form of the draft dated October 11, 2022, the Support Agreements substantially in the form of the drafts dated October 11, 2022, the Debt Commitment Letter, substantially in the form of the draft dated October 9, 2022, the Equity Commitment Letters, substantially in the form of the draft dated October 10, 2022, and the Limited Guarantees, substantially in the form of the draft dated October 10, 2022 and certain related documents; and

 

   

performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by KnowBe4 and formed a substantial basis for its opinion. With respect to the Projections, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of KnowBe4’s management of the future financial performance of KnowBe4. Morgan Stanley expressed no view as to such Projections or the assumptions on which they were based. In addition, Morgan Stanley assumed that the Merger will be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions (the effect of which would be material to Morgan Stanley’s analysis or its opinion), including among other things, that Parent will obtain financing in accordance with the terms set forth in the Debt Commitment Letter and the Equity Commitment Letters, and that the definitive merger agreement would not differ in any material respect from the draft thereof furnished to Morgan Stanley. Morgan Stanley assumed that, in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of KnowBe4 and its legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley’s opinion does not address the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of KnowBe4’s officers, directors or employees, or any class of such persons, relative to the Per Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of KnowBe4, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, October 11, 2022. Events occurring after October 11, 2022 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley has not assumed any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter, dated as of October 11, 2022, to the Special Committee. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Some of these

 

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summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.

In performing the financial analyses summarized below and in arriving at its opinion, Morgan Stanley utilized and was directed by the Special Committee to rely upon, among other matters, (1) the Projections and (2) certain estimates of equity research analysts (the “Street Consensus”). The Projections are more fully described below in the section of this proxy statement captioned “—Unaudited Prospective Financial Information.” In accordance with direction from the Special Committee, Morgan Stanley utilized the Street Consensus and the Projections in its financial analyses described below.

Public Trading Comparables Analysis

Morgan Stanley performed a public trading comparables analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared certain financial estimates for KnowBe4 with comparable publicly available consensus equity analyst research estimates for companies, selected based on Morgan Stanley’s professional judgment and experience, that share similar business characteristics and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (the “comparable companies”).

For purposes of this analysis, Morgan Stanley analyzed (1) the ratio of aggregate value to estimated revenue and (2) the ratio of price to estimated free cash flow, which, in each case, for purposes of this analysis, (a) for KnowBe4, (i) was provided to Morgan Stanley, and approved for Morgan Stanley’s use, by KnowBe4 management for calendar year 2023 and for the Projections, and (ii) was based on available consensus equity analyst research estimates for calendar year 2023 and for the Street Consensus; and (b) for each of the comparable companies, was based on publicly available consensus equity analyst research estimates for comparison purposes. For purposes of its analyses, Morgan Stanley defined “aggregate value” as a company’s fully diluted equity value plus total debt, less cash and cash equivalents and defined “free cash flow” as operating cash flow, less capital expenditures.

 

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For calendar year 2023, the range of observed multiples of the ratio of aggregate value to estimated revenue for comparable high growth software companies was 3.7x to 14.4x, with a median observed multiple of 6.3x. For calendar year 2023, the range of observed multiples of the ratio of aggregate value to estimated revenue for comparable high growth security companies was 3.8x to 14.6x, with a median observed multiple of 6.9x. The following is a list of the selected comparable companies reviewed, together with the applicable multiples:

 

Selected Comparable High Growth Software Company

   CY2023E
AV/Estimated
Revenue Multiple
 

Asana, Inc.

     7.0x  

Atlassian Corporation

     14.4x  

DocuSign, Inc.

     3.7x  

HubSpot, Inc.

     6.3x  

Jamf Holding Corp.

     5.7x  

PagerDuty, Inc.

     4.8x  

Smartsheet Inc.

     4.8x  

Sprout Social, Inc.

     10.2x  

ZoomInfo Technologies, Inc.

     13.5x  

 

Selected Comparable High Growth Security Company

   CY2023E
AV/Estimated
Revenue Multiple
 

CrowdStrike Holdings, Inc.

     13.3x  

Okta, Inc.

     3.8x  

Qualys, Inc.

     8.7x  

Rapid7, Inc.

     4.0x  

Tenable Holdings, Inc.

     5.0x  

Zscaler, Inc.

     14.6x  

For calendar year 2023, the range of observed multiples of the ratio of price to estimated free cash flow for comparable high growth software companies was 21.1x to 60.0x, with a median observed multiple of 34.9x. For calendar year 2023, the range of observed multiples of the ratio of price to estimated free cash flow for comparable high growth security companies was 26.6x to 63.5x, with a median observed multiple of 36.8x. The following is a list of the selected comparable companies reviewed, together with the applicable multiples:

 

Selected Comparable High Growth Software Company

   CY2023E
P/FCF Multiple
 

Asana, Inc.

     N.M.  

Atlassian Corporation

     N.M.  

DocuSign, Inc.

     21.1x  

HubSpot, Inc.

     49.1x  

Jamf Holding Corp.

     30.8x  

PagerDuty, Inc.

     60.0x  

Smartsheet Inc.

     N.M.  

Sprout Social, Inc.

     N.M.  

ZoomInfo Technologies, Inc.

     34.9x  

 

Selected Comparable High Growth Security Company

   CY2023E
P/FCF Multiple
 

CrowdStrike Holdings, Inc.

     43.2x  

Okta, Inc.

     57.5x  

Qualys, Inc.

     26.6x  

Rapid7, Inc.

     29.0x  

Tenable Holdings, Inc.

     30.3x  

Zscaler, Inc.

     63.5x  

 

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Based on its analysis of the relevant metrics for each of the comparable companies and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of (1) aggregate value to estimated revenue multiples and (2) price to estimated free cash flow multiples, each for use with each of the Projections and the Street Consensus, respectively. Morgan Stanley then applied these ranges of multiples to the estimated relevant revenue or free cash flow metric for KnowBe4, as applicable. For purposes of this analysis, Morgan Stanley utilized publicly available financial information, available as of October 7, 2022.

Based on the outstanding shares of KnowBe4 common stock on a fully diluted basis and latest cash and debt balance as provided by KnowBe4 management, Morgan Stanley calculated the estimated implied value per share of KnowBe4 common stock as follows:

 

Public Trading Comparables

   Selected Comparable
Company AV/ CY23
Estimated Revenue
Multiple Ranges
     Implied Value Per
Share of
KnowBe4 Common
Stock ($)
 

CY 2023E Revenue

     

Street Consensus

     6.0x – 9.0x        15.36 – 22.05  

Projections

     6.0x – 9.0x        16.15 – 23.24  

 

Public Trading Comparables

   Selected Comparable
Company P/ CY23
Estimated FCF
Multiple Ranges
     Implied Value Per
Share of
KnowBe4 Common
Stock ($)
 

CY 2023E Free Cash Flow

     

Street Consensus

     30.0x – 45.0x        16.93 – 25.33  

Projections

     30.0x – 45.0x        17.43 – 26.07  

No company utilized in the public trading comparables analysis is identical to KnowBe4. In evaluating the comparable companies, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond KnowBe4’s control. These include, among other things, the impact of competition on KnowBe4’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of KnowBe4 and the industry, and in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.

Discounted Equity Value Analysis

Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the potential future equity value of a company as a function of such company’s estimated future revenue. The resulting equity value is subsequently discounted to arrive at an estimate of the implied present value. In connection with this analysis, Morgan Stanley calculated a range of implied present equity values per share of the KnowBe4 common stock on a standalone basis for each of the Street Consensus and Projections.

To calculate these discounted fully diluted equity values, Morgan Stanley utilized calendar year 2025 revenue estimates under each of the Street Consensus and Projections, respectively. Based upon the application of its professional judgment and experience, Morgan Stanley applied a forward range of aggregate value to estimated revenue multiples and price to estimated free cash flow multiples (based on such multiples for the comparable companies) to these revenue and free cash flow estimates, respectively, in order to reach a future-implied fully diluted aggregate value and equity value, respectively. For each of the Street Consensus and Projections, Morgan Stanley applied an aggregate value to estimated revenue multiple range of 6.0x to 9.0x. For the Street Consensus, Morgan Stanley applied a price to estimated free cash flow multiple range of 30.0x to 45.0x and for the Projections, Morgan Stanley applied a price to estimated free cash flow multiple range of 30.0x to 40.0x, each to generate an undiscounted, implied future fully diluted equity value.

 

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In each case, Morgan Stanley then discounted the resulting implied future fully diluted equity value to October 7, 2022, at a discount rate of 12.7 percent, which rate was selected by Morgan Stanley based on KnowBe4’s estimated cost of equity, estimated using the capital asset pricing model method and utilizing a 6 percent market risk premium, a risk-free rate of 3.8 percent based on the 10-year U.S. Treasury yield as of October 7, 2022, and a 1.49 predicted beta per Barra. The results of these analyses are listed below:

 

Discounted Equity Value

   Selected AV / CY25 Estimated
Revenue Multiple Ranges
     Implied, Discounted Value
Per Share of KnowBe4
Common Stock ($)
 

CY25 Estimated Revenue

     

Street Consensus

     6.0x – 9.0x        16.53 – 23.57  

Projections

     6.0x – 9.0x        19.29 – 27.65  

 

Discounted Equity Value

   Selected P / CY25 Estimated
FCF Multiple Ranges
     Implied, Discounted Value
Per Share of KnowBe4
Common Stock ($)
 

CY25 Estimated Free Cash Flow

     

Street Consensus

     30.0x – 45.0x        17.30 – 25.89  

Projections

     30.0x – 40.0x        25.05 – 33.37  

Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis, which is designed to provide an implied value of a company by calculating the present value of the estimated future cash flows and terminal value of such company. Morgan Stanley calculated a range of fully diluted equity values per share for the KnowBe4 common stock based on a discounted cash flow analysis to value KnowBe4 as a standalone entity. Morgan Stanley utilized estimates from the Projections for purposes of its discounted cash flow analysis, as more fully described below.

Morgan Stanley first calculated the estimated unlevered free cash flow, which is defined as non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (burdened by stock-based compensation), less taxes and capital expenditures, and adjusted for changes in net working capital. The Projections, for purposes of the discounted cash flow analysis, included extrapolations through calendar year 2032 prepared by Morgan Stanley with the guidance of KnowBe4 management (which extrapolations were reviewed and approved for Morgan Stanley’s use by KnowBe4 management). The free cash flows and terminal values were discounted to present values as of October 7, 2022, at a discount rate ranging from 11.7 percent to 13.7 percent, which discount rates were selected, upon the application of Morgan Stanley’s professional judgment and experience, to reflect an estimate of KnowBe4’s weighted average cost of capital estimated using the capital asset pricing model method and utilizing a 6 percent market risk premium, a risk-free rate of 3.8 percent based on the 10-year U.S. Treasury yield as of October 7, 2022, and a 1.49 predicted beta per Barra. To calculate terminal values, Morgan Stanley utilized perpetual growth rates of 3.0 percent to 4.0 percent as part of its analyses, with such rates selected upon the application of Morgan Stanley’s professional judgment and experience. The resulting aggregate value was then adjusted for net debt.

Based on the outstanding shares of KnowBe4 common stock on a fully diluted basis as provided by KnowBe4’s management, Morgan Stanley calculated the estimated implied value per share of KnowBe4 common stock as follows:

 

Discounted Cash Flow Analysis

   Implied, Discounted Value
Per Share of KnowBe4
Common Stock ($)
 

Projections

     16.94 – 22.60  

 

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Precedent Transactions Multiples Analysis

Morgan Stanley performed a precedent transactions multiples analysis, which is designed to imply a value of a company based on publicly available financial terms. Morgan Stanley compared publicly available statistics for selected software transactions. Morgan Stanley selected such comparable transactions based on its professional judgment and experience, including because they shared certain characteristics with the Merger, most notably because they were similar software transactions since 2014. For such transactions, Morgan Stanley noted the multiple of aggregate value of the transaction to the estimated next 12 months’ (“NTM”) revenue based on publicly available information at the time of announcement or at the unaffected date of each such transaction.

The following is a list of the selected software transactions reviewed, together with the applicable multiples:

 

Selected Software Transactions (Target/Acquiror)

   AV/NTM
Revenue
Multiple
 

Strategic Acquirors

  

Adaptive Insights Inc. / Workday, Inc.

     11.0x  

AppDynamics, Inc. / Cisco Systems, Inc.

     13.7x  

Auth0, Inc. / Okta, Inc.

     35.0+x  

AVG Technologies USA, Inc. / Avast Plc

     3.3x  

Broadsoft, Inc. / Cisco Systems, Inc.

     4.8x  

Callidus Software Inc. / SAP America, Inc.

     8.3x  

Carbon Black, Inc. / VMware, Inc.

     8.0x  

Concur Technologies, Inc. / SAP America, Inc.

     10.3x  

Figma, Inc / Adobe Inc.

     28.0+x  

Five9, Inc. / Zoom Video Communications, Inc.

     25.7x  

Fleetmatics Group PLC / Verizon Communications Inc.

     6.6x  

Livongo Health, Inc. / Teladoc Health, Inc.

     44.9x  

Mulesoft, Inc. / Salesforce.com, Inc.

     15.7x  

NetSuite Inc. / Oracle Corporation

     9.1x  

NortonLifeLock Inc. / Symantec Enterprise Cloud

     3.2x  

Qualtrics International Inc. / SAP America, Inc.

     16.5x  

SendGrid, Inc. / Twilio Inc.

     15.7x  

Slack Technologies, Inc. / Salesforce.com, Inc.

     24.9x  

Tableau Software Inc. / Salesforce.com, Inc.

     11.0x  

Financial Sponsor Acquirors

  

Anaplan, Inc. / Thoma Bravo, L.P.

     13.6x  

Apptio Inc. / Vista Equity Partners Management, LLC

     7.0x  

Avalara, Inc. / Vista Equity Partners Management, LLC

     9.0x  

Barracuda Networks, Inc. / Thoma Bravo, LLC

     3.8x  

Cambium Learning Group, Inc. / Veritas Capital Fund Management, L.L.C.

     4.2x  

Cloudera, Inc. / Clayton Dubilier & Rice, LLC; Kohlberg Kravis Roberts & Co. L.P.

     5.3x  

Cvent Holding Corp. / Vista Equity Partners Management, LLC

     6.4x  

Ellie Mae Inc. / Thoma Bravo, LLC

     6.8x  

Forescout Technologies, Inc. / Advent International Corporation; Crosspoint Capital Partners

     4.9x  

Gigamon Inc. / Elliott Management

     3.7x  

Informatica Inc. / Permira Private Equity

     4.1x  

Imperva Inc. / Thoma Bravo, LLC

     4.7x  

Infoblox Inc. / Vista Equity Partners Management, LLC

     3.6x  

 

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Selected Software Transactions (Target/Acquiror)

   AV/NTM
Revenue
Multiple
 

Instructure Inc. / Thoma Bravo, LLC

     6.6x  

LogMeIn, Inc. / Francisco Partners; Evergreen Coast Capital Corp.

     3.4x  

Marketo, Inc. / Vista Equity Partners Management, LLC

     5.9x  

Medallia, Inc. / Thoma Bravo, LP.

     10.8x  

Mimecast Limited / Permira Private Equity

     9.2x  

MINDBODY, Inc. / Vista Equity Partners Management, LLC

     6.8x  

Ping Identity Holding Corporation / Thoma Bravo, L.P.

     7.6x  

Pluralsight, Inc. / Vista Equity Partners Management, LLC

     7.8x  

Proofpoint, Inc. / Thoma Bravo L.P.

     9.3x  

QAD Inc. / Thoma Bravo L.P.

     5.3x  

RealPage, Inc. / Thoma Bravo L.P.

     8.2x  

SailPoint Technologies Holdings, Inc. / Thoma Bravo, L.P.

     13.2x  

SolarWinds Corporation / Silver Lake L.L.C.; Thoma Bravo LLC

     7.8x  

Sophos Group PLC / Thoma Bravo LLC

     5.1x  

Talend S.A. / Thoma Bravo L.P.

     7.3x  

The Ultimate Software Group, Inc. / Hellman & Friedman LLC

     8.2x  

Zendesk, Inc. / Hellman & Friedman LLC, Permira Advisers LLC

     4.6x  

Based on its analysis of the relevant metrics and time frame for each of the transactions listed above and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of the aggregate value to the estimated NTM revenue multiples of these selected software transactions, and applied these ranges of multiples to the estimated calendar year 2022 revenue, based on the Street Consensus and Projections. The following table summarizes the results of Morgan Stanley’s analysis:

 

Precedent Transaction Multiples
(Revenue NTM CY22E)

   Selected Transactions
AV/ NTM Revenue
Multiple Ranges
     Implied Value Per
Share of KnowBe4
Common Stock ($)
 

Street Consensus

     7.0x – 11.0x        16.82 – 25.31  

Projections

     7.0x – 11.0x        17.53 – 26.42  

 

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No company or transaction utilized in the precedent transactions analysis is identical to KnowBe4 or the Merger. In evaluating the precedent transactions, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond KnowBe4’s control. These include, among other things, the impact of competition on KnowBe4’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of KnowBe4 and the industry, and in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and fully diluted equity value of the transactions to which they are being compared. The fact that points in the range of implied present value per share of KnowBe4 derived from the valuation of precedent transactions were less than or greater than the $24.90 per share in cash to be received by holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) is not necessarily dispositive in connection with Morgan Stanley’s analysis of the consideration for the Merger but is one of many factors Morgan Stanley considered.

Other Information

Morgan Stanley observed additional factors that were not considered part of Morgan Stanley’s financial analysis with respect to its opinion but were noted as reference data for the Special Committee, including the following information described under the sections of this proxy statement captioned “—Illustrative Precedent Premiums,” “—Historical Trading Ranges” and “—Equity Research Analysts’ Future Price Targets.”

Illustrative Precedent Premiums

Morgan Stanley performed an illustrative precedent transactions premiums analysis by reviewing software company transactions larger than $1 billion in aggregate value since 2014. For these transactions, Morgan Stanley noted the distributions of the following financial statistics, where available: (1) the implied premium to KnowBe4’s closing Class A common stock price on September 16, 2022, the last trading day prior to announcement of KnowBe4’s receipt of an offer from Vista to acquire KnowBe4; and (2) the implied premium to KnowBe4’s unaffected 30-day average closing Class A common stock price on September 16, 2022.

Based on its analysis of the premia for such transactions and based upon the application of its professional judgment and experience, Morgan Stanley selected (1) a representative range of premia and applied such range to KnowBe4’s closing Class A common stock price on September 16, 2022, and (2) a representative range of premia and applied such range to KnowBe4’s unaffected 30-day average closing Class A common stock price on September 16, 2022:

 

Precedent Transaction Premia

   Representative
Ranges
     Implied Value per
Share of KnowBe4
Common Stock ($)
 

Premia to Unaffected Spot

     20% – 50%        20.76 – 25.95  

Premia to Unaffected 30-Day Average

     20% – 50%        22.92 – 28.65  

Historical Trading Ranges

Morgan Stanley noted certain trading ranges with respect to the historical stock prices of the KnowBe4 Class A common stock. Morgan Stanley reviewed a range of prices of the KnowBe4 Class A common stock for various periods ending on September 16, 2022. Morgan Stanley observed the following:

 

Historical Trading Ranges

   Range of Trading Prices
Per Share of KnowBe4 Class A
Common Stock ($)
 

Last 30 days ending on September 16, 2022

     17.30 – 20.28  

Last 90 days ending on September 16, 2022

     14.29 – 20.80  

Last 365 days ending on September 16, 2022

     14.29 – 27.40  

 

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Equity Research Analysts’ Future Price Targets

Morgan Stanley noted certain future public market trading price targets for the KnowBe4 Class A common stock prepared and published by equity research analysts prior to September 16, 2022. These targets reflected each analyst’s estimate of the future public market trading price of the KnowBe4 Class A common stock. The range of undiscounted analyst price targets for the KnowBe4 Class A common stock was $19.00 to $28.00 per share as of September 16, 2022. Morgan Stanley then discounted the range of analyst price targets per share for the KnowBe4 Class A common stock by one year at a rate of 12.7 percent, which was the discount rate selected by Morgan Stanley, upon the application of its professional judgment and experience, to reflect KnowBe4’s cost of equity, estimated using the capital asset pricing model method and utilizing a 6 percent market risk premium, a risk-free rate of 3.8 percent based on the 10-year U.S. Treasury yield as of October 7, 2022, and a 1.49 predicted beta per Barra. This analysis indicated an implied range of fully diluted equity values for the KnowBe4 Class A common stock of $16.85 to $24.84 per share.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the KnowBe4 Class A common stock, and these estimates are subject to uncertainties, including the future financial performance of KnowBe4 and future financial market conditions.

Preliminary Presentations by Morgan Stanley

In addition to its October 11, 2022 opinion and October 10, 2022 presentation to the Special Committee and the underlying financial analyses performed in relation thereto, Morgan Stanley also delivered preliminary presentation materials to the Special Committee on July 28, 2022, August 19, 2022, September 15, 2022 and September 29, 2022 (the “Preliminary Presentation Materials”). The preliminary financial considerations and other information in the Preliminary Presentation Materials were based on information and data that was available as of the date of such respective presentation. The Preliminary Presentation Materials substantively reflected the analyses described above under “—Summary of Financial Analyses.” Copies of such Preliminary Presentation Materials have been filed as exhibits to the Schedule 13E-3 filed with the SEC in connection with the Merger, will be made available for inspection and copying at the principal executive offices of KnowBe4 during its regular business hours by any interested holder of KnowBe4 common stock, and may be obtained by requesting it in writing from KnowBe4 at the address described in the section titled “Where You Can Find Additional Information.”

The Preliminary Presentation Materials were for discussion purposes only and did not present any findings or make any recommendations or constitute an opinion of Morgan Stanley with respect to the fairness of the Merger Consideration or otherwise. The financial analyses performed by Morgan Stanley in relation to its opinion dated October 11, 2022, as described above under “—Summary of Financial Analyses,” superseded all analyses and information presented in the Preliminary Presentation Materials.

General

In connection with the review of the Merger by the Special Committee, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of KnowBe4. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory,

 

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economic, market and financial conditions and other matters, many of which are beyond KnowBe4’s control. These include, among other things, the impact of competition on KnowBe4’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of KnowBe4 and the industry, and in the financial markets in general. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, of the Per Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement and in connection with the delivery of its opinion dated as of October 11, 2022 to the Special Committee. These analyses do not purport to be appraisals or to reflect the prices at which shares of KnowBe4 common stock might actually trade.

The Per Share Price to be received by the holders of shares of KnowBe4 common stock (other than the holders of the Excluded Shares and the Rollover Stockholders) in the Merger pursuant to the Merger Agreement was determined through arm’s-length negotiations between Special Committee and Vista and was recommended by the Special Committee and approved by the KnowBe4 Board. Morgan Stanley provided advice to the Special Committee during these negotiations but did not, however, recommend any specific consideration to KnowBe4 or the Special Committee, nor did Morgan Stanley opine that any specific consideration constituted the only appropriate consideration for the Merger. Morgan Stanley’s opinion did not address the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. Morgan Stanley’s opinion was not intended to, and does not, constitute an opinion or a recommendation as to how KnowBe4’s stockholders should vote at the Special Meeting.

Morgan Stanley’s opinion and its presentation to the Special Committee was one of many factors taken into consideration by the Special Committee to recommend that the KnowBe4 Board approve, and the KnowBe4 Board to approve, the Merger Agreement. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of their customers, in debt or equity securities or loans of Vista and its majority-controlled affiliates and portfolio companies (collectively, the “Vista Related Entities”), KKR and its majority-controlled affiliates and portfolio companies (collectively, the “KKR Related Entities”), Elephant Partners, Parent, KnowBe4 and their respective affiliates, or any other company, or any currency or commodity, that may be involved in the Merger, or any related derivative instrument. In addition, Morgan Stanley, its affiliates, directors or officers, including individuals working with the Special Committee in connection with the Merger, may have committed and may commit in the future to invest in private equity funds managed by the Vista Related Entities, the KKR Related Entities, and Elephant Partners or in affiliates of Morgan Stanley that may hold direct equity and/or partnership interests in private equity funds managed by Vista, the Vista Related Entities, KKR or the KKR Related Entities.

Under the terms of its engagement letter, Morgan Stanley provided the Special Committee with financial advisory services and an opinion, described in this section and attached to this proxy statement as Annex B, in connection with the Merger, and KnowBe4 has agreed to pay Morgan Stanley an aggregate fee of approximately $51 million, approximately $10 million of which was earned following delivery of the opinion described in this section and attached to this proxy statement as Annex B and the remainder of which is contingent upon the

 

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consummation of the Merger. KnowBe4 has also agreed to reimburse Morgan Stanley for its reasonable and documented out-of-pocket expenses, including fees of outside counsel and other professional advisors, actually incurred in connection with its engagement. In addition, KnowBe4 has agreed to indemnify Morgan Stanley and its affiliates, its and their respective officers, directors, employees and agents and each other person, if any, controlling Morgan Stanley or any of its affiliates against certain losses, claims, damages or liabilities and expenses related to, arising out of or in connection with Morgan Stanley’s engagement.

In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley and its affiliates have provided financing services for KnowBe4 and received aggregate fees of approximately $5 to $10 million in connection with such services. In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley provided financial advisory and financing services to the Vista Related Entities and received aggregate fees of approximately $120 to $140 million in connection with such services. In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley provided financial advisory and financing services to the KKR Related Entities and received aggregate fees of approximately $80 to $105 million in connection with such services. In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley has not provided financial advisory and financing services to Elephant Partners. Morgan Stanley may also seek to provide financial advisory and/or financing services to KnowBe4KnowBe4, Parent, Vista, the Vista Related Entities, KKR, the KKR Related Entities and Elephant Partners in the future and would expect to receive fees for the rendering of these services.

Position of the Purchaser Filing Parties as to the Fairness of the Merger

Under the SEC rules governing “going-private” transactions, each Purchaser Filing Party may be deemed to be an affiliate of KnowBe4 and, therefore, required to express its belief as to the fairness of the proposed Merger to KnowBe4’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act. The Merger is a Rule 13e-3 transaction for which a Schedule 13e-3 Transaction Statement has been filed with the SEC. The Purchaser Filing Parties are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules and regulations under the Exchange Act. However, the view of the Purchaser Filing Parties as to the fairness of the Merger should not be construed as a recommendation to any KnowBe4 stockholder as to how that stockholder should vote on the Merger Proposal. The Purchaser Filing Parties have interests in the Merger that are different from, and in addition to, the unaffiliated security holders of KnowBe4.

The Purchaser Filing Parties did not participate in the deliberation of the Special Committee regarding, nor receive advice from the respective legal or other advisors of the Special Committee as to, the fairness of the Merger. The Purchaser Filing Parties have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Merger to the unaffiliated security holders of KnowBe4. Based on, among other things, the factors considered by, and the analysis and resulting conclusions of, the KnowBe4 Board and the Special Committee discussed in the section of this proxy statement entitled “Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the KnowBe4 Board” (which analysis and resulting conclusions the Purchaser Filing Parties adopt), the Purchaser Filings Parties believe that the Merger is substantively fair to the unaffiliated security holders of KnowBe4. In particular, the Purchaser Filing Parties considered the following:

 

   

the current and historical market prices of the KnowBe4 common stock, including the market performance of KnowBe4 Class A common stock relative to those of other participants in KnowBe4’s industry and general market indices, and the fact that the Per Share Price represents a premium of approximately 44 percent to the unaffected closing price of KnowBe4’s Class A common stock on September 16, 2022, the last full trading day before the filing of the Schedule 13D/A by Vista Filing Parties which disclosed Vista’s initial non-binding acquisition proposal;

 

   

the fact that the Special Committee and the KnowBe4 Board unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, KnowBe4 and KnowBe4’s stockholders (including the Unaffiliated

 

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Stockholders and, accordingly, KnowBe4’s unaffiliated security holders, as defined in Rule 13e-3 under the Exchange Act);

 

   

the fact that the Per Share Price shall be paid in all cash, thus allowing the unaffiliated security holders of KnowBe4 to immediately realize a certain and fair value for their shares, which value represents a significant premium to the closing price of the KnowBe4 common stock on the last full trading day before the filing of the Schedule 13D/A by Vista Filing Parties which disclosed Vista’s initial non-binding acquisition proposal;

 

   

the fact that the Merger will provide liquidity for the unaffiliated security holders of KnowBe4 without the delays that would otherwise be necessary in order to liquidate the positions of larger holders, and without incurring brokerage and other costs typically associated with market sales;

 

   

the fact that the Merger is not conditioned on any financing being obtained by Parent, increasing the likelihood that the Merger will be consummated and that the consideration to be paid to the unaffiliated security holders of KnowBe4 in the Merger will be received; and

 

   

the potential risks to KnowBe4 of continuing to have publicly traded common stock, including the risks of market volatility and global economic uncertainty.

 

   

The Purchaser Filing Parties further believe that the Merger is procedurally fair to the unaffiliated security holders of KnowBe4 based upon, among other things, the following factors:

 

   

the fact that the KnowBe4 Board was fully informed about the extent to which the interests of the Purchaser Filing Parties in the Merger differed from those of the unaffiliated security holders of KnowBe4;

 

   

the fact that the KnowBe4 Board formed the Special Committee consisting solely of non-management independent members of the KnowBe4 Board not affiliated with the Purchaser Filing Parties at the outset of discussions of a potential transaction between KnowBe4 on the one hand and Vista on the other;

 

   

the fact that since the outset of discussion of the potential transaction, Vista has, to the extent that such transaction involved a rollover by Stu Sjouwerman, the Elephant Funds and/or the KKR Investors, conditioned the potential transaction upon the approval of the Special Committee and the adoption of the Merger Agreement by the affirmative vote of the holders of the majority of the voting power held by the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement;

 

   

the fact that the Special Committee retained, and had the benefit of advice from, nationally recognized legal and financial advisors;

 

   

the fact that the Merger consideration was the result of the Special Committee’s extensive arm’s-length negotiations with Parent;

 

   

the fact that the Special Committee had the authority to reject any proposals made by Parent or any other person;

 

   

notwithstanding the fact that the Morgan Stanley opinion was not delivered to the Purchaser Filing Parties and the Purchaser Filing Parties are not entitled to rely on such opinion, the fact that the KnowBe4 Board received a written opinion from Morgan Stanley on October 11, 2022, stating that as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Morgan Stanley in preparing its opinion, the Per Share Price was fair, from a financial point of view, to the holders of KnowBe4 common stock;

 

   

the fact that the closing of the Merger is conditioned on KnowBe4’s receipt of the requisite KnowBe4 stockholder approvals, including the adoption of the Merger Agreement by the affirmative vote of the

 

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holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement;

 

   

KnowBe4’s ability, under certain circumstances as set out in the Merger Agreement, to provide information to, or participate in discussions or negotiations with, third parties regarding acquisition proposals that constitute, or are reasonably likely to lead to, superior proposals;

 

   

KnowBe4’s ability, under certain circumstances as set out in the Merger Agreement, to terminate the Merger Agreement to enter into a definitive agreement related to a superior proposal, subject to paying Parent a termination fee of $138 million in cash, subject to and in accordance with the terms and conditions of the Merger Agreement; and

 

   

the availability of appraisal rights to KnowBe4’s stockholders who comply with all of the required procedures under Delaware law for exercising appraisal rights, which allow such holders to seek appraisal of the fair value of their shares.

The Purchaser Filing Parties also considered a variety of risks and other countervailing factors related to the substantive and procedural fairness of the proposed Merger, including:

 

   

(1) the fact that the unaffiliated security holders of KnowBe4 will not participate in any future earnings, appreciation in value or growth of KnowBe4’s business and will not benefit from any potential sale of KnowBe4 or its assets to a third party in the future, (2) the risk that the Merger might not be completed in a timely manner or at all, and (3) the fact that Parent and Merger Sub are newly formed corporations with essentially no assets other than (a) the funding commitments of the VEPF Funds and KKR Investor, (b) the rollover commitments of the Purchaser Filing Parties, and (c) the funding commitments of the debt financing sources;

 

   

the restrictions on the conduct of KnowBe4’s business prior to the completion of the Merger set forth in the Merger Agreement, which may delay or prevent KnowBe4 from undertaking business opportunities that may arise and certain other actions it might otherwise take with respect to the operations of KnowBe4 pending completion of the Merger;

 

   

the negative effect that the pendency of the Merger, or a failure to complete the Merger, could potentially have on KnowBe4’s business and relationships with its employees, vendors and customers;

 

   

subject to the terms and conditions of the Merger Agreement, KnowBe4 and its subsidiaries are restricted from soliciting, proposing, initiating or knowingly encouraging the submission of acquisition proposals from third parties or the making of any inquiry, proposal or offer that would reasonably be expected to lead to an acquisition proposal;

 

   

the possibility that the amounts that may be payable by KnowBe4 upon the termination of the Merger Agreement, including payment to Parent of a termination fee of $138 million in cash, and the processes required to terminate the Merger Agreement, including the opportunity for Parent to make revisions to its Merger Proposal, could discourage other potential acquirors from making a competing bid to acquire KnowBe4; and

 

   

the fact that an all cash transaction would be taxable to KnowBe4’s stockholders that are U.S. holders for U.S. federal income tax purposes.

The foregoing discussion of the information and factors considered and given weight by the Purchaser Filing Parties in connection with the fairness of the Merger is not intended to be exhaustive but is believed to include all material factors considered by them. The Purchaser Filing Parties did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their conclusion as to the fairness of the Merger. Rather, the Purchaser Filing Parties reached their position as to the fairness of the Merger after considering all of the foregoing as a whole. The Purchaser Filing Parties believe these factors provide a

 

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reasonable basis upon which to form their position regarding the fairness of the Merger to the unaffiliated security holders of KnowBe4. This position should not, however, be construed as a recommendation to any KnowBe4 stockholder to approve the Merger Agreement. The Purchaser Filing Parties make no recommendation as to how stockholders of KnowBe4 should vote their shares relating to the Merger. The Purchaser Filing Parties attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the unaffiliated security holders of KnowBe4, and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were fair to the unaffiliated security holders of KnowBe4.

Based on the Purchaser Filing Parties’ knowledge and analysis of available information regarding KnowBe4, the Special Committee and the KnowBe4 Board, as well as discussions with members of KnowBe4’s senior management regarding KnowBe4 and its business and the factors considered by, and findings of, the Special Committee and the KnowBe4 Board and discussed in the section of this proxy statement entitled “Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the KnowBe4 Board; Fairness of the Merger,” the Purchaser Filing Parties believe that the Merger is fair to the unaffiliated security holders.

Plans for KnowBe4 After the Merger

Following completion of the Merger, Merger Sub will have been merged with and into KnowBe4, with KnowBe4 surviving the Merger as a wholly owned subsidiary of Parent. The shares of KnowBe4 Class A common stock are currently listed on the Nasdaq and registered under the Exchange Act. Following completion of the Merger, there will be no further market for the shares of KnowBe4 Class A common stock and, as promptly as practicable following the effective time of the Merger and in compliance with applicable law, the KnowBe4 Class A common stock securities will be delisted from the Nasdaq and deregistered under the Exchange Act.

At the effective time of the Merger, the directors of Merger Sub immediately prior to the effective time of the Merger will become the initial directors of the surviving corporation, and the officers of KnowBe4 immediately prior to the effective time of the Merger will become the officers of the surviving corporation, in each case until their successor is duly elected and qualified or until the earlier of his or her death, resignation or removal in accordance with the certificate of incorporation and bylaws of the surviving corporation. At the effective time of the Merger, KnowBe4’s certificate of incorporation and bylaws will be amended and restated to be in the form of (except with respect to the name of the entity) the certificate of incorporation and bylaws of Merger Sub and, as so amended, will be the certificate of incorporation and bylaws of KnowBe4 following the Merger until thereafter amended in accordance with their respective terms and Delaware law.

The Purchaser Filing Parties currently anticipate that KnowBe4’s operations initially will be conducted following completion of the Merger substantially as they are currently being conducted (except that KnowBe4 will cease to be a public company and will instead be a wholly owned subsidiary of Parent). The Purchaser Filing Parties are currently conducting a review of KnowBe4 and its business and operations with a view towards determining how to redirect KnowBe4’s operations to improve KnowBe4’s long-term earnings potential as a private company (including by reducing KnowBe4’s costs and expenses following the Merger) and expect to complete such review following completion of the Merger. Further, following completion of the Merger, the Purchaser Filing Parties will continue to assess KnowBe4’s assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what additional changes, if any, would be desirable following the Merger to enhance the business and operations of KnowBe4. In addition, Parent may seek to buy or combine KnowBe4 with target companies that provide earnings and growth synergies; however, no definitive contracts, arrangements, plans, proposals, commitments or understanding currently exist. Although presently there are no definitive contracts, arrangements, plans, proposals, commitments or understandings regarding any such transactions, the Purchaser Filing Parties and certain of their affiliates may seek, from and after the effective time of the Merger, to acquire target companies or assets that operate in KnowBe4’s industry.

 

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Certain Effects of the Merger

If the requisite approvals of KnowBe4’s stockholders are obtained and all other conditions to closing of the Merger are satisfied or waived, upon the terms and subject to the conditions of the Merger Agreement, and in accordance with the DGCL, at the effective time of the Merger, (1) Merger Sub will merge with and into KnowBe4; (2) the separate existence of Merger Sub will cease; and (3) KnowBe4 will continue as the surviving corporation in the Merger and a wholly owned subsidiary of Parent. As a result of the Merger, KnowBe4 will cease to be a publicly traded company, KnowBe4 Class A common stock will be delisted from Nasdaq and deregistered under the Exchange Act and KnowBe4 will no longer file periodic reports with the SEC. If the Merger is completed, you will not own any shares of capital stock of the surviving corporation.

The effective time of the Merger will occur upon the filing of a Certificate of Merger with, and acceptance of that certificate by, the Secretary of State of the State of Delaware (or at a later time as KnowBe4, Parent and Merger Sub may agree and specify in such Certificate of Merger).

Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger:

 

   

the Excluded Shares will be canceled and cease to exist without any conversion thereof or consideration paid therefor;

 

   

each certificate formerly representing any shares of KnowBe4 common stock or any book-entry shares that represented shares of KnowBe4 common stock immediately prior to the effective time of the Merger will automatically be canceled and extinguished and will automatically convert into the right to receive cash in an amount equal to the Per Share Price, without interest and subject to any applicable withholding taxes;

 

   

the Rollover Shares will be contributed to Parent pursuant to the Support Agreements;

 

   

each KnowBe4 RSU Award and KnowBe4 PSU Award, to the extent then vested but not yet settled, or which vests upon the consummation of the Merger, will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock then subject to the then-vested portion of such award (less any required withholding and other taxes) (these KnowBe4 RSU Awards and KnowBe4 PSU Awards include those held by certain of KnowBe4’s directors (whose KnowBe4 RSU Awards are subject to “single trigger” vesting acceleration), as more fully described in the section captioned “Special Factors—Interests of KnowBe4’s Directors and Executive Officers in the Merger”);

 

   

each KnowBe4 RSU Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award (less any required withholding and other taxes), which amount will vest and be payable pursuant to the unvested KnowBe4 RSU Award’s vesting schedule, subject to the same terms and conditions (including continued employment conditions) as the corresponding KnowBe4 RSU Award;

 

   

each KnowBe4 PSU Award, to the extent not then vested, will be deemed to have had the applicable performance-based vesting conditions achieved at 100 percent of target, and will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award (less any required withholding and other taxes), and such cash amount will vest pursuant to the corresponding unvested KnowBe4 PSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment conditions, but excluding performance vesting conditions) as the corresponding KnowBe4 PSU Award;

 

   

each outstanding KnowBe4 Option Award, to the extent then vested, will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the

 

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excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 Class B common stock then issuable upon exercise in full of such vested KnowBe4 Option Award (less any required withholding and other taxes); and

 

   

each outstanding KnowBe4 Option Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of the unvested portion of such KnowBe4 Option Award (less any required withholding and other taxes), which amount will vest and be payable pursuant to the unvested KnowBe4 Option Award’s vesting schedule, subject to the same terms and conditions (including continued employment conditions) as the corresponding KnowBe4 Option Award.

At the effective time of the Merger, KnowBe4’s Amended and Restated 2016 Equity Incentive Plan and 2021 Equity Incentive Plan will be terminated, and no further awards will be granted under such plans.

At or prior to the closing of the date of the Merger, a sufficient amount of cash will be deposited with a designated paying agent to pay the aggregate Per Share Price. Once a stockholder has provided the payment agent with his, her or its stock certificates (or an affidavit of loss in lieu of a stock certificate) or customary agent’s message with respect to book-entry shares, appropriate letter of transmittal and other items specified by the payment agent, then the payment agent will pay the stockholder the appropriate portion of the aggregate Per Share Price. For more information, see the section of this proxy statement captioned “The Merger Agreement—Payment Agent, Exchange Fund and Exchange and Payment Procedures.”

Following the Merger, all of the equity interests in the surviving corporation will be owned by Parent. If the Merger is completed, Parent (and the Rollover Stockholders indirectly through their equity interests in Parent) will be the sole beneficiaries of KnowBe4’s future earnings and growth, if any, and will be entitled to vote on corporate matters affecting KnowBe4 following the Merger. Similarly, Parent (and the Rollover Stockholders indirectly) will also bear the risks of ongoing operations, including the risks of any decrease in KnowBe4’s value after the merger.

In connection with the Merger, certain members of KnowBe4’s management will receive benefits and be subject to obligations that are different from, or in addition to, the benefits and obligations of KnowBe4’s stockholders generally, as described in more detail under “—Interests of KnowBe4’s Directors and Executive Officers in the Merger.” Those incremental benefits are expected to include, among other benefits, certain executive officers continuing as executive officers of the surviving corporation.

Benefits of the Merger for the Unaffiliated Security Holders

The primary benefit of the Merger to the “unaffiliated security holders,” as defined in Rule 13e-3 of the Exchange Act, will be their right to receive the Per Share Price for each share of KnowBe4 common stock held by such stockholders as described above. This amount constitutes a premium of approximately 44 percent to the unaffected closing price of KnowBe4 Class A common stock of $17.30 per share on September 16, 2022, the last full trading day before Vista publicly disclosed its initial non-binding acquisition proposal. Additionally, such stockholders will avoid the risk after the Merger of any possible decrease in KnowBe4’s future earnings, growth or value.

Detriments of the Merger to the Unaffiliated Security Holders

The primary detriment of the Merger to the “unaffiliated security holders,” as defined in Rule 13e-3 of the Exchange Act, is the lack of an interest of such stockholders in the potential future earnings, growth, or value realized by KnowBe4 after the Merger. In addition, the unaffiliated security holders will not benefit from any

 

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sale of KnowBe4 or its assets to a third party in the future. Additionally, the receipt of cash in exchange for KnowBe4 common stock pursuant to the Merger will generally be a taxable sale transaction for U.S. federal income tax purposes to stockholders who surrender their KnowBe4 common stock in the Merger to the extent that such stockholders have any gain on their shares of KnowBe4 common stock.

Certain Effects of the Merger for the Purchaser Filing Parties

If the Merger is completed, all of the equity interests in KnowBe4 will be beneficially owned, indirectly through Parent, by the Purchaser Filing Parties and their affiliates.

The benefits of the Merger to the Purchaser Filing Parties include the fact that, following the completion of the Merger, Parent will directly own 100 percent of the outstanding equity interests of the surviving company and will therefore have a corresponding 100 percent interest in the surviving company’s net book value and net earnings. The table below sets forth the beneficial ownership of KnowBe4 common stock and resulting interests in KnowBe4’s net book value and net earnings of the Purchaser Filing Parties prior to and immediately after the Merger, based on KnowBe4’s net book value at June 30, 2022 and net earnings for the six months ended June 30, 2022, as if the Merger were completed on such date.

 

    Beneficial Ownership of KnowBe4
Prior to the Merger(1)
    Beneficial Ownership of KnowBe4
After the Merger(2)
 
($ in thousands)   % Ownership     Net Book
Value at
June 30,
2022(3)
    Net Income for
the Six Months
Ended
June 30, 2022
    % Ownership     Net Book
Value at
June 30,
2022(3)
    Net Income for the
Six Months Ended
June 30, 2022
 

Parent

    —       $ —       $ —       100   $ 236,520     $ 4,708  

VEPF Funds

    9.4     22,020       440       76.9     181,884       3,620  

KKR Investor

    14.9     34,995       700       8.9     21,050       419  

Elephant Funds

    21.1     49,673       993       12.6     29,802       593  

Founder

    2.5     5,866       117       1.6     3,784       75  

 

(1)

Based on 78,178,186 shares of KnowBe4 Class A common stock and 97,492,186 shares of KnowBe4 Class B common stock outstanding as of June 30, 2022.

(2)

The actual interests of the Purchaser Filing Parties following completion of the Merger will be based on the Rollover Stockholders’ ownership of KnowBe4 common stock as of the date of completion. In addition, the post-closing interest of the VEPF Funds and the KKR Investor will be reduced to the extent the VEPF Funds or the KKR Investor, as applicable, assign a portion of the equity financing commitment to other parties.

(3)

Based on total stockholders’ equity of $236.5 million as of June 30, 2022.

In addition, the Purchaser Filing Parties will benefit from the savings associated with KnowBe4 no longer being required to file reports under or otherwise having to comply with provisions of the Exchange Act. Detriments of the Merger to the Purchaser Filing Parties include the lack of liquidity for KnowBe4 common stock following the Merger and the risk that KnowBe4 will decrease in value following the Merger.

Certain Effects on KnowBe4 if the Merger is Not Completed

If the Merger Agreement is not adopted by the requisite votes of KnowBe4’s stockholders, or if the Merger is not completed for any other reason, KnowBe4’s stockholders will not receive any payment for their shares of KnowBe4 common stock in connection with the Merger. Instead, (1) KnowBe4 will remain an independent public company; (2) KnowBe4 common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act; and (3) KnowBe4 will continue to file periodic reports with the SEC. In addition, if the Merger is not completed, KnowBe4 expects that: (x) our management will continue to operate the business as it is currently being operated; and (y) KnowBe4’s stockholders will continue to be subject to the same risks and opportunities to which they are currently subject, including risks related to the highly competitive industry in which KnowBe4 operates and adverse economic conditions.

 

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Furthermore, if the Merger is not completed, and depending on the circumstances that cause the Merger not to be completed, the price of KnowBe4 common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of KnowBe4 Class A common stock would return to the price at which the KnowBe4 Class A common stock trades as of the date of this proxy statement. Accordingly, there can be no assurance as to the effect of the Merger not being completed on the future value of your shares of KnowBe4 common stock. If the Merger is not completed, the KnowBe4 Board will continue to evaluate and review, among other things, KnowBe4’s business, operations, strategic direction and capitalization, and will make whatever changes it deems appropriate. If the Merger Agreement is not adopted by the requisite votes of KnowBe4’s stockholders or if the Merger is not completed for any other reason, KnowBe4’s business, prospects or results of operation may be adversely impacted.

In addition, in specified circumstances in which the Merger Agreement is terminated, KnowBe4 has agreed (1) to pay Parent a termination fee of $138 million or (2) to reimburse Parent for its reasonable and documented third party transaction expenses up to $15 million, depending on the circumstances of the termination, as more fully described in “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Termination Fees and Remedies.

Unaudited Prospective Financial Information

Other than in connection with our regular earnings press releases and related investor materials, we do not, as a matter of course, make public projections as to our long-term future financial performance, due to, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, KnowBe4 management regularly prepares projections as to our future financial performance for internal use.

In connection with our strategic planning process and evaluation of strategic alternatives (including continuing as an independent company), KnowBe4 management prepared and reviewed with the Special Committee and the KnowBe4 Board the Management Plan (which included unaudited forward-looking financial information for fiscal years 2022 through 2025) as part of KnowBe4 management’s business plan, including the Unaudited Prospective Financial Information set forth below. At the direction of the Special Committee, cash flows for 2026 through 2032 were extrapolated by Morgan Stanley and approved by the KnowBe4 management for use by Morgan Stanley in connection with its financial analyses for the purpose of rendering an opinion to the Special Committee. This forward-looking information is collectively referred to as the Unaudited Prospective Financial Information, as described in more detail in the section of this proxy statement captioned “—Opinion of Morgan Stanley & Co. LLC.”

The Unaudited Prospective Financial Information was prepared for internal use only and not for public disclosure and was provided to the Special Committee and the KnowBe4 Board for the purposes of considering, analyzing and evaluating the Merger and strategic alternatives thereto. At the direction of the Special Committee and the KnowBe4 Board, the Unaudited Prospective Financial Information was also provided to, and approved for use by, Morgan Stanley for purposes of performing its financial analyses in connection with rendering its opinion to the Special Committee (as more fully described in the section of this proxy statement captioned “—Opinion of Morgan Stanley & Co. LLC”). With KnowBe4’s consent, Morgan Stanley assumed that the Unaudited Prospective Financial Information was reasonably prepared and reflected the best currently available estimates and judgments as to KnowBe4’s future financial performance. In addition, a subset of the Unaudited Prospective Financial Information was provided to Vista prior to the execution of the Merger Agreement.

The Unaudited Prospective Financial Information was developed by KnowBe4 management as then-current estimates of our future financial performance as an independent company, without giving effect to the Merger, including any impact of the negotiation or execution of the Merger Agreement or the Merger, the expenses that have already and will be incurred in connection with completing the Merger, or any changes to KnowBe4’s operations or strategy that may be implemented in connection with the pendency of, or following the consummation of, the Merger. The Unaudited Prospective Financial Information also does not consider the effect of any failure of the Merger to be completed; it should not be viewed as accurate or continuing in that context.

 

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The Unaudited Prospective Financial Information was not prepared with a view toward public disclosure or complying with GAAP. In addition, the Unaudited Prospective Financial Information was not prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of prospective financial information. The Unaudited Prospective Financial Information included in this document has been prepared by, and is the responsibility of, KnowBe4’s management. Neither KPMG LLP nor any other independent accountants have audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the Unaudited Prospective Financial Information and, accordingly, they do not express an opinion or any other form of assurance with respect thereto. The KPMG LLP report incorporated by reference relates solely to KnowBe4’s previously issued financial statements. It does not extend to the Unaudited Prospective Financial Information and should not be read to do so.

Although the Unaudited Prospective Financial Information is presented with numerical specificity, it reflects numerous assumptions and estimates as to future events, including those detailed above, made by KnowBe4 management that KnowBe4 management believed in good faith were reasonable. KnowBe4’s ability to achieve the financial results contemplated by the Unaudited Prospective Financial Information will be affected by our ability to achieve our strategic goals, objectives and targets over the applicable periods, and will be subject to operational and execution risks associated therewith. The Unaudited Prospective Financial Information reflects assumptions as to certain business decisions that are subject to change. Important factors that may affect actual results and cause the Unaudited Prospective Financial Information not to be achieved include, among others, (1) general economic conditions; (2) our ability to achieve operating objectives with respect to expenses and operating margins, as well the risks to our ability to grow revenues resulting from the execution of those objectives; (3) our ability to achieve the various monetization, market share and other assumptions underlying the Unaudited Prospective Financial Information; (4) changes in laws, regulations and taxes relevant to KnowBe4’s business; (5) competitive pressures in the cybersecurity industry, including new products and market entrants and changes in the competitive environment; (6) customer demand for our products and services; (7) our ability to attract, integrate and retain qualified personnel; and (8) uncertainty in the timing of relevant transactions and resulting cash inflows and outflows. Additional factors that may impact us or our business can be found in the various risk factors included in our periodic filings with the SEC. All of these factors are difficult to predict, and many of them are outside of our control. As a result, there can be no assurance that the Unaudited Prospective Financial Information will be realized, and actual results may be materially better or worse than those contained in the Unaudited Prospective Financial Information. The Unaudited Prospective Financial Information may differ from publicized analyst estimates and forecasts. You should evaluate the Unaudited Prospective Financial Information, if at all, in conjunction with our historical financial statements and other information regarding KnowBe4 contained in our public filings with the SEC. The Unaudited Prospective Financial Information may not be consistent with KnowBe4’s historical operating data as a result of the assumptions detailed above. Except to the extent required by applicable federal securities laws, we do not intend to update or otherwise revise the Unaudited Prospective Financial Information to reflect circumstances existing after the date that such information was prepared or to reflect the occurrence of future events.

Because the Unaudited Prospective Financial Information reflects estimates and judgments, it is susceptible to sensitivities and assumptions, as well as to multiple interpretations based on actual experience and business developments. The Unaudited Prospective Financial Information also covers multiple years, and such information by its nature becomes less predictive with each succeeding year. The Unaudited Prospective Financial Information is not, and should not be considered to be, a guarantee of future operating results. Further, the Unaudited Prospective Financial Information is not fact and should not be relied upon as being necessarily indicative of our future results or for purposes of making any investment decision.

Certain of the financial measures included in the Unaudited Prospective Financial Information are non-GAAP financial measures, which are financial performance measures that are not calculated in accordance with GAAP. These non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures and may be different from similarly titled non-GAAP financial measures used by other

 

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companies. Furthermore, there are limitations inherent in non-GAAP financial measures because they exclude charges and credits that are required to be included in a GAAP presentation. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. Financial measures included in forecasts provided to a financial advisor and a board of directors in connection with a business combination transaction, such as the Unaudited Prospective Financial Information, are excluded from the definition of “non-GAAP financial measures” under applicable SEC rules and regulations. As a result, the Unaudited Prospective Financial Information is not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not provided to or relied upon by the Special Committee, the KnowBe4 Board, Morgan Stanley or Vista. Accordingly, no reconciliation of the financial measures included in the Unaudited Prospective Financial Information is provided in this proxy statement.

The Unaudited Prospective Financial Information constitutes forward-looking statements. By including the Unaudited Prospective Financial Information in this proxy statement, none of KnowBe4, Morgan Stanley or any of our or Morgan Stanley’s representatives has made or makes any representation to any person regarding our ultimate performance as compared to the information contained in the Unaudited Prospective Financial Information. The inclusion of the Unaudited Prospective Financial Information should not be regarded as an indication that the Special Committee, the KnowBe4 Board, KnowBe4, Morgan Stanley or any other recipient of the Unaudited Prospective Financial Information considered, or now considers, the Unaudited Prospective Financial Information to be predictive of KnowBe4’s performance or actual future results. For information on factors that may cause our future results to materially vary, see the section of this proxy statement captioned “Forward-Looking Statements.” Further, the inclusion of the Unaudited Prospective Financial Information in this proxy statement does not constitute an admission or representation by KnowBe4 that the information presented is material. The Unaudited Prospective Financial Information is included in this proxy statement solely to give our stockholders access to the information that was made available to the Special Committee, the KnowBe4 Board, Morgan Stanley and Vista. The Unaudited Prospective Financial Information is not included in this proxy statement in order to influence any KnowBe4 stockholder as to how to vote at the special meeting with respect to the Merger, or whether to seek appraisal rights with respect to their shares.

In preparing the Unaudited Prospective Financial Information, KnowBe4 management utilized the following material assumptions:

 

   

Revenue growth rates ranging from 31 percent to 26 percent were applied to years 2023 through 2025 and reflect KnowBe4’s expectations of future growth in consideration of historical experience. These growth rates assume renewals of existing customer contracts consistent with KnowBe4’s historical logo retention which is in the high 90 percent range. Additionally, the growth rates reflect expectations of growth within international markets and additional cross selling of KnowBe4’s existing and future products.

 

   

EBITDA growth is consistent with the expectation of realizing future efficiencies as the business continues to scale and ranges from an EBITDA margin of 15 percent in 2022 up to 31 percent in 2025. This growth is reflective of (1) KnowBe4’s expectations of efficiencies across the sales organization as management automates certain aspects of the sales process; (2) reductions in general and administrative costs as the historical investments in KnowBe4’s support functions are realized at scale; and (3) future realization of KnowBe4’s current market evangelism and product marketing efforts.

 

   

Capital expenditures are higher in 2022 and 2023 to support management’s current international expansion plans. A normalized level of spend is reflected for 2024 and 2025.

 

   

Stock-based compensation expense ranges from 8 percent to 9 percent of revenues for years 2022 through 2024 and reflects a consistent application of management’s existing equity incentive plan.

 

   

Unlevered free cash flow is anticipated to improve from 12 percent in 2022 to 19 percent in 2025, with the exception of a reduction in 2023 primarily driven by anticipated expenses related to international

 

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expansion. These increases are the result of revenue growth in excess of 25 percent for each of these years combined with reductions in our overall cost structure.

 

   

No material acquisitions or divestitures by KnowBe4 are anticipated.

The following table summarizes the Unaudited Prospective Financial Information.

 

(dollars in millions)                                                                        
    Calendar year ended December 31  
    2022E     2023E     2024E     2025E     2026E     2027E     2028E     2029E     2030E     2031E     2032E     Terminal
Year
 

Net Revenue

  $ 336     $ 440     $ 555     $ 697     $ 854     $ 1,020     $ 1,186     $ 1,344     $ 1,480     $ 1,585     $ 1,649     $ 1,706  

EBITDA(1)

  $ 49     $ 75     $ 132     $ 213     $ 282     $ 360     $ 447     $ 537     $ 612     $ 676     $ 725     $ 751  

Depreciation and amortization

  $ 14     $ 16     $ 21     $ 25     $ 26     $ 31     $ 36     $ 40     $ 44     $ 48     $ 49     $ 51  

Capital expenditures and capitalized content

  $ (21   $ (25   $ (18   $ (20   $ (26   $ (31   $ (36   $ (40   $ (44   $ (48   $ (49   $ (51

Stock-based compensation(2)

  $ (26   $ (39   $ (42   $ (42   $ (43   $ (51   $ (59   $ (67   $ (74   $ (79   $ (82   $ (85

Taxes

  $ (1   $ (5   $ (25   $ (44   $ (53   $ (70   $ (88   $ (107   $ (123   $ (137   $ (148   $ (154

Change in net working capital

  $ 64     $ 65     $ 69     $ 63     $ 78     $ 83     $ 83     $ 79     $ 68     $ 52     $ 32     $ 29  

Unlevered free cash flow (Burdened by SBC)(3)

  $ 66     $ 71     $ 116     $ 171     $ 238     $ 292     $ 347     $ 401     $ 438     $ 465     $ 447     $ 490  

Stock-based compensation(2)

  $ 26     $ 39     $ 42     $ 42     $ 43     $ 51     $ 59     $ 67     $ 74     $ 79     $ 82     $ 85  

Unlevered free cash flow (Unburdened by SBC)(4)

  $ 92     $ 109     $ 158     $ 213     $ 281     $ 343     $ 406     $ 468     $ 512     $ 544     $ 559     $ 575  

 

(1)

EBITDA is defined as KnowBe4’s earnings before interest, taxes, depreciation and amortization of intangible assets unburdened by stock-based compensation expense.

(2)

Stock-based compensation is treated as a cash expense, and as such is deducted prior to calculating taxable income. This differs from how such information was presented to Vista, where stock-based compensation was treated as a non-cash expense and not deducted when calculating taxable income.

(3)

Unlevered free cash flow (Burdened by SBC) is defined as KnowBe4’s EBITDA less stock-based compensation expense, taxes, capital expenditures and capitalized content, and plus or minus changes in net working capital.

(4)

Unlevered free cash flow (Unburdened by SBC) is defined as KnowBe4’s EBITDA less taxes, capital expenditures and capitalized content, and plus or minus changes in net working capital.

Interests of KnowBe4’s Directors and Executive Officers in the Merger

In considering the recommendations of the Special Committee and the KnowBe4 Board with respect to the Merger, you should be aware that, aside from their interests as holders of KnowBe4 common stock and equity awards, our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. In particular:

 

   

Stu Sjouwerman, our Chief Executive Officer and Chairman of the KnowBe4 Board, is a Rollover Stockholder in his personal capacity as a holder of Rollover Shares and in his capacity as co-manager of the Sjouwerman Enterprises Limited Partnership (we refer to Mr. Sjouwerman and the Sjouwerman Enterprises Limited Partnership collectively as the Founder);

 

   

Jeremiah Daly, a member of the KnowBe4 Board, is an affiliate of, and has a financial interest in, the shares held by the Elephant Funds, each of which is a Rollover Stockholder; and

 

   

Stephen Shanley, a member of the KnowBe4 Board, is a partner at KKR, which is an affiliate of the KKR Investor, a Rollover Stockholder.

In addition to the foregoing, other interests of directors and executive officers that may be different from or in addition to your interests as a stockholder include, but are not limited to, the following:

 

   

members of the Special Committee are entitled to receive a fee in connection with their service on the Special Committee;

 

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KnowBe4’s directors and executive officers are entitled to continued indemnification and insurance coverage under the Merger Agreement and indemnification agreements between such individuals and KnowBe4;

 

   

pursuant to KnowBe4’s director compensation policy and the terms of the applicable equity award agreements between KnowBe4 and certain directors, vesting of unvested KnowBe4 RSU Awards and KnowBe4 Option Awards held by KnowBe4’s non-employee directors will accelerate upon the effectiveness of the Merger;

 

   

KnowBe4’s executive officers have entered into employment agreements and equity award agreements that provide for the acceleration of vesting of their respective KnowBe4 RSU Awards and KnowBe4 PSU Awards (as well as certain severance benefits) upon an involuntary termination (as defined in the section of this proxy statement captioned “—Change in Control and Severance Benefits under Existing Agreements”) following the Merger;

 

   

KnowBe4’s executive officers may be eligible to participate in a cash retention bonus program to be instituted by KnowBe4 prior to the effective time of the Merger; and

 

   

KnowBe4’s executive officers as of the effective time of the Merger will be the executive officers of the surviving corporation as of the consummation of the Merger.

Special Committee Fees

Beginning in July 2022, each member of the Special Committee (other than the chair of the Special Committee) receives a monthly fee of $36,000 for service on the Special Committee, and the chair of the Special Committee receives a monthly fee of $39,000 for service on the Special Committee. Such fees are in addition to the regular compensation received as a member of the KnowBe4 Board. The total fees paid to the committee members are expected to total, in the aggregate, between $800,000 and $1.3 million (assuming seven and 11 months of service, respectively, for all members of the Special Committee).

Insurance and Indemnification of Directors and Executive Officers

Pursuant to the terms of the Merger Agreement, directors and officers of KnowBe4 will be entitled to certain ongoing indemnification and insurance coverage, including under directors’ and officers’ liability insurance policies. For more information, see the section of this proxy statement captioned “The Merger Agreement—Indemnification and Insurance.”

Treatment of KnowBe4 Equity Awards

Treatment of KnowBe4 RSU Awards and KnowBe4 PSU Awards

As of October 31, 2022, there were outstanding KnowBe4 RSU Awards (or portions thereof) covering an aggregate of 3,642,497 shares of KnowBe4 Class A common stock, of which KnowBe4 RSU Awards covering an aggregate of 247,912 shares of KnowBe4 Class A common stock were held by our current non-employee directors and of which KnowBe4 RSU Awards covering an aggregate of 688,941 shares of our common stock were held by our current executive officers. As of the same date, there were outstanding KnowBe4 PSU Awards (or portions thereof) covering an aggregate of 201,218 shares of KnowBe4 Class A common stock (at target level of performance), of which KnowBe4 PSU Awards covering an aggregate of 188,489 shares of KnowBe4 Class A common stock (at target level of performance) were held by our current executive officers, and none of which were held by our current non-employee directors. As of October 31, 2022, there were no outstanding KnowBe4 RSU Awards or KnowBe4 PSU Awards covering shares of KnowBe4 Class B common stock.

 

   

KnowBe4 RSU Awards and PSU Awards Vested, Not Settled. At the effective time of the Merger, each KnowBe4 RSU Award and each KnowBe4 PSU Award, to the extent vested but not yet settled as of the effective time of the Merger (or which vests upon the consummation of the Merger), will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of

 

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(1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock then subject to the then-vested portion of such award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

   

Unvested KnowBe4 RSU Awards. At the effective time of the Merger, each outstanding KnowBe4 RSU Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 RSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 RSU Award immediately prior to the effective time of the Merger.

 

   

Unvested KnowBe4 PSU Awards. At the effective time of the Merger, each KnowBe4 PSU Award, to the extent not then vested, will be deemed to have the performance metrics achieved at 100 percent of target, and will be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 PSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment conditions but excluding performance vesting conditions) as applied to the KnowBe4 PSU Award immediately prior to the effective time of the Merger.

Treatment of KnowBe4 Option Awards

As of October 31, 2022, there were outstanding KnowBe4 Option Awards covering an aggregate of 7,281,790 shares of KnowBe4 Class B common stock, 2,988,472 of which were held by our current non-employee directors and none of which were held by our current executive officers. As of the same date, there were no shares of KnowBe4 Option Awards covering shares of KnowBe4 Class A common stock, and all of the outstanding KnowBe4 Option Awards had exercise prices lower than the Per Share Price.

 

   

Vested KnowBe4 Option Awards. At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent then vested, will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 Class B common stock then issuable upon exercise in full of such vested KnowBe4 Option Award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

   

Unvested KnowBe4 Option Awards. At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of the unvested portion of such KnowBe4 Option Award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 Option Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 Option Award immediately prior to the effective time of the Merger.

Treatment of the ESPP

The KnowBe4 Board has adopted resolutions that (1) provide that no new participants will commence participation in the ESPP after the date of the Merger Agreement, (2) provide that no payroll contributions or separate non-payroll contributions may be made on or following the date of the Merger Agreement, (3) provide that no new offering period or purchase period will commence or be extended pursuant to the ESPP, in each case,

 

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after the date of the Merger Agreement, (4) cause any offering period or purchase period under the ESPP that otherwise would be outstanding at the effective time of the Merger to be terminated no later than the date of the closing of the Merger, but prior to the effective time of the Merger, (5) make any adjustments that may be necessary or advisable to reflect the shortened offering period or purchase period, but otherwise treat such shortened offering period or purchase period as a fully effective and completed offering period or purchase period for all purposes pursuant to the ESPP, and (6) cause the exercise (as of no later than the closing date of the Merger, but prior to the effective time of the Merger) of each outstanding purchase right pursuant to the ESPP; that on such exercise date, KnowBe4 will apply the funds credited as of such date pursuant to the ESPP within each participant’s account to the purchase of whole shares of KnowBe4 Class A common stock in accordance with the terms of the ESPP; and that immediately prior to and effective as of the effective time of the Merger (but subject to the consummation of the Merger), KnowBe4 will terminate the ESPP.

Accordingly, from and after the date of the Merger Agreement, no further offering period or purchase period will commence pursuant to the ESPP, and no further contributions will be made to the ESPP by payroll deductions or other methods. No later than November 21, 2022, KnowBe4 will apply any funds within each ESPP participant’s (including KnowBe4’s executive officers’) account to the purchase of whole shares of KnowBe4 Class A common stock in accordance with the terms of the ESPP. These shares will be deposited into the applicable participant’s account and will treated in the same manner as any other outstanding share of KnowBe4 Class A common stock in connection with the consummation of the Merger. Any amounts not used for the purchase of shares of KnowBe4 Class A common stock will be refunded.

Equity Interests of KnowBe4’s Directors and Executive Officers

The following table sets forth for each of KnowBe4’s executive officers and directors (1) the number of shares of KnowBe4 common stock directly held; (2) the number of shares of KnowBe4 Class A common stock subject to his or her KnowBe4 RSU Awards and KnowBe4 PSU Awards (at 100 percent of target level); and (3) the number of shares of KnowBe4 Class B common stock subject to KnowBe4 Option Awards with a per share exercise price less than the Per Share Price, in each case expected to be held on the closing date of the Merger, assuming the following and such additional assumptions set forth in the footnotes to the table:

 

   

October 31, 2022 as the date of the closing of the Merger (solely for purposes of this proxy statement); and

 

   

the number of outstanding shares of KnowBe4 common stock and equity awards for each executive officer and director on the closing date of the Merger is equal to the number of shares of KnowBe4 common stock and equity awards that were outstanding as of October 31, 2022, and do not forecast any vesting, additional issuances, deferrals or forfeitures of equity-based awards following the date of this proxy statement.

 

Name

  Shares Held Directly(1)     KnowBe4 RSU
Awards and KnowBe4
PSU Awards (2)
    In-the-Money KnowBe4
Option Awards(3)
       
  Number of
Shares (#)
    Value of
Shares ($)
    Number of
Shares (#)
    Value ($)     Number of Shares
Subject to Option
Awards (#)
    Value of Shares
Subject to Option
Awards ($)
    Total ($)  

Stu Sjouwerman(4)

    103,816       2,585,018       531,089       13,224,116       —         —         15,809,135  

Bob Reich

    —         —         133,905       3,334,235       —         —         3,334,235  

Lars Letonoff

    392,230       9,766,527       212,436       5,289,656       —         —         15,056,183  

Jeremiah Daly(5)

    —         —         —         —         —         —         —    

Joseph DiSabato(6)

    —         —         —         —         —         —         —    

Kevin Klausmeyer

    —         —         11,812       294,119       372,552       9,276,545       9,570,664  

Stephen Shanley

    —         —         —         —         —         —         —    

Krish Venkataraman(7)

    116,266       2,895,023       212,476       5,290,652       1,222,400       30,437,760       38,623,436  

Gerhard Watzinger

    —         —         11,812       294,119       696,760       17,349,324       17,643,443  

Kara Wilson

    —         —         11,812       294,119       696,760       17,349,324       17,643,443  

 

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(1)

Represents shares of KnowBe4 common stock held as of October 31, 2022 (without regard to any change in control-related accelerated vesting). The values shown with respect to the shares held directly are determined as the product of the Per Share Price multiplied by the total number of shares of KnowBe4 common stock held by such individual. The number of shares shown does not include shares of KnowBe4 common stock that the executive officer may purchase after the date of the Merger Agreement under the ESPP. For additional information regarding the treatment of our ESPP in the Merger, see the section of this proxy statement captioned “—Treatment of the ESPP.” For additional information regarding beneficial ownership of KnowBe4 common stock, see the section of this proxy statement captioned “Important Information Regarding KnowBe4—Security Ownership of Certain Beneficial Owners and Management.”

(2)

Represents shares of KnowBe4 common stock subject to KnowBe4 RSU Awards and KnowBe4 PSU Awards outstanding as of October 31, 2022 (without regard to any change in control-related accelerated vesting). The values shown with respect to KnowBe4 RSU Awards and KnowBe4 PSU Awards are determined as the product of the Per Share Price multiplied by the total number of shares of KnowBe4 common stock subject to KnowBe4 RSU Awards or KnowBe4 PSU Awards, as applicable. The number of shares of KnowBe4 common stock subject to KnowBe4 PSU Awards is based on achievement at 100 percent of target. Accordingly, the number of shares represents unvested KnowBe4 PSU Awards covering a total of 175,989 shares of KnowBe4 common stock for Mr. Sjouwerman; 44,188 shares of KnowBe4 common stock for Mr. Reich; 70,396 shares of KnowBe4 common stock for Mr. Letonoff; and 40,105 shares of KnowBe4 common stock for Mr. Venkataraman. As described further in the section of this proxy statement captioned “—Non-Employee Director Equity Awards”, KnowBe4 RSU Awards outstanding as of the date of the closing of the Merger (which date, solely for purposes of this proxy statement, is assumed to be October 31, 2022) that are held by our non-employee directors will accelerate vesting in full upon the effectiveness of the Merger. In addition, each of the KnowBe4 executive officers is eligible for vesting acceleration of his or her KnowBe4 RSU Awards and KnowBe4 PSU Awards in connection with certain qualifying terminations of employment under their respective employment agreements, as described further in the section of this proxy statement captioned “—Employment Agreements with Current Executive Officers”. For additional information regarding the KnowBe4 RSU Awards and KnowBe4 PSU Awards for our named executive officers, see the section of this proxy statement captioned “—Golden Parachute Compensation.”

(3)

Represents shares subject to KnowBe4 Option Awards that were outstanding as of October 31, 2022 (without regard to any change in control-related accelerated vesting). The values shown with respect to KnowBe4 Option Awards are determined as the product of the Per Share Price, minus any applicable exercise price (in the case of in-the-money KnowBe4 Option Awards), multiplied by the total number of shares of KnowBe4 common stock subject to the KnowBe4 Option Awards.

(4)

Does not include 4,378,242 shares of KnowBe4 Class B common stock held of record by Sjouwerman Enterprise Limited Partnership. Mr. Sjouwerman is a manager of Sjouwerman Management, LLC, the sole general manager of Sjouwerman Enterprise Limited Partnership. See the section of this proxy statement captioned “Important Information Regarding KnowBe4—Security Ownership of Certain Beneficial Owners and Management.

(5)

Does not include 37,069,823 shares of KnowBe4 Class B common stock held of record by the Elephant Funds. Mr. Daly is a managing member of each of the general partners of the Elephant Funds and disclaims beneficial ownership of the shares held by the Elephant Funds, except to the extent of his pecuniary interests therein, if any. See the section of this proxy statement captioned “Important Information Regarding KnowBe4—Security Ownership of Certain Beneficial Owners and Management.

(6)

Mr. DiSabato served as a member of the KnowBe4 Board until June 2022. The table reflects Mr. DiSabato’s holdings as of the date of his resignation rather than his holdings using the assumptions in footnotes (1) and (2) above. To KnowBe4’s knowledge, as of the date of his resignation, Mr. DiSabato did not hold any shares of KnowBe4 common stock.

(7)

Mr. Venkataraman served as KnowBe4’s Co-President and Chief Financial Officer until March 2022, at which time he was appointed to the KnowBe4 Board. In accordance with the terms of the separation agreement and general release entered into between KnowBe4 and Mr. Venkataraman on March 10, 2022, his KnowBe4 RSU Awards granted prior to his resignation will continue vesting subject to his continued service, including as a member of the KnowBe4 Board. All of Mr. Venkataraman’s KnowBe4 RSU Awards are currently subject only to time-based vesting, and all of the shares subject to the KnowBe4 Option Awards held by Mr. Venkataraman were fully vested and exercisable as of October 31, 2022.

Change in Control and Severance Benefits under Existing Agreements

Non-Employee Director Equity Awards

KnowBe4 has granted certain KnowBe4 Option Awards under its 2016 Equity Incentive Plan that are outstanding and held by our non-employee directors. Such awards are subject to letter agreement amendments, which provide for accelerated vesting upon a “change of control.” The closing of the Merger will be a “change of control” within the meaning of such amendments.

Additionally, KnowBe4 has granted certain KnowBe4 RSU Awards under its 2021 Equity Incentive Plan that are outstanding and held by our non-employee directors. Such awards are subject to our Outside Director Compensation Policy, which provide for accelerated vesting upon a “change in control.” The closing of the Merger will be a “change in control” within the meaning of our Outside Director Compensation Policy.

 

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In February 2022, KnowBe4 granted a KnowBe4 RSU Award under its 2021 Equity Incentive Plan that is outstanding and held by Mr. Venkataraman. Such award was granted in connection with Mr. Venkataraman’s transition to a non-employee director and is subject to the same accelerated vesting upon a “change in control” as awards granted under our Outside Director Compensation Policy.

Employment Agreements with Current Executive Officers

In February 2020, KnowBe4 entered into agreements with each of Mr. Sjouwerman and Mr. Letonoff (collectively, the “EO Agreements”), which provide that if Mr. Sjouwerman or Mr. Letonoff, as applicable, is terminated by KnowBe4 without “cause” or by him for “good reason,” (an “involuntary termination”) he will be entitled to following severance benefits, payable in cash, less applicable withholdings, in the form of equal payroll installment payments:

 

   

12 months of base salary (as in effect at the time of termination of employment);

 

   

any earned but unpaid annual bonus;

 

   

a prorated portion of the target bonus amount; and

 

   

the aggregate payments made by KnowBe4 towards the executive’s medical and dental benefits during the 365-day period immediately prior to his termination of employment.

The severance benefits are conditioned on Mr. Sjouwerman or Mr. Letonoff, as applicable, executing and not revoking a general release of claims in favor of KnowBe4 and the executive’s continued compliance with certain restrictive covenants, including perpetual confidentiality and non-disparagement covenants as well as non-compete and non-solicit obligations applicable for a period of 24 months following the date of his respective termination of employment. If any of the payments or benefits provided for under an agreement with Mr. Sjouwerman or Mr. Letonoff, as applicable, or otherwise payable to him would constitute “excess parachute payments” within the meaning of Section 280G of the Code and could be subject to the related excise tax, he will receive either full payment of such payments and benefits or such lesser amount that would result in no portion of the payments and benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to him. KnowBe4 is not required to provide any tax gross-up payments to Mr. Sjouwerman or Mr. Letonoff.

Equity Award Agreements with Current and Former Executive Officers

KnowBe4 has granted certain KnowBe4 RSU Awards under our 2021 Equity Incentive Plan that are outstanding and held by KnowBe4’s current and former executive officers. Such awards provide that, if (1) KnowBe4 incurs a “change in control” and (2) during the period on and in the 12 months following the change in control, (a) the executive officer’s employment is terminated by KnowBe4 (or its successor) without “cause” or (b) the executive officer resigns from employment with KnowBe4 (or its successor) for “good reason”, then, in each case, 100 percent of the KnowBe4 RSU Award will accelerate and vest, subject to the executive officer executing a release of claims in favor of KnowBe4 (or its successor). The KnowBe4 RSU Awards granted to Mr. Venkataraman in connection with his employment include this provision.

Additionally, we have granted certain KnowBe4 PSU Awards under our 2021 Equity Incentive Plan that are outstanding and held by our executive officers. Such awards provide that if a “change in control” occurs during the “performance period,” then 100 percent of the KnowBe4 PSU Awards will become “eligible RSUs” assuming achievement at the target level and will be subject to time-based vesting only. Such eligible RSUs would be subject to the same “double-trigger” acceleration described above with respect to KnowBe4 RSU Awards.

Severance Benefits Under Retention Bonus Program

KnowBe4’s executive officers may become eligible to participate in a cash retention bonus program to be instituted by KnowBe4 prior to the effective time of the Merger (the “Retention Pool”). Awards granted under

 

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the Retention Pool will vest and become payable as to 50 percent of the award at the closing of the Merger, and as to the remaining 50 percent of the award on the 90th day following the closing of the Merger, in each case, subject to the participant’s continued employment through the applicable vesting date. If a Retention Pool participant is involuntarily terminated by KnowBe4 without cause (as determined by KnowBe4), then any unvested award under the Retention Pool then held by such participant, including KnowBe4’s executive officers, shall, subject to the participant’s execution and delivery to the Company of a general release of claims (and non-revocation thereof within the time period set forth therein), vest and become payable to such participant within 60 days following such termination of employment.

Golden Parachute Compensation

The information set forth in the tables below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about certain compensation for each of KnowBe4’s named executive officers (“NEOs”) that is based on or otherwise relates to the Merger and assumes, among other things, that the Merger is consummated and that the NEOs will incur a severance-qualifying termination of employment immediately following consummation of the Merger. The NEOs for KnowBe4’s fiscal year ended December 31, 2021 included Stu Sjouwerman, Krish Venkataraman and Lars Letonoff. Mr. Venkataraman served as KnowBe4’s Co-President and Chief Financial Officer until March 2022, at which time he ceased to be an executive officer and became a member of the KnowBe4 Board.

The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including assumptions described below, and do not reflect certain compensation actions that may occur before the consummation of the merger. If payments to an NEO under his respective agreement(s) (as described above in “—Change in Control and Severance Benefits under Existing Agreements”) would be subject to excise taxes under Section 280G and 4999 of the Internal Revenue Code, such payments will be reduced if and to the extent such reduction would result in a better result to the NEO taking into account applicable taxes. For purposes of calculating such amounts, KnowBe4 has assumed:

 

   

October 31, 2022, which is the latest practicable date prior to this filing, as the date of the closing of the Merger;

 

   

each NEO experiences an involuntary termination on October 31, 2022, based on the terms of his respective agreement(s) (as described above in “—Change in Control and Severance Benefits under Existing Agreements”); and

 

   

a value per share equal to the Per Share Price.

 

Name

   Cash
($)(1)
     Equity
($)(2)
     Total
($)
 

Stu Sjouwerman

     970,785        13,224,116        14,194,901  

Krish Venkataraman

     —          5,290,652        5,290,652  

Lars Letonoff

     971,879        5,289,656        6,261,535  

 

(1)

The estimated amount for each NEO represents the “double-trigger” cash severance payments to which the NEO may become entitled under his EO Agreement. As discussed above, under the EO Agreements, upon an involuntary termination, Mr. Sjouwerman or Mr. Letonoff, as applicable, will be entitled to (1) 12 months of base salary (as in effect at the time of termination of employment), (2) any earned but unpaid annual bonus, (3) a prorated portion of the target bonus amount, and (4) the aggregate payments made by us towards the executive’s medical and dental benefits during the 365-day period immediately prior to his termination of employment, in each case, less applicable withholdings, in the form of equal payroll installment payments. All components of the cash severance amount are contingent upon an involuntary termination and are subject to the NEO’s execution and non-revocation of a release of claims KnowBe4’ standard separation agreement and release of claims.

 

Name

   Base Salary
Severance
($)
     Bonus
Severance
($)(i)
     Medical and
Dental Benefits
Severance ($)
     Total
($)
 

Stu Sjouwerman

     525,000        437,500        8,285        970,785  

Krish Venkataraman

     —          —          —          —    

Lars Letonoff

     525,000        437,500        9,379        971,879  

 

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  (i)

As noted above, each NEO is eligible for a (1) any earned but unpaid annual bonus and (2) a prorated portion of the target bonus amount. Assuming that the NEO experiences an involuntary termination on October 31, 2022, we do not expect that there will be any earned but unpaid annual bonus. The amount listed represents the NEO’s target annual bonus opportunity, prorated to reflect a termination on October 31, 2022.

 

(2)

As noted above, each of Mr. Sjouwerman and Mr. Letonoff is eligible for 100 percent acceleration of his KnowBe4 RSU Awards and KnowBe4 PSU Awards in the event he experiences an involuntary termination within 12 months of a change in control. As also noted above, if a change in control occurs during the performance period, then 100 percent of the shares subject to a KnowBe4 PSU Award will become eligible to vest and be subject to the acceleration rights described in the preceding sentence. We expect that the Merger will close following the end of the performance period applicable to the currently-outstanding KnowBe4 PSU Awards, but as noted above for the purposes here we have assumed that the Merger was consummated on October 31, 2022, prior to the end of the performance period. As a result, we have assumed here that KnowBe4 PSU Awards will become eligible to vest at target levels. Set forth below are the values of each unvested KnowBe4 RSU Award and KnowBe4 PSU Award held by the NEOs that would become vested upon an involuntary termination immediately following the consummation of a change-in-control.

 

Name

   KnowBe4 RSU
Awards
($)
    KnowBe4 PSU
Awards
($) (i)(iii)
 

Stu Sjouwerman

     10,657,623 (i)      2,566,493  

Krish Venkataraman

     5,290,652 (ii)      —    

Lars Letonoff

     4,263,054 (i)      1,026,602  

 

  (i)

Reflects the value of “double-trigger” accelerated vesting of 100 percent of outstanding KnowBe4 RSU Awards and KnowBe4 PSU Awards for the NEO.

  (ii)

Reflects the value of (1) “double trigger” accelerated vesting of vesting of 120,314 shares subject to outstanding KnowBe4 RSU Awards and (2) and the value of “single trigger” accelerated vesting of (a) 80,350 shares subject to KnowBe4 RSU Awards, which were granted to Mr. Venkataraman in February 2022 in connection with his transition to a non-employee director and (b) 11,812 shares subject to KnowBe4 RSU Awards, which were granted to Mr. Venkataraman in his capacity as a non-employee director pursuant to the Outside Director Compensation Policy.

  (iii)

Reflects the value of KnowBe4 PSU Awards that would be available for vesting upon deemed achievement of all performance goals at target levels.

Employment Arrangements Following the Merger

As of the date of this proxy statement, none of KnowBe4’s executive officers have (1) reached an understanding on potential employment or other retention terms with the surviving corporation or with Parent or Merger Sub (or any of their respective affiliates); or (2) entered into any definitive agreements or arrangements regarding employment or other retention with the surviving corporation or with Parent or Merger Sub (or any of their respective affiliates) to be effective following the consummation of the Merger. However, prior to the effective time of the Merger, Parent or Merger Sub (or their respective affiliates) may have discussions with certain of KnowBe4’s employees (including certain of its executive officers) regarding employment or other retention terms and may enter into definitive agreements regarding employment, retention, or the right to purchase or participate in the equity of the surviving corporation or one or more of its affiliates in connection with the Merger. Any such agreements will not increase or decrease the Per Share Price paid to KnowBe4’s stockholders in the Merger.

Intent of KnowBe4’s Directors and Executive Officers to Vote in Favor of the Merger

KnowBe4’s directors and executive officers have informed KnowBe4 that, as of the date of this proxy statement, they intend to vote all of the KnowBe4 common stock owned directly by them in favor of the Merger Proposal and each of the other proposals listed in this proxy statement. As of the Record Date, KnowBe4’s directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [●] percent of the voting power of the shares of KnowBe4 common stock outstanding as of the Record Date.

For purposes of clarity, the shares of KnowBe4 common stock that the directors and executive officers are entitled to vote shall be included in determining whether the Merger Agreement has been approved by the affirmative vote of (1) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) entitled to vote on the Merger Agreement, (2) the holders of at least a majority of the outstanding shares of KnowBe4 Class A common stock entitled to vote in accordance with the DGCL, and (3) the holders of at least a majority of the outstanding shares of KnowBe4 Class B common stock entitled to vote in accordance with the DGCL, but the shares held by KnowBe4’s officers will be excluded

 

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from determining whether the Merger Agreement has been approved by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class), held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement.

Intent of Certain Stockholders to Vote in Favor of the Merger

In connection with entering to the Merger Agreement, on October 11, 2022, Parent, KnowBe4 and the Rollover Stockholders entered into Support Agreements, pursuant to which the Rollover Stockholders agreed to vote all of their shares of KnowBe4 common stock in favor of the transaction, subject to certain terms and conditions contained in the Support Agreements. In addition, the Founder and the Elephant Funds agreed to “roll over” a portion of their existing equity in KnowBe4 into an ownership interest in the parent company of Parent. Pursuant to its Support Agreement, the KKR Investor has the ability to “roll over” a portion of its existing equity in KnowBe4 into an ownership interest in the parent company of Parent. If the KKR Investor “rolls over” a portion of its equity, then the amount of the KKR Investor’s equity contribution to Parent pursuant to the KKR Equity Commitment Letter will be reduced dollar-for-dollar. As of the Record Date, the Support Agreements cover approximately [●] percent of the voting power of the outstanding shares of KnowBe4 common stock. However, approval of the Merger Proposal also requires the Unaffiliated Stockholder Vote which excludes all of the shares of KnowBe4 common stock held by the Rollover Stockholders and certain of their affiliates, as well as KnowBe4’s officers.

For more information, see the section of this proxy statement captioned “The Support Agreements” and the full text of the Support Agreements, attached as Annex C, Annex D, Annex E, and Annex F, which are incorporated by reference in this proxy statement in their entirety.

Closing and Effective Time of the Merger

The closing of the Merger will take place (1) on a date that is no later than the third business day after the satisfaction or waiver (to the extent permitted under the Merger Agreement) of the last to be satisfied or waived of the closing conditions of the Merger Agreement (described in the section of this proxy statement captioned “The Merger Agreement—Conditions to the Closing of the Merger”), other than conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of each of such conditions; or (2) at such other time agreed to in writing by KnowBe4, Parent and Merger Sub. On the closing date of the Merger, the parties will file a Certificate of Merger with the Secretary of State of the State of Delaware as provided under the DGCL. The Merger will become effective upon the filing and acceptance of such Certificate of Merger, or at a later time agreed to in writing by the parties and specified in such Certificate of Merger in accordance with the DGCL.

Accounting Treatment

The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.

Material U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of the material U.S. federal income tax consequences of the merger that may be relevant to U.S. Holders and Non-U.S. Holders (each as defined below) of shares of KnowBe4 common stock whose shares are converted into the right to receive cash pursuant to the merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”). Treasury regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (the “IRS”) and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. This discussion is limited to holders who hold their shares of KnowBe4 common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes).

 

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This discussion is for general information only and does not address all of the tax consequences that may be relevant to holders in light of their particular circumstances. For example, this discussion does not address:

 

   

tax consequences that may be relevant to holders who may be subject to special treatment under U.S. federal income tax laws, such as financial institutions; tax-exempt organizations; S corporations, partnerships and any other entity or arrangement treated as a partnership or pass-through entity for U.S. federal income tax purposes; insurance companies; mutual funds; dealers in stocks and securities; traders in securities that elect to use the mark-to-market method of accounting for their securities; regulated investment companies; real estate investment trusts; entities subject to the U.S. anti-inversion rules; holders who hold their common stock as “qualified small business stock” for purposes of Sections 1045 and 1202 of the Code; or certain former citizens or long-term residents of the United States;

 

   

tax consequences to holders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reduction transaction;

 

   

tax consequences to holders who received their shares of KnowBe4 common stock in a compensatory transaction or pursuant to the exercise of options or warrants or whose common stock is subject to employment-based vesting;

 

   

tax consequences to U.S. Holders whose “functional currency” is not the U.S. dollar;

 

   

tax consequences to holders who hold their common stock through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States;

 

   

tax consequences arising from the Medicare tax on net investment income;

 

   

tax consequences to holders subject to special tax accounting rules as a result of any item of gross income with respect to the shares of KnowBe4 common stock being taken into account in an “applicable financial statement” (as defined in the Code);

 

   

the U.S. federal estate, gift or alternative minimum tax consequences, if any;

 

   

any territory, state, local or non-U.S. tax consequences; or

 

   

tax consequences to holders that do not vote in favor of the merger and who properly demand appraisal of their shares under Section 262 of the DGCL.

If a partnership (including an entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of KnowBe4 common stock, then the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partner and the partnership. Partnerships holding shares of KnowBe4 common stock and partners therein should consult their tax advisors regarding the consequences of the merger.

No ruling has been or will be obtained from the IRS regarding the U.S. federal income tax consequences of the merger described below. If the IRS contests a conclusion set forth herein, no assurance can be given that a holder would ultimately prevail in a final determination by a court.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY HOLDER. A HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER FEDERAL NON-INCOME TAX LAWS OR THE LAWS OF ANY TERRITORY, STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.

 

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U.S. Holders

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of KnowBe4 common stock that is for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in section 7701(a)(30) of the Code; or (2) has a valid election in effect under applicable Treasury regulations to be treated as a United States person.

The receipt of cash by a U.S. Holder in exchange for shares of KnowBe4 common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares surrendered pursuant to the Merger. A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than one year at the time of the completion of the Merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder (including individuals). The deductibility of capital losses is subject to limitations. If a U.S. Holder acquired different blocks of shares of KnowBe4 common stock at different times and different prices, such holder must determine its adjusted tax basis and holding period separately with respect to each block of KnowBe4 common stock.

Non-U.S. Holders

General

For purposes of this discussion, the term “Non-U.S. Holder” means a beneficial owner of shares of KnowBe4 common stock that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.

Subject to the discussion below relating to FATCA (as defined below), any gain realized by a Non-U.S. Holder pursuant to the Merger generally will not be subject to U.S. federal income tax unless:

 

   

the gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30 percent (or a lower rate under an applicable income tax treaty);

 

   

such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the completion of the Merger, and certain other specified conditions are met, in which case such gain will be subject to U.S. federal income tax at a rate of 30 percent (or a lower rate under an applicable income tax treaty); or

 

   

KnowBe4 is or has been a “United States real property holding corporation” as such term is defined in Section 897(c) of the Code (“USRPHC”), at any time within the shorter of the five-year period preceding the merger or such Non-U.S. Holder’s holding period with respect to the applicable shares of KnowBe4 common stock (the “relevant period”) and, if shares of KnowBe4 common stock are regularly traded on an established securities market (within the meaning of Section 897(c)(3) of the Code), such Non-U.S. Holder owns (directly, indirectly or constructively) more than five percent of KnowBe4 common stock at any time during the relevant period, in which case such gain will be

 

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subject to U.S. federal income tax at rates generally applicable to U.S. persons (as described in the first bullet point above), except that the branch profits tax will not apply. Generally, a corporation is a USRPHC if the fair market value of its U.S. real property interests (as defined in the Code) equals or exceeds 50 percent of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. For this purpose, U.S. real property interests generally include land, improvements and associated personal property. Although there can be no assurances in this regard, KnowBe4 believes that it is not, and has not been, a USRPHC at any time during the five-year period preceding the merger. Non-U.S. Holders are encouraged to consult their own tax advisors regarding the possible consequences to them if it is a USRPHC.

Withholding on Foreign Entities

Sections 1471 through 1474 of the Code, and the Treasury regulations and administrative guidance issued thereunder (“FATCA”), impose a U.S. federal withholding tax of 30 percent on certain payments made to a “foreign financial institution” (as specially defined under these rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding certain U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or an exemption applies. FATCA also generally will impose a U.S. federal withholding tax of 30 percent on certain payments made to a non-financial foreign entity unless such entity provides the withholding agent a certification identifying certain direct and indirect U.S. owners of the entity or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. The Treasury Department recently released proposed regulations which, if finalized in their present form, would eliminate the federal withholding tax of 30 percent applicable to the gross proceeds of a sale or other disposition of KnowBe4 common stock. In its preamble to such proposed regulations, the U.S. Treasury Department stated that taxpayers may generally rely on the proposed regulations until final regulations are issued.

Holders of KnowBe4 common stock are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on the disposition of KnowBe4 common stock pursuant to the Merger.

Information Reporting and Backup Withholding

Information reporting and backup withholding (at a current rate of 24 percent) may apply to the proceeds received by a holder pursuant to the Merger. Backup withholding generally will not apply to (1) a U.S. Holder that furnishes a correct taxpayer identification number and certifies that such U.S. Holder is not subject to backup withholding on IRS Form W-9 (or a substitute or successor form); or (2) a Non-U.S. Holder that (a) provides a certification of such Non-U.S. Holder’s non-U.S. status on the appropriate series of IRS Form W-8 (or a substitute or successor form); or (b) otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability, if the required information is timely furnished to the IRS.

Regulatory Approvals Required for the Merger

General Efforts

Under the Merger Agreement, Parent, Merger Sub and KnowBe4 agreed to use reasonable best efforts to take, or cause to be taken, all actions, do, or cause to be done, all things and assist and cooperate with the other parties in doing, or causing to be done, all things necessary, proper or advisable under applicable law to consummate the Merger, including: (1) obtaining all consents, waivers, approvals, orders and authorizations from governmental authorities; and (2) making all registrations, declarations and filings with governmental authorities, in each case that are necessary or advisable to consummate the Merger.

 

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HSR Act; Competition Laws

Under the HSR Act, the Merger cannot be completed until Parent and KnowBe4 file a Notification and Report Form with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the Department of Justice (the “DOJ”) and the applicable waiting period has expired or been terminated. The parties filed a notification and report form with the FTC and DOJ on October 26, 2022. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period.

KnowBe4 and Parent have each agreed to (1) use its respective reasonable best efforts to supply (or cause the other to be supplied) with any additional information that reasonably may be required or requested by the FTC, the DOJ or the governmental authorities of any other applicable jurisdiction in which any such filing is made; and (2) use its respective reasonable best efforts to take all action necessary to, as soon as practicable, (a) cause the expiration or termination of the applicable waiting periods pursuant to the HSR Act and any other antitrust laws applicable to the Merger and (b) obtain any required consents pursuant to any antitrust laws applicable to the Merger.

At any time before or after consummation of the Merger, notwithstanding the termination of the waiting period under the HSR Act, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable, including seeking to enjoin the completion of the Merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the Merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under its antitrust laws as it deems necessary or desirable. Such action could include seeking to enjoin the completion of the Merger or seeking divestiture of substantial assets of KnowBe4 or Parent. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

Subject to the terms of the Merger Agreement, each of Parent and Merger Sub agreed to, if and to the extent necessary to obtain clearance of the Merger pursuant to the HSR Act and any other antitrust laws applicable to the Merger, (1) offer, negotiate, commit to and effect, by consent decree, hold separate order or otherwise, (a) the sale, divestiture, license or other disposition of any and all of the capital stock or other equity or voting interests, assets (whether tangible or intangible), rights, products or businesses of KnowBe4 and its subsidiaries; and (b) any other restrictions on the activities of KnowBe4 and its subsidiaries; unless such action would have a material adverse effect on the business of KnowBe4 and its subsidiaries, taken as a whole.

Limited Guarantees

Pursuant to the Limited Guarantees, which were entered into by the Guarantors in favor of KnowBe4 on October 11, 2022, each Guarantor agreed to guarantee a pro rata share of the due, punctual and complete payment of the termination fee if and when payable by Parent to KnowBe4 pursuant to the terms of the Merger Agreement and certain other liabilities and obligations of Parent and Merger Sub under the Merger Agreement plus amounts in respect of reimbursement obligations of Parent and Merger Sub for certain liabilities, losses, damages, claims, costs, expenses (including attorneys’ fees), interest, awards, judgments, penalties and amounts incurred or suffered by KnowBe4 and its subsidiaries, as specified in the Merger Agreement, up to a collective aggregate limit of $281 million for both Limited Guarantees.

Subject to specified exceptions, each Limited Guarantee will terminate upon the earliest of:

 

   

immediately following the later of (1) the effective time of the Merger; and (2) the deposit of the exchange fund with the payment agent, pursuant to the Merger Agreement;

 

   

the termination of the Merger Agreement by mutual written consent of KnowBe4, Parent and Merger Sub;

 

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the termination of the Merger Agreement by KnowBe4 due to (1) a legal or regulatory restraint or prohibition preventing the consummation of the Merger; (2) the Merger not being consummated by August 11, 2023; (3) the failure to obtain the requisite stockholder approvals to the Merger; (4) Parent or Merger Sub’s uncurable breach or failure to perform its respective representations, warranties or covenants under the Merger Agreement; (5) KnowBe4 entering into an alternative acquisition agreement for a superior proposal and paying a termination fee to Parent; or (6) Parent’s and Merger Sub’s failure to timely consummate the Merger once all closing conditions under the Merger Agreement have been satisfied or waived;

 

   

the indefeasible payment of the amounts guaranteed under the Limited Guarantees;

 

   

the date that is 90 days following the valid termination of the Merger Agreement (other than a termination pursuant to the second and third bullets above) unless, prior to the expiration of such 90 day period, KnowBe4 has (1) delivered a written notice with respect to the guaranteed obligations alleging that Guarantor, Parent or Merger Sub is liable for any such guaranteed obligations, or (2) commenced a legal proceeding against the Guarantor, Parent or Merger Sub alleging that Parent or Merger Sub is liable for any other payment obligations under the Merger Agreement or against the Guarantor that amounts are due and owing from the Guarantor; and

 

   

KnowBe4 or any of its controlled affiliates acting on its behalf seeks to impose liability upon the Guarantor (or the other Guarantor) in excess of the applicable limitation amount or otherwise challenges any limit on the liability of the Guarantor or makes another forms of impermissible claim under the transaction documents.

Financing of the Merger

The transactions contemplated by the Merger Agreement, including the payment of consideration due to our stockholders and the holders of our equity-based awards and options under the Merger Agreement, the repayment of all obligations under our existing credit agreement and the payment of all related fees and expenses, will be funded with the proceeds of committed equity and debt financing, together with cash on hand at KnowBe4. The equity and debt financing commitments will be funded in accordance with the terms of the Equity Commitment Letters and the Debt Commitment Letter, as further described below.

Equity Commitment

Pursuant to the Equity Commitment Letters and subject to the terms and conditions set forth therein, each of (1) the Guarantors committed to provide Parent on, at or prior to the closing date of the Merger with an equity contribution of up to approximately $2.18 billion and (2) the KKR Investor committed to provide Parent on, at or prior to the closing date of the Merger with an equity contribution of up to approximately $300 million (which commitment may be assigned to affiliates of the KKR Investor, and which amount may be reduced dollar-for-dollar by the value of any Rollover Shares contributed by the KKR Investor pursuant to its Support Agreement).

Debt Commitment

Pursuant to the Debt Commitment Letter, the financial institutions party thereto (the “debt financing sources”) have severally and not jointly committed (1) to provide to Parent (or one or more of its direct or indirect wholly-owned subsidiaries) on the closing date of the Merger a senior secured term facility in an aggregate principal amount of approximately $1 billion; and (2) to make available to Parent and its restricted subsidiaries (a portion of which may be made available on the closing date of the Merger) a senior secured revolving credit facility in an aggregate principal amount of approximately $125 million, in each case, on the terms and subject to the conditions set forth in the Debt Commitment Letter.

 

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The obligation of the debt financing sources to provide the credit facilities described above is subject to customary conditions, including the following:

 

   

the prior consummation or substantially simultaneous consummation of the Merger in all material respects in accordance with the Merger Agreement, without any amendments, consents or waivers that would be materially adverse to the interests of the debt financing sources in their capacity as such without the approval thereof (such approval not to be unreasonably withheld, delayed or conditioned);

 

   

the occurrence or substantially concurrent funding of the equity contribution;

 

   

the execution and delivery of definitive loan, guarantee and security documentation for the credit facilities and the delivery of customary closing documents;

 

   

the delivery of customary “know your customer” documentation and information and certain financial statements;

 

   

the prior payment or substantially concurrent payment of applicable fees and expenses;

 

   

subject to customary limitations, the accuracy of certain representations and warranties made by KnowBe4 in the Merger Agreement (giving effect to the materiality qualifiers contained in the Merger Agreement) that are material to the interests of the debt financing sources but only to the extent that Parent or its affiliates have the right (taking into account any applicable cure provisions) to terminate their obligations under the Merger Agreement or not to consummate the transactions contemplated by the Merger Agreement as a result of a breach of such representations;

 

   

the prior consummation or substantially simultaneous consummation of the repayment of all obligations under KnowBe4’s existing credit agreement; and

 

   

that no Company Material Adverse Effect (as defined in the section of this proxy statement captioned “The Merger Agreement—Representations and Warranties”) has occurred since the date of the Merger Agreement that is continuing.

Delisting and Deregistration of KnowBe4 Class A Common Stock

If the Merger is completed, KnowBe4 Class A common stock will no longer be traded on Nasdaq and will be deregistered under the Exchange Act. KnowBe4 will no longer be required to file periodic reports, current reports and proxy and information statements with the SEC on account of KnowBe4 Class A common stock.

Fees and Expenses

Except as described under “The Merger Agreement—Termination Fees and Remedies,” if the Merger is not completed, all fees and expenses incurred in connection with the Merger will be paid by the party incurring those fees and expenses, and in the case of the Special Committee, all fees and expenses will be paid by KnowBe4. If the Merger is completed, all costs and expenses incurred by Parent or Merger Sub in connection with the transaction will be paid by the surviving corporation. Total fees and expenses incurred or to be incurred by KnowBe4 (including the Special Committee) are estimated at this time to be as follows:

 

Description

   Amount ($)  

Financial advisory fees and expenses

                     [●]  

Legal fees and expenses

     [●]  

SEC filing fees

     [●]  

EDGAR filing expenses

     [●]  

Printing expenses

     [●]  

Mailing expenses

     [●]  

Total

     [●]  
  

 

 

 

It is also expected that Merger Sub and/or Parent will incur approximately $40 million of financing costs, legal fees, exchange agent fees, and other advisory fees.

 

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FORWARD-LOOKING STATEMENTS

This proxy statement, the documents to which KnowBe4 refers you in this proxy statement and information included in oral statements or other written statements made or to be made by KnowBe4 or on KnowBe4’s behalf contain “forward-looking statements” that do not directly or exclusively relate to historical facts, including, without limitation, statements relating to the completion of the Merger. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “should,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” “intend,” “target,” “possible” and other words of similar import, or the negative versions of such words. KnowBe4’s stockholders are cautioned that any forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in KnowBe4’s filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this proxy statement, and the following factors:

 

   

the inability to complete the Merger due to the failure of KnowBe4’s stockholders to adopt the Merger Agreement pursuant to the requisite stockholder votes or the failure to satisfy the other conditions to the completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval;

 

   

the occurrence of any event, change or other circumstances that could give rise to the right to terminate the Merger, and the risk that the Merger Agreement may be terminated in circumstances that require KnowBe4 to pay a termination fee;

 

   

the nature, cost and outcome of any legal proceedings that may be instituted against KnowBe4 and others related to the Merger Agreement;

 

   

risks that the pendency of the Merger affects KnowBe4’s current operations or KnowBe4’s ability to retain or recruit employees;

 

   

economic, market, business or geopolitical conditions (including resulting from the COVID-19 pandemic, inflation, or the conflict in Ukraine and related sanctions against Russia and Belarus) or competition, or changes in such conditions, negatively affecting KnowBe4’s business, operations and financial performance;

 

   

the fact that receipt of the all-cash Per Share Price will be taxable to KnowBe4’s stockholders that are treated as U.S. Holders for U.S. federal income tax purposes;

 

   

the fact that, if the Merger is completed, KnowBe4’s stockholders (other than the Purchaser Filing Parties) will forgo the opportunity to realize the potential long-term value of the successful execution of KnowBe4’s current strategy as an independent company;

 

   

the possibility that KnowBe4 could, following the Merger, engage in operational or other changes that could result in meaningful appreciation in its value;

 

   

the possibility that KnowBe4 could, at a later date, engage in unspecified transactions, including restructuring efforts, special dividends or the sale of some or all of KnowBe4’s assets to one or more as yet unknown purchasers, that could conceivably produce a higher aggregate value than that available to its stockholders in the Merger;

 

   

the fact that under the terms of the Merger Agreement, KnowBe4 is restrained from soliciting other acquisition proposals during the pendency of the Merger;

 

   

the effect of the announcement or pendency of the Merger on KnowBe4’s business relationships, customers, operating results and business generally, including risks related to the diversion of the attention of KnowBe4 management or employees during the pendency of the Merger;

 

   

the amount of the costs, fees, expenses and charges related to the Merger Agreement or the Merger;

 

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the risk that stockholder litigation in connection with the Merger may result in significant costs of defense, indemnification and liability;

 

   

the risk that the proposed Merger will not be consummated in a timely manner, creating potential uncertainty around the transaction and exceeding the expected costs of the Merger;

 

   

the risk that KnowBe4’s stock price may fluctuate during the pendency of the Merger and may decline significantly if the Merger is not completed; and

 

   

risks related to obtaining the requisite stockholder approvals for the Merger.

Consequently, all of the forward-looking statements that KnowBe4 makes in this proxy statement are qualified by the information contained or incorporated by reference in this proxy statement, including: (1) the information contained under this caption; and (2) information in KnowBe4’s most recent filings on Form 10-K and Form 10-Q, including the information contained under the caption “Risk Factors,” and information in its consolidated financial statements and notes thereto. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

Except as required by applicable law, KnowBe4 undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. KnowBe4’s stockholders are advised to consult any future disclosures that KnowBe4 makes on related subjects as may be detailed in its other filings made from time to time with the SEC.

 

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THE PARTIES TO THE MERGER

KnowBe4

KnowBe4, Inc. was formed as a limited liability company in Delaware in August 2010 under the name SEQRIT, LLC and subsequently changed its name to KnowBe4, LLC. KnowBe4 then converted into a Delaware corporation under the name KnowBe4, Inc. in January 2016. KnowBe4 has developed the leading security awareness platform enabling organizations to assess, monitor and minimize the ongoing cybersecurity threat of social engineering attacks. KnowBe4 is pioneering an integrated approach to security awareness that incorporates cloud-based software, machine learning, artificial intelligence, advanced analytics and insights with engaging content. KnowBe4’s platform is purpose-built to drive awareness, change human behavior and enable a security-minded culture that results in a reduction of social engineering risks. See the section of this proxy statement captioned “Where You Can Find Additional Information.”

The KnowBe4 Class A common stock is listed on Nasdaq under the symbol “KNBE.” KnowBe4’s corporate offices are located at 33 N. Garden Avenue, Suite 1200, Clearwater, FL 33755.

Parent Entities

Parent

Oranje Holdco, LLC was formed on September 30, 2022 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than as incidental to its formation and in connection with the transactions contemplated by the Merger Agreement and the Support Agreements and arranging of the equity financing and the debt financing in connection with the Merger.

Parent’s address is c/o Vista Equity Partners Management, LLC, Four Embarcadero Center, 20th Floor, San Francisco, CA 94111, and its telephone number is (415) 765-6500.

Merger Sub

Oranje Merger Sub, Inc. is a wholly owned subsidiary of Parent and was formed on September 30, 2022 solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. Merger Sub has not engaged in any business activities other than as incidental to its formation and in connection with the transactions contemplated by the Merger Agreement and Support Agreements. Upon completion of the Merger, Merger Sub will cease to exist and KnowBe4 will continue as the surviving corporation.

Merger Sub’s address is c/o Vista Equity Partners Management, LLC, Four Embarcadero Center, 20th Floor, San Francisco, CA 94111, and its telephone number is (415) 765-6500.

Parent and Merger Sub are each affiliated with the Guarantors. In connection with the transactions contemplated by the Merger Agreement and Support Agreements, the Guarantors have committed to provide Parent, at or prior to the closing of the Merger, with an aggregate equity contribution of up to approximately $2.18 billion, on the terms and subject to the conditions set forth in the Vista Equity Commitment Letter. This amount will be used to fund a portion of the aggregate purchase price and the other payments contemplated by the Merger Agreement (in each case, pursuant to certain terms and conditions as described further in this proxy statement under the caption “Special Factors—Financing of the Merger”).

 

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THE SPECIAL MEETING

Date, Time and Place

KnowBe4 will hold the Special Meeting on [●], at [●], Eastern time. You may attend the Special Meeting via a live interactive webcast on the Internet at http://www.virtualshareholdermeeting.com/KNBE2023SM. You will be able to listen to the Special Meeting live and vote online. You will need the control number found on your proxy card or voting instruction form in order to participate in the Special Meeting (including voting your shares). KnowBe4 believes that a virtual meeting provides expanded access, improved communication and cost savings for its stockholders.

If you encounter technical difficulties accessing the Special Meeting or during the Special Meeting, a support line will be available on the login page of the Special Meeting website.

Purpose of the Special Meeting

At the Special Meeting, KnowBe4 will ask stockholders to vote on the Merger Proposal, the Compensation Proposal and the Adjournment Proposal.

KnowBe4’s stockholders must approve the Merger Proposal in order for the Merger to be consummated. Approval of the Compensation Proposal and approval of the Adjournment Proposal are not conditions to completion of the Merger. A copy of the Merger Agreement is attached as Annex A to this proxy statement and is incorporated by reference in this proxy statement in its entirety. KnowBe4 encourages you to read the Merger Agreement carefully in its entirety.

Attending the Special Meeting

The Special Meeting will begin at [●], Eastern time. Online check-in will begin a few minutes prior to the Special Meeting. KnowBe4 encourages you to access the meeting prior to the start time.

As the Special Meeting is virtual, there will be no physical meeting location. To attend the Special Meeting, log in at http://www.virtualshareholdermeeting.com/KNBE2023SM. You will need the control number found on your proxy card or voting instruction form in order to participate in the Special Meeting (including voting your shares). If you encounter technical difficulties accessing the Special Meeting or during the Special Meeting, a support line will be available on the login page of the Special Meeting website.

Once online access to the Special Meeting is open, shareholders may submit questions pertinent to meeting matters, if any, through the Special Meeting website. You will need the control number found on your proxy card or voting instruction form in order to submit questions. Questions pertinent to meeting matters will be answered during the meeting, subject to time constraints.

Record Date; Shares Entitled to Vote; Quorum

Only KnowBe4’s stockholders as of the close of business on the Record Date are entitled to notice of, and to vote at, the Special Meeting. A list of stockholders of record entitled to vote at the Special Meeting will be available at KnowBe4’s corporate offices located at 33 N. Garden Avenue, Clearwater, Florida 33755, during regular business hours for a period of no less than 10 days before the Special Meeting and on the virtual meeting website during the Special Meeting.

As of the Record Date, there were [●] shares of KnowBe4 Class A common stock and [●] shares of KnowBe4 Class B common stock outstanding and entitled to vote at the Special Meeting. For each share of KnowBe4 Class A common stock that you owned as of the close of business on the Record Date, you will have one vote on

 

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each matter submitted for a vote at the Special Meeting. For each share of KnowBe4 Class B common stock that you owned as of the close of business on the Record Date, you will have ten votes on each matter submitted for a vote at the Special Meeting.

The holders of a majority of the voting power of KnowBe4’s capital stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the Special Meeting. For the separate vote by holders of KnowBe4 Class A common stock and holders of KnowBe4 Class B common stock, a majority of the voting power of the outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum with respect to that vote. Virtual attendance at the Special Meeting constitutes presence in person for quorum purposes at the Special Meeting.

Votes Required

Approval of the Merger Proposal requires the affirmative vote of (1) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) entitled to vote on the Merger Agreement; (2) the holders of a majority of the voting power of the outstanding shares of KnowBe4 common stock (voting together as a single class) held by the Unaffiliated Stockholders and entitled to vote on the Merger Agreement; (3) the holders of at least a majority of the outstanding shares of KnowBe4 Class A common stock entitled to vote on the Merger Agreement; and (4) the holders of a majority of the outstanding shares of KnowBe4 Class B common stock entitled to vote on the Merger Agreement.

Approval of the Compensation Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively on such proposal. This vote will be on a non-binding, advisory basis.

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively on such proposal.

Abstentions

Abstentions will be counted as present for purposes of determining whether a quorum exists. If a stockholder abstains from voting on the Merger Proposal, that abstention will have the same effect as if the stockholder voted “AGAINST” the Merger Proposal. However, abstentions are not considered votes cast for or against a proposal. As a result, abstentions will have no effect on the outcome of the vote on the Compensation Proposal or the Adjournment Proposal.

Broker Non-Votes

A “broker non-vote” generally occurs when a bank, broker or other nominee holding shares on your behalf does not vote on a proposal because the bank, broker or other nominee has not received your voting instructions and lacks discretionary power to vote your shares. For example, if you provide instructions to your bank, broker or nominee with respect to the Merger Proposal but do not provide instructions with respect to the Compensation Proposal or the Adjournment Proposal, then a “broker non-vote” will occur with respect to each of the Compensation Proposal and the Adjournment Proposal. Broker non-votes will be counted for the purpose of determining whether a quorum is present. Each broker non-vote will count as a vote “AGAINST” the Merger Proposal. However, broker non-votes are not considered votes cast for or against a proposal. As a result, broker non-votes will have no effect on the outcome of the vote on the Compensation Proposal or the Adjournment Proposal.

 

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Shares Held by KnowBe4’s Directors and Executive Officers

As of the Record Date, KnowBe4’s directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [●] shares of KnowBe4 Class A common stock and [●] shares of KnowBe4 Class B common stock, collectively representing approximately [●] percent of the voting power of the shares of KnowBe4 common stock outstanding as of the Record Date. KnowBe4’s directors and executive officers have informed KnowBe4 that they intend to vote all of their shares of KnowBe4 common stock: (1) “FOR” the Merger Proposal; (2) “FOR” the Compensation Proposal; and (3) “FOR” the Adjournment Proposal. For more information, please see the section of this proxy statement captioned “The Support Agreements.”

Voting of Proxies

If you are a stockholder of record (that is, your shares are registered in your name with KnowBe4’s transfer agent, Computershare Trust Company, N.A.), you may vote your shares by returning a signed and dated proxy card (a proxy card and a prepaid reply envelope is provided for your convenience), or you may vote at the Special Meeting using the control number located on the enclosed proxy card. Additionally, you may grant a proxy electronically over the internet or by telephone by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to grant a proxy electronically over the internet or by telephone. Based on your proxy cards or internet and telephone proxy, the proxy holders will vote your shares according to your direction.

If you attend the Special Meeting and wish to vote at the Special Meeting, you will need the control number located on the enclosed proxy card. Beneficial owners of shares held in “street name” must also provide a “legal proxy” from their bank or broker in order to vote at the Special Meeting. You are encouraged to vote by proxy even if you plan to attend the Special Meeting. If you attend the Special Meeting and vote at the Special Meeting, your vote will revoke any previously submitted proxy.

All shares represented by properly signed and dated proxies (or proxies granted electronically over the internet or by telephone) will, if received before the Special Meeting, be voted at the Special Meeting in accordance with the instructions of the stockholder. Properly signed and dated proxies (or proxies granted electronically over the internet or by telephone) that do not contain voting instructions will be voted: (1) “FOR” the Merger Proposal; (2) “FOR” the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.

If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting instruction form provided by your bank, broker or other nominee. You may also attend the Special Meeting and vote at the Special Meeting if you have a “legal proxy” from your bank, broker or other nominee giving you the right to vote your shares at the Special Meeting. If available from your bank, broker or other nominee, you may vote over the internet or telephone through your bank, broker or other nominee by following the instructions on the voting instruction form provided by your bank, broker or other nominee. If you do not (1) return your bank’s, broker’s or other nominee’s voting instruction form; (2) vote over the internet or by telephone through your bank, broker or other nominee; or (3) attend the Special Meeting and vote at the Special Meeting with a “legal proxy” from your bank, broker or other nominee, it will have the same effect as if you voted “AGAINST” the Merger Proposal. It will not, however, have any effect on the Compensation Proposal or the Adjournment Proposal, except to the extent affecting the obtaining of a quorum at the meeting.

Revocability of Proxies

If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by:

 

   

signing another proxy card with a later date and returning it to KnowBe4 prior to the Special Meeting;

 

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submitting a new proxy electronically over the internet or by telephone after the date of the earlier submitted proxy;

 

   

delivering a written notice of revocation to KnowBe4’s Corporate Secretary; or

 

   

attending the Special Meeting and voting at the Special Meeting using the control number on the enclosed proxy card.

If you have submitted a proxy, your attendance at the Special Meeting, in the absence of voting at the Special Meeting or submitting an additional proxy or revocation, will not have the effect of revoking your prior proxy.

If you hold your shares of KnowBe4 common stock in “street name” through a bank, broker or other nominee, you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee giving you the right to vote your shares at the Special Meeting.

Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow KnowBe4’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.

Adjournment

In addition to the Merger Proposal and the Compensation Proposal, KnowBe4’s stockholders are also being asked to approve the Adjournment Proposal. If a quorum is not present, the chairperson of the Special Meeting or the stockholders entitled to vote at the Special Meeting, present in person or represented by proxy, may adjourn the Special Meeting, from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. The chairperson may also adjourn the meeting to another place, date or time, even if a quorum is present. In addition, the Special Meeting could be postponed before it commences, subject to the terms of the Merger Agreement. If the Special Meeting is adjourned or postponed, KnowBe4’s stockholders who have already submitted their proxies will be able to revoke them at any time before they are voted at the Special Meeting.

Solicitation of Proxies

KnowBe4, on behalf of the KnowBe4 Board, is soliciting proxies from KnowBe4’s stockholders for the Special Meeting. Under applicable SEC rules and regulations, the members of the KnowBe4 Board are “participants” with respect to the solicitation of proxies in connection with the Special Meeting.

The expense of soliciting proxies will be borne by KnowBe4. KnowBe4 has retained Innisfree M&A Incorporated, a professional proxy solicitation firm, to assist in the solicitation of proxies, and provide related advice and informational support during the solicitation process, for a fee of up to $60,000, plus reasonable out-of-pocket expenses. KnowBe4 will indemnify this firm against losses arising out of its provisions of these services on its behalf. In addition, KnowBe4 may reimburse banks, brokers and other nominees representing beneficial owners of shares of KnowBe4 common stock for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by KnowBe4’s directors, officers and employees, personally or by telephone, email, fax or over the internet. No additional compensation will be paid for such services.

Anticipated Date of Completion of the Merger

KnowBe4 currently expects to complete the Merger in the first half of 2023. However, the exact timing of completion of the Merger, if at all, cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of KnowBe4’s control.

 

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Appraisal Rights

If the Merger is consummated, holders of record and beneficial owners of KnowBe4 common stock who (1) do not vote in favor of the Merger Proposal (whether by voting against Merger Proposal, abstaining or otherwise not voting with respect to the Merger Proposal), (2) continuously hold (in the case of holders of record) or continuously own (in the base of beneficial owners) their applicable shares of KnowBe4 common stock through the effective date of the Merger, (3) properly demand appraisal of their applicable shares, (4) meet certain statutory requirements described in this proxy statement, and (5) do not withdraw their demands or otherwise lose their rights to appraisal will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 of the DGCL if certain conditions set forth in Section 262(g) of the DGCL are satisfied. The requirements under Section 262 of the DGCL for perfecting and exercising appraisal rights are described in further detail the section of this proxy statement captioned “Appraisal Rights,” which description is qualified in its entirety by Section 262 of the DGCL, the relevant section of the DGCL regarding appraisal rights, a copy of which may be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262.

Holders of record and beneficial owners of KnowBe4 common stock who are entitled to have their shares appraised by the Delaware Court of Chancery may receive payment in cash of the “fair value” of their shares of KnowBe4 common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with (unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown) interest on the amount determined by the Delaware Court of Chancery to be fair value from the effective date of the Merger through the date of payment of the judgment at a rate of five percent over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and the date of payment of the judgment, compounded quarterly (except that, if at any time before the entry of judgment in the proceeding, the surviving corporation makes a voluntary cash payment to persons seeking appraisal, interest will accrue thereafter only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery; and (2) interest theretofore accrued, unless paid at that time). The surviving corporation is under no obligation to make such voluntary cash payment prior to such entry of judgment. Due to the complexity of the appraisal process, persons who wish to seek appraisal of their shares are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights. Persons considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares. For more information, see the section of this proxy statement captioned “Appraisal Rights—Determination of Fair Value.”

To exercise appraisal rights, a stockholder of record or a beneficial owner of KnowBe4 common stock must (1) submit a written demand for appraisal of such holder’s shares or such owner’s shares of KnowBe4 common stock to KnowBe4 before the vote is taken on the Merger Proposal; (2) not vote, in person or by proxy, in favor of the Merger Proposal (whether by voting against the Merger Proposal, abstaining or otherwise not voting with respect to the Merger Proposal); (3) continuously hold (in the case of holders of record) or continuously own (in the case of beneficial owners) the subject shares of KnowBe4 common stock through the effective date of the Merger; and (4) strictly comply with all other procedures for exercising appraisal rights under the DGCL. If you are a beneficial owner of shares of KnowBe4 common stock and you wish to exercise appraisal rights in such capacity, in addition to the foregoing requirements, your demand for appraisal must also (1) reasonably identify the holder of record of the shares of KnowBe4 common stock for which the demand is made, (2) be accompanied by documentary evidence of your beneficial ownership of stock and a statement that such documentary evidence is a true and correct copy of what it purports to be, and (3) provide an address at which you consent to receive notices given by the surviving corporation hereunder and to be set forth on the verified list required by Section 262(f) of DGCL. The failure to follow exactly the procedures specified under the DGCL may result in the loss of appraisal rights. The requirements under Section 262 of the DGCL for perfecting and exercising appraisal rights are described in further detail the section of this proxy statement captioned “Appraisal Rights,”

 

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which description is qualified in its entirety by Section 262 of the DGCL, the relevant section of the DGCL regarding appraisal rights, a copy of which may be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262.

Other Matters

At this time, KnowBe4 knows of no other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting and you deliver a proxy to KnowBe4, your shares of KnowBe4 common stock will be voted in accordance with the discretion of the appointed proxy holders, with full power of substitution and re-substitution.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on []

This proxy statement is available on the “Investor Relations” section of KnowBe4’s website located at https://investors.knowbe4.com.

Householding of Special Meeting Materials

KnowBe4 has adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders who have the same address and last name will receive only one copy of this proxy statement unless one or more of these stockholders notifies KnowBe4 that they wish to continue receiving individual copies. This procedure reduces printing costs, postage fees and the use of natural resources. Each stockholder who participates in householding will continue to be able to access or receive a separate proxy card upon request. If you wish to receive a separate set of KnowBe4’s disclosure documents at this time, please notify KnowBe4 by sending a written request to Investor Relations, KnowBe4, 33 N. Garden Avenue, Suite 1200, Clearwater, FL 33755 or by telephone at (855) 566-9234.

If you are a stockholder who has multiple accounts in your name or you share an address with other stockholders and would like to receive a single set of KnowBe4’s disclosure documents for your household, you may notify your broker, if your shares are held in a brokerage account, or you may contact KnowBe4’s Corporate Secretary using the contact method above, if you hold registered shares.

Questions and Additional Information

If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help submitting your proxy or voting your shares of KnowBe4 common stock, please contact KnowBe4’s proxy solicitor at:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders call toll-free: (877) 456-3427

Banks and brokers call collect: (212) 750-5833

 

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THE MERGER AGREEMENT

The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. KnowBe4 encourages you to carefully read and consider the Merger Agreement, which is the legal document that governs the Merger, and in its entirety because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement, and not by this summary or any other information contained in this proxy statement.

The representations, warranties, covenants and agreements described below and included in the Merger Agreement (1) were made only for purposes of the Merger Agreement and as of specific dates; (2) were made solely for the benefit of the parties to the Merger Agreement; (3) may be subject to important qualifications, limitations and supplemental information agreed to by KnowBe4, Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement; and (4) may also be subject to a contractual standard of materiality different from those generally applicable to reports and documents filed with the SEC and in some cases were qualified by confidential matters disclosed to Parent and Merger Sub by KnowBe4 in connection with the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating contractual risk between KnowBe4, on the one hand, and Parent and Merger Sub, on the other hand, rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Further, the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the Merger Agreement may have the right not to consummate the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise. KnowBe4’s stockholders are not generally third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of KnowBe4, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement. None of the representations and warranties will survive the closing of the Merger, and, therefore, they will have no legal effect under the Merger Agreement after the effective time of the Merger. In addition, you should not rely on the covenants in the Merger Agreement as actual limitations on the respective businesses of KnowBe4, Parent and Merger Sub because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide you with any other factual information regarding KnowBe4, Parent, Merger Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this document and in KnowBe4’s filings with the SEC regarding KnowBe4 and its business.

Closing and Effective Time of the Merger

The closing of the Merger will take place (1) on a date that is no later than the third business day after the satisfaction or waiver (to the extent permitted under the Merger Agreement) of all of the conditions to closing of the Merger, other than conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of each of such conditions; or (2) at such other time agreed to by KnowBe4, Parent and Merger Sub. On the closing date of the Merger, the parties will file a Certificate of Merger with the Secretary of State of the State of Delaware as provided under the DGCL. The Merger will become effective upon the filing and acceptance of that Certificate of Merger, or at a later time as may be agreed to in writing by the parties and specified in such Certificate of Merger.

 

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Effects of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers

The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, and in accordance with the DGCL, at the effective time of the Merger: (1) Merger Sub will be merged with and into KnowBe4; (2) the separate existence of Merger Sub will cease; and (3) KnowBe4 will continue as the surviving corporation in the Merger and a wholly owned subsidiary of Parent. From and after the effective time of the Merger, all of the property, rights, privileges, powers and franchises of KnowBe4 and Merger Sub will vest in the surviving corporation and all of the debts, liabilities and duties of KnowBe4 and Merger Sub will become the debts, liabilities and duties of the surviving corporation.

At the effective time of the Merger, the certificate of incorporation and the bylaws of KnowBe4 as the surviving corporation will be amended and restated in their entirety to read as set forth in exhibits to the Merger Agreement, in each case, until thereafter amended.

From and after the effective time of the Merger, the initial board of directors of the surviving corporation will consist of the directors of Merger Sub as of immediately prior to the effective time of the Merger, to hold office in accordance with the certificate of incorporation and bylaws of the surviving corporation until their respective successors are duly elected and qualified, or until their earlier death, resignation or removal. From and after the effective time of the Merger, the initial officers of KnowBe4 as of immediately prior to the effective time of the Merger will be the officers of the surviving corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the surviving corporation until their respective successors are duly elected or appointed and qualified, or until their earlier death, resignation or removal.

Treatment of Shares and Equity Awards

Common Stock

Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each share of KnowBe4 common stock issued and outstanding immediately prior to the effective time of the Merger (other than the Excluded Shares and the Rollover Shares) will be canceled and extinguished and automatically converted into the right to receive cash in an amount equal to the Per Share Price, without interest and subject to any applicable withholding taxes.

At the effective time of the Merger, each Excluded Share and each Rollover Share will be canceled and cease to exist without any conversion thereof or any consideration paid in exchange therefor. The Rollover Shares will, immediately prior to the closing of the Merger, be contributed to Parent pursuant to the terms of the applicable Support Agreement.

At the effective time of the Merger, each share of common stock of Merger Sub outstanding immediately prior to the effective time of the Merger will be converted into one validly issued, fully paid and nonassessable share of common stock of the surviving corporation.

Equity Awards; ESPP

Treatment of KnowBe4 RSU Awards and KnowBe4 PSU Awards

The Merger Agreement provides that KnowBe4 RSU Awards and KnowBe4 PSU Awards that are outstanding immediately prior to the effective time of the Merger will be subject to the following treatment:

At the effective time of the Merger, each KnowBe4 RSU Award and each KnowBe4 PSU Award, to the extent vested but not yet settled as of the effective time of the Merger (or which vests upon the consummation of the Merger), will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock then subject to the then-vested portion of such award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

 

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At the effective time of the Merger, each outstanding KnowBe4 RSU Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 RSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 RSU Award immediately prior to the effective time of the Merger.

At the effective time of the Merger, each KnowBe4 PSU Award, to the extent not then vested, will automatically be deemed to have the performance metrics achieved at 100 percent of target, and will be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the Per Share Price and (2) the total number of shares of KnowBe4 Class A common stock subject to the then-unvested portion of such award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 PSU Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment conditions but excluding performance vesting conditions) as applied to the KnowBe4 PSU Award immediately prior to the effective time of the Merger.

Treatment of KnowBe4 Option Awards

The Merger Agreement provides that KnowBe4 Option Awards will be treated in the following manner:

At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent then vested, will automatically be canceled and converted into a right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of such vested KnowBe4 Option Award. This amount (less any required withholding and other taxes) will be paid to the applicable holder promptly following the effective time of the Merger.

At the effective time of the Merger, each outstanding KnowBe4 Option Award, to the extent not then vested, will automatically be canceled and converted into a contingent right to receive an amount in cash, without interest, equal to the product of (1) the excess, if any, of the Per Share Price less the exercise price per share of such KnowBe4 Option Award, and (2) the number of shares of KnowBe4 common stock then issuable upon exercise in full of the unvested portion of such KnowBe4 Option Award. This amount (less any required withholding and other taxes) will vest and be paid out pursuant to the corresponding KnowBe4 Option Award’s time-based vesting schedule, subject to the same terms and conditions (including continued employment) as applied to the KnowBe4 Option Award immediately prior to the effective time of the Merger.

At the effective time of the Merger, each outstanding KnowBe4 Option Award that has an exercise price per share that is greater than or equal to the Per Share Price will be canceled for no consideration or payment.

Treatment of the ESPP

As soon as practicable following the date of the Merger Agreement KnowBe4 will take all action that it determines to be reasonably necessary to (1) provide that no new participants will commence participation in the ESPP after the date of the Merger Agreement; (2) provide that no payroll contributions or separate non-payroll contributions may be made on or following the date of the Merger Agreement; (3) provide that no new offering period or purchase period will commence or be extended pursuant to the ESPP, in each case, after the date of the Merger Agreement; and (4) cause any offering period or purchase period under the ESPP that otherwise would be outstanding at the effective time of the Merger to be terminated no later than the closing date of the Merger but prior to the effective time of the Merger. KnowBe4 will make any adjustments that may be necessary or advisable to reflect the shortened offering period or purchase period, but otherwise will treat such shortened offering period or purchase period as a fully effective and completed offering period or purchase period for all

 

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purposes under the ESPP. Each outstanding purchase right under the ESPP will be exercised as of no later than the closing date of the Merger but prior to the effective time of the Merger. On such exercise date, KnowBe4 will apply the funds credited as of such date under the ESPP within each participant’s account to the purchase of whole shares of KnowBe4 Class A common stock in accordance with the terms of the ESPP and, promptly thereafter, will refund any remaining amounts credited to each such account to the applicable participant. These shares will be deposited into the applicable participant’s account and will be treated in the same manner as any other outstanding share of common stock in connection with the consummation of the Merger.

Payment Agent, Exchange Fund and Exchange and Payment Procedures

Prior to the closing of the Merger, Parent will select a bank or trust company reasonably acceptable to KnowBe4 (the “payment agent”) to make payments of the Merger consideration to KnowBe4 stockholders. At or prior to the closing of the Merger, Parent will deposit (or cause to be deposited) with the payment agent cash that is sufficient in the aggregate to pay the aggregate Per Share Price to KnowBe4 stockholders in accordance with the Merger Agreement.

Promptly (and in any event within three business days) following the effective time of the Merger, Parent and the surviving corporation will cause the payment agent to mail to each holder of record (as of immediately prior to the effective time of the Merger) of a certificate that immediately prior to the effective time of the Merger represented outstanding shares of KnowBe4 common stock (other than Excluded Shares) whose shares of KnowBe4 common stock were converted into the right to receive the consideration payable under the Merger Agreement, a letter of transmittal and instructions advising stockholders how to surrender stock certificates in exchange for the Merger consideration. Upon receipt of (1) surrendered certificates for cancellation (or an appropriate affidavit for lost, stolen or destroyed certificates, together with any required bond); and (2) a duly completed and signed letter of transmittal, the holder of such certificate will be entitled to receive an amount in cash equal to the product of (a) the aggregate number of shares of KnowBe4 common stock represented by such certificate and (b) the Per Share Price. The amount of any consideration paid to such KnowBe4 stockholders will not include interest and may be reduced by any applicable withholding taxes.

Notwithstanding the foregoing, any holder of shares of KnowBe4 common stock held in book-entry form (“uncertificated shares”) will not be required to deliver a certificate or an executed letter of transmittal (as both are described above) to the payment agent to receive the Merger consideration payable in respect thereof. Each holder of record (as of immediately prior to the effective time of the Merger) of uncertificated shares that immediately prior to the effective time of the Merger represented an outstanding share of KnowBe4 common stock (other than the Excluded Shares) will, upon receipt of an “agent’s message” in customary form at the effective time of the Merger, or any documents as may reasonably be requested by the payment agent, be entitled to receive, and the payment agent will pay and deliver as promptly as practicable, an amount in cash equal to the product of (1) the aggregate number of shares of KnowBe4 common stock represented by such holder’s transferred uncertificated shares; and (2) the Per Share Price. The amount of consideration paid to such KnowBe4 stockholders will not include interest and may be reduced by any applicable withholding taxes.

If any cash deposited with the payment agent is not claimed within one year following the effective time of the Merger, such cash will be returned to Parent upon demand, and any KnowBe4 stockholders as of immediately prior to the Merger who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to Parent for satisfaction of payment of the Merger consideration (subject to abandoned property law, escheat law or similar laws). None of the payment agent, Parent, the surviving corporation or any other party will be liable to any KnowBe4 stockholder with respect to any cash amounts properly paid to a public official pursuant to any applicable abandoned property law, escheat law or similar laws.

The letter of transmittal will include instructions if a stockholder has lost a stock certificate or if such certificate has been stolen or destroyed. In the event that any stock certificates have been lost, stolen or destroyed, then the payment agent will issue the Per Share Price payable in respect of such stock certificate to such holder upon the

 

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making by such holder of an affidavit for such lost, stolen or destroyed certificate. Parent or the payment agent may, in its discretion and as a condition precedent to the payment of the Per Share Price, require such stockholder to deliver a bond, in such amount as Parent or the payment agent may direct, as indemnity against any claim that may be made against Parent, the surviving corporation or the payment agent with respect to such certificate.

Representations and Warranties

The Merger Agreement contains representations and warranties of KnowBe4, Parent and Merger Sub.

Some of the representations and warranties in the Merger Agreement made by KnowBe4 are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the Merger Agreement, “Company Material Adverse Effect” means, with respect to KnowBe4, any change, event, condition, development, violation, inaccuracy, effect, occurrence or circumstance (each, an “Effect”) that, individually or taken together with all other Effects that exist or have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, (1) has had or would reasonably be expected to have a material adverse effect on the business, assets, financial condition or results of operations of KnowBe4 and its subsidiaries, taken as a whole; or (2) would render KnowBe4 unable to consummate the Merger prior to the termination date of the Merger Agreement, but, with respect to clause (1) none of the following, and no Effects arising out of, relating to, or resulting from the following (in each case, by themselves or when aggregated) will be deemed to be or constitute a Company Material Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur (subject to the limitations set forth below):

 

   

changes in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global economy generally (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

changes in conditions in the financial markets, credit markets, equity markets, debt markets, currency markets or capital markets in the United States or any other country or region in the world, including (1) changes in interest rates or credit ratings in the United States or any other country; (2) changes in exchange rates for the currencies of any country; or (3) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world (except, in each case, to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

changes in general conditions in the industries in which KnowBe4 and its subsidiaries conduct business or in any specific jurisdiction or geographical area in which KnowBe4 and its subsidiaries conduct business (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

changes in regulatory, legislative or political conditions (including anti-dumping actions, international tariffs, sanctions, trade policies or disputes or any “trade war” or similar actions) in the United States or

 

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any other country or region in the world (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

changes in any geopolitical conditions, outbreak of hostilities, armed conflicts, acts of war, sabotage, terrorism or military actions (including, in each case, any escalation or worsening of any of the foregoing) in the United States or any other country or region in the world, including an outbreak or escalation of hostilities involving the United States or any other governmental authority or the declaration by the United States or any other governmental authority of a national emergency or war (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wildfires, nuclear incidents or other natural or man-made disasters or weather conditions or other force majeure events in the United States or any other country or region in the world (or escalation or worsening of any such events or occurrences, including, in each case, the response of governmental authorities) (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

pandemics (including the COVID-19 pandemic), epidemics, plagues, contagious disease outbreaks or other comparable events (including quarantine restrictions mandated by any governmental authority), or escalation or worsening of any such events or occurrences, including, in each case, the response of governmental authorities (including any quarantine, “shelter in place,” “stay at home,” social distancing, sequester, safety or similar law, directive, guideline or response or recommendation of or promulgated by any governmental authority, including the Centers for Disease Control and Prevention and the World Health Organization, including, in each case, any changes in any such law, directive, guidance, response or recommendation (“COVID-19 measures”)) in the United States or any other country or region in the world (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its Subsidiaries relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur);

 

   

the execution, announcement or performance of the Merger Agreement or the pendency or consummation of the Merger, including the impact thereof on the relationships, contractual or otherwise, of KnowBe4 and its subsidiaries with employees, suppliers, customers, partners, lenders, lessors, vendors, governmental authorities or any other third person (subject to certain exceptions);

 

   

any action taken or refrained from being taken by KnowBe4 or any of its subsidiaries, in each case, at the express written direction of Parent or Merger Sub or as expressly required by the Merger Agreement;

 

   

changes or proposed changes in GAAP or other accounting standards or applicable law (or the official interpretation of any of the foregoing) (except to the extent that such Effect has had or would reasonably be expected to have a disproportionate adverse effect on KnowBe4 and its subsidiaries

 

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relative to comparable companies operating in the industry in which KnowBe4 and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred);