As filed with the Securities and Exchange Commission on March 19, 2021
Registration No. 333‑
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S‑1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
KNOWBE4, INC.
(Exact name of Registrant as specified in its charter)
|
|
|
|
|
|
|
|
|
|
|
Delaware
|
7370
|
36-4827930
|
|
(State or other jurisdiction of incorporation or organization)
|
(Primary Standard Industrial Classification Code Number)
|
(I.R.S. Employer Identification Number)
|
KnowBe4, Inc.
33 N. Garden Avenue
Clearwater, FL 33755
(855) 566-9234
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Sjoerd Sjouwerman
Chief Executive Officer
KnowBe4, Inc.
33 N. Garden Avenue
Clearwater, FL 33755
(855) 566-9234
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
|
|
|
|
|
|
|
|
|
|
Tony Jeffries
Megan J. Baier
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
1301 Avenue of the Americas
New York, NY 10019
(212) 999-5800
|
Shrikrishna Venkataraman
Co-President & Chief Financial Officer
KnowBe4, Inc.
33 N. Garden Avenue
Clearwater, FL 33755
(855) 566-9234
|
Mark T. Bettencourt
Joseph C. Theis, Jr.
Jesse Nevarez
Goodwin Procter LLP
100 Northern Avenue
Boston, MA 02210
(617) 570-1000
|
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
|
Non-accelerated filer ☒
|
Smaller reporting company ☐
|
|
|
|
Emerging growth company ☒
|
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
Title of Each Class of
Securities to be Registered
|
Proposed Maximum Aggregate Offering
Price(1)(2)
|
Amount of
Registration
Fee(3)
|
|
Class A common stock, par value $0.00001 per share
|
$100,000,000.00
|
$10,910.00
|
________________
(1)Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)Includes the aggregate offering price of additional shares of Class A common stock that the underwriters have the option to purchase from the Registrant, if any.
(3)Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a) may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS (Subject to completion)
Issued , 2021
Shares
CLASS A COMMON STOCK
_____________________________________
This is the initial public offering of shares of Class A common stock of KnowBe4, Inc. We are offering shares of our Class A common stock, and the selling stockholders named in this prospectus are offering shares of our Class A common stock. We will not receive any proceeds from the sale of shares of our Class A common stock to be offered by the selling stockholders. Prior to this offering, there has been no public market for our Class A common stock. We anticipate that the initial public offering price will be between $ and $ per share. We have applied to list our Class A common stock on the Nasdaq Global Select Market under the symbol “KNBE.”
Following this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible into one share of Class A common stock. All shares of our capital stock outstanding immediately prior to this offering, including all shares held by our executive officers, directors and their respective affiliates, and all shares issuable on the conversion of our outstanding convertible preferred stock, will be reclassified into shares of our Class B common stock immediately prior to the completion of this offering. Immediately following the completion of this offering, holders of our Class B common stock will hold approximately % of the combined voting power of our outstanding capital stock, assuming no exercise by the underwriters of their option to purchase additional shares of Class A common stock from us in this offering.
We are an “emerging growth company” under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 18.
_____________________________________
PRICE $ A SHARE
_____________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial public offering price
|
|
Underwriting discounts and commissions(1)
|
|
Proceeds, before expenses, to us
|
|
Proceeds, before expenses, to the selling stockholders
|
|
Per Share
|
$
|
|
$
|
|
$
|
|
$
|
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
________________
(1)See “Underwriting” for a description of compensation payable to the underwriters.
We have granted the underwriters an option for a period of 30 days to purchase up to an additional shares of our Class A common stock at the initial public offering price less the underwriting discount.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York, on or about , 2021.
_____________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MORGAN STANLEY
|
GOLDMAN SACHS & Co. LLC
|
BofA SECURITIES
|
KKR
|
|
|
|
|
|
|
|
|
CITIGROUP
|
UBS INVESTMENT BANK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAIRD
|
CANACCORD GENUITY
|
COWEN
|
NEEDHAM & COMPANY
|
PIPER SANDLER
|
TRUIST SECURITIES
|
, 2021
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus and in any free writing prospectus. We, the selling stockholders and the underwriters have not authorized anyone to provide you with information different from that contained in this prospectus. We, the selling stockholders and the underwriters are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock.
We, the selling stockholders and the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside of the United States.
“KnowBe4,” the KnowBe4 logo, and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of KnowBe4, Inc. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our Class A common stock in this offering. Therefore, you should read this entire prospectus carefully, including the “Risk Factors” section and our consolidated financial statements and the related notes included elsewhere in this prospectus. Unless the context requires otherwise, the words “we,” “us,” “our” and “KnowBe4” refer to KnowBe4, Inc. and its consolidated subsidiaries.
KNOWBE4, INC.
Mission
Our mission is to enable employees to make smarter security decisions, every day.
Overview
KnowBe4 has developed the leading security awareness platform enabling organizations to assess, monitor and minimize the ongoing cybersecurity threat of social engineering attacks. We are pioneering an integrated approach to security awareness that incorporates cloud-based software, machine learning, artificial intelligence, advanced analytics and insights with engaging content. Our 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.
We believe every organization’s greatest asset is also its greatest security risk – its people. As investments in security products grow significantly, attackers are increasingly leveraging social engineering to circumvent the traditional layers of cybersecurity defense. Social engineering relies on the manipulation of human behavior and can range from enlisting unsuspecting employees in schemes to defraud their employers to gaining access to systems during the initial phase of broader, multi-stage cyberattacks that can result in devastating breaches. Because these attacks are low-cost and high-volume and have a high probability of success, they enable the attacker to achieve a significant return on investment. Social engineering represents a universal cybersecurity risk, as it specifically targets the employees rather than the infrastructure of an organization.
Historically, organizations have invested significantly in cybersecurity defenses with the belief that infrastructure-centric tools alone could provide adequate protection. Despite billions of dollars spent on security products each year, security breaches continue to be reported with increasing frequency. Recent secular trends, including globally distributed workforces, work from home and the technological complexity of the modern digital workplace, have vastly expanded the attack surface. A single click on a phishing email, insecure disposal of a sensitive document, use of a weak password and a host of other employee behaviors can prove disastrous to an organization. These effects are far-reaching, ranging from incident response costs and lost productivity to negative media coverage, loss of revenue and impacted customer confidence. More often than not, the difference between a secure and insecure interaction comes down to human behavior, but changing human behavior is a significant challenge.
We believe security awareness is the most effective way for organizations to manage the extraordinary unaddressed risk of social engineering, representing a fundamental shift in cybersecurity. Security awareness has historically been isolated to information security and IT professionals and focused more on compliance and simplistic content delivery. Our platform is designed to promote awareness, change human behavior and drive a security-minded culture. The foundation of our security awareness platform combines automation, machine learning, artificial intelligence and continuous testing with data analysis and relevant and interactive content. Our products enable customers to strengthen their overall security posture by creating a security-minded culture characterized by active user participation with a focus on mitigating the human element of security risk across their entire organization. We enable organizations to effectively enhance the security awareness of their workforce, converting their employees into a critical last line of defense against cyberattacks.
Our platform currently includes:
•Security Awareness: enables continuous assessment of employees through simulated social engineering attacks across multiple mediums and remediation through real-time delivery of highly engaging modules that are curated based on relevant and specific risks;
•Security Orchestration, Automation and Response (SOAR): enables security professionals to prioritize and automate security workstreams in order to respond to and remediate social engineering attacks; and
•Governance, Risk and Compliance: enables organizations to analyze security risk and automate the management of compliance and audit functions.
We designed our platform to meet the needs of IT administrators, as effective, scalable, quick to deploy and easy to use for organizations of all sizes. Our platform design allows us to scale from small businesses to large enterprises using a single code base. Our products are deployed on a common data platform with embedded analytical tools and reporting APIs, resulting in seamless integration. Additionally, our products are designed to bring substantial amounts of data into an organization’s existing security stack allowing our customers to continually assess and monitor ongoing risks to the organization.
As the behavior of any employee could represent a threat, our customers tend to adopt our platform across the entire organization to protect all employees from social engineering threats. We have developed an effective go-to-market strategy that has been proven to help us reach both small and midsized businesses and large enterprises. We employ an efficient inside sales model that translates across all customer segments, complimented by channel partnerships that provide significant sales leverage and have enabled us to further penetrate the enterprise market. As a result, we have been able to grow our customer base rapidly in recent years, from more than 22,500 as of December 31, 2018 to more than 30,000 as of December 31, 2019 to almost 37,000 as of December 31, 2020. Our leadership in the security awareness market has been recognized by both Gartner Inc. and Forrester Research Inc. Additionally, we rose to the number five app by number of organizations within the 2020 Microsoft Azure Active Directory app gallery and were named as one of the most popular apps by number of customers and as the most popular people-centric security tool within the Okta 2021 Businesses at Work report.
We continue to experience significant growth, with total revenue of $71.3 million, $120.6 million and $174.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. As of the ends of the same periods, we had annual recurring revenue, or ARR, of $88.6 million, $145.4 million and $198.4 million. For the years ended December 31, 2018, 2019 and 2020 we had net losses of $9.2 million, $124.3 million and $2.4 million, which included $0.9 million, $118.1 million and $5.2 million of stock-based compensation expense, respectively. Our cash flows from operations was $17.7 million, $29.7 million and $44.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. Our free cash flow was $8.2 million, $18.9 million and $36.7 million over the same periods. See the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Annual Recurring Revenue” for additional information regarding ARR and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Free Cash Flow” for additional information regarding free cash flow and for a reconciliation of free cash flow to the most directly comparable financial measure calculated in accordance with U.S. generally accepted accounting principles, or GAAP.
Industry Background
Social Engineering Attacks Targeting Humans Are the Most Successful Cyberattacks
Social engineering, which encompasses attacks on the human layer of an organization, can take the form of phishing, spear phishing, pretexting, business email compromise, smishing (SMS-based phishing) and vishing (voice-based phishing). These methods can result in the direct compromise of proprietary information or can serve as the first phase in sophisticated multi-stage attacks, enabling credential theft, ransomware delivery and malware delivery, among others, that can ultimately result in costly security breaches. In effect, by targeting human behavior rather than infrastructure, social engineering attacks can be utilized by attackers to circumvent multiple layers of security.
Due to the relative ease and cost-effectiveness of developing and deploying social engineering attacks, coupled with their effectiveness and the potential value of the resulting breaches, these methods have become the preferred and most frequent avenue for hackers to gain access to IT systems and sensitive information. Several recent high-profile breaches, ranging from data loss events of major corporations and government entities, to account takeovers of prominent individuals, to ransomware attacks on local governments and hospitals, have all involved social engineering methods. Based on data from the 2020 Verizon Data Breach Investigations Report, we believe attacks on the human layer are now responsible for a majority of events leading to breaches.
Digital Transformation Has Expanded the Social Engineering Attack Surface
Not only has the widespread adoption of digital technologies significantly impacted how companies conduct business, it has also fundamentally changed the relationship of their employees with technology in their everyday professional and personal lives. Individuals increasingly use digital mediums as their primary form of communication and increasingly rely on online services in everyday life. Furthermore, the amount of personal data available for cyberattackers to use in crafting convincing social engineering attacks is staggering. According to Statista, over half of the global population currently uses social media, where accounts provide cyberattackers with a vast repository of knowledge about an individual, including their detailed personal history, interests, contacts and other valuable information. These trends have made individuals more susceptible than ever to social engineering attacks and greatly expanded the social engineering attack surface.
The increasing number of employees working remotely, in cloud applications and consumer-oriented devices that are often purposed for enterprise uses but only partially enterprise-managed, has significantly eroded the traditional security perimeter. With a sustained shift to digital and remote workplaces, accelerated by the global coronavirus pandemic, we believe the threat of social engineering will become more pronounced. Since the onset of the pandemic, VMware reports that 88% of businesses have seen an increase in social engineering attacks. This changing landscape requires humans to become the last line of defense against cyber threats.
Attackers Are Launching Increasingly Targeted Cyberattacks at Scale
Cyberattackers across all levels of sophistication employ social engineering techniques. These attackers range from hackers leveraging basic techniques to more sophisticated criminal organizations motivated by financial gains, to highly-advanced military and intelligence services of well-funded nation-states. Regardless of their level of expertise, cyberattackers can leverage social engineering to launch targeted cyberattacks at scale. The most basic social engineering attacks require minimal investment and can be cost-efficiently distributed to a wide target audience, while increasingly advanced attacks use highly customized messages developed through advanced research and emerging technologies such as AI or facial recognition.
Modern cyberattacks are pervasive, targeting businesses of all sizes across a broad range of industries including technology, transportation, healthcare, financial services, governments and political organizations, utility and retail. According to the Center for Strategic and International Studies, the global cost of cybercrime is estimated to be approximately $1 trillion annually, and the Ponemon Institute and IBM Security estimate that the average cost of a data breach has increased by 10% since 2014 to $3.86 million.
Cybersecurity Resources Are Constrained
Cybersecurity resources have become highly constrained. Skills shortages are at an all-time high, particularly in the areas of big data and analytics, cybersecurity and AI, with 54% of chief information officers, or CIOs, stating that they struggle to find the right talent in response to the Harvey Nash/KPMG CIO Survey 2020. Specifically, the 2020 (ISC)2 Cybersecurity Workforce Study estimated a global gap of over 3.1 million cybersecurity professionals.
Companies do not have enough IT security staff to effectively train employees on how to protect against ever-changing social engineering techniques or efficiently address threats that are reported. Rebuilding security training internally every year and sorting through reported threats on an individual basis is not resource-efficient for companies. These resource gaps highlight the need for software and automation in developing security awareness to protect against social engineering.
Limitations of Existing Offerings
Historically, organizations have relied on either content-centric or infrastructure-centric vendors for security awareness or have opted for limited or no training due to the inefficacy of existing offerings. Content-centric alternatives, including products from traditional vendors and internally-developed tools, provide organizations with generic and ineffective training programs that are primarily designed to satisfy minimum compliance requirements. These alternatives offer limited functionality and do not create the engagement needed to change human behavior. Infrastructure-centric alternatives provide basic point products for security training that are typically secondary to core security infrastructure products. Neither of these alternatives offers an integrated platform-based approach to security awareness that is specifically designed to manage the risk of social engineering.
Key Strengths of Our Platform
We provide an integrated platform that enables organizations to assess, monitor and mitigate the persistent threat of social engineering. Our cloud-based platform employs a differentiated combination of software, machine learning, artificial intelligence, analytics, insights, content and security workstreams that is designed to meaningfully impact human behavior to continually improve an organization’s security posture in response to social engineering threats. The key strengths of our platform include:
Targeted Focus on Human Behavior
Our platform is exclusively focused on human behavior, as we believe that elevating the security awareness of an organization’s employees is essential to managing the risk associated with social engineering. We believe that infrastructure-based security controls alone are inadequate, requiring humans to become the critical last line of defense for an organization. In growing the category for security awareness, we are focused on building a platform capable of changing insecure behaviors and reinforcing secure behaviors of individuals. This allows us to invest technology and development resources to drive innovation and differentiation in products designed to address the human layer of security. Our focus has helped us establish market leadership and we believe will position us favorably to capitalize as the scope of the human layer of security expands.
Continuous Intelligence and Analytics
Our platform continuously assesses users and monitors social engineering risk, creating an active feedback loop that enables organizations to continually drive improvements in employee security awareness and overall security posture. Frequent training, knowledge checks and behavior-based intervention all reinforce secure behaviors and provide critical data for measuring, improving and maintaining security awareness within an organization.
The advanced analytics delivered by our platform enable security administrators to identify, monitor and manage the social engineering risk of the organization as a whole, or of individual employees or groups of employees on an ongoing basis. Our platform analyzes a broad and extensive set of risk data to assess the level of social engineering risks within an organization and provides security professionals with actionable insights to modify and improve security awareness programs based on risk profiles at the individual or group level. Through the learner experience dashboard, our platform also provides employees visibility into their individual susceptibility to social engineering threats, which promotes continuous engagement and improvement in security awareness.
Effective and Efficient Security Awareness Administration
Our platform is designed to enable security administrators to mitigate social engineering risk through automated, machine learning-driven administration of training specifically customized to an individual user or group of users. The platform analyzes users’ behavior and allows organizations to categorize employees based on dynamic or custom groupings to tailor simulated social engineering campaigns, assignments and analytical reporting based on identified potential vulnerabilities. Our platform leverages a machine learning engine to provide administrators with targeted recommendations based on the results of simulated tests and users’ risk scores prompting the delivery of relevant content with a demonstrated ability to reduce the risks associated with social engineering.
The platform also includes embedded SOAR functionality to prioritize and automate security operations related to user-reported social engineering threats. With these capabilities, security professionals can minimize risk to the organization by quickly responding to and effectively remediating the most severe social engineering threats. All together, these capabilities are designed to reduce the administrative burden of security awareness management and operations on resource-constrained IT and security professionals.
Expansive Library of Engaging and Effective Content
We have built an expansive library of differentiated security awareness content, containing approximately 1,000 pieces of content, that is continuously refreshed to ensure that our offerings always reflect the expanding range of social engineering threats. We leverage our extensive proprietary data set on human behavior and social engineering attacks, first-party threat environment research and crowd-sourcing methods to update our simulated threat templates in near real-time, in order to convincingly emulate real-world social engineering methods.
We believe the range and sophistication of our content library and technology makes our platform highly effective in changing human behavior to reduce social engineering risk. We employ dedicated content centers of excellence across geographies to produce differentiated content that reflects themes based on the broader global threat environment, but is highly localized and culturally relevant. The breadth and scope of our content enables it to fully meet the needs of large global enterprises with geographically diverse workforces, driving increased customer satisfaction and retention.
Ease of Platform Deployment and Use
We have designed our platform to be easy to deploy and use, enabling our customers to achieve rapid time-to-value and cost efficiency in security awareness operations. Our cloud-based platform requires minimal implementation efforts, enabling customers to quickly onboard and complete an initial baseline simulated social engineering campaign. We have also developed integrations with mainstream identity platforms, including Active Directory and SCIM, that further streamline platform deployment and ongoing user administration. Our management console offers simple and automated administration of security awareness programs and related workstreams, reducing the resource and expertise requirements on the organization. For employees, the user interface of our platform has also been designed to deliver an intuitive, easy-to-use and high quality experience that is on par with best-in-class consumer experiences.
Designed to Serve the Entire Market
As we believe social engineering is a universal problem, the ability to scale our technology to meet the needs of all organizations has been a central tenet of our platform design philosophy from the beginning. As a result, we have designed our products to be both accessible to smaller organizations without dedicated IT departments and scalable to organizations with hundreds of thousands of users and multiple security teams dispersed across the world. Our cloud-based delivery model, scalable multi-tenant architecture and global content centers of excellence allow us to regularly introduce new content and platform features to our customers quickly and seamlessly.
Our Market Opportunity
We believe that companies of all sizes and across all industries and geographies require a security awareness platform to manage the ongoing threat of social engineering. As such, we estimate the total market opportunity for our platform currently to be approximately $15 billion for the year ended December 31, 2020.
For our Kevin Mitnick Security Awareness Training, or KMSAT, and PhishER products, we calculate our market opportunity by estimating the total number of employees in over 50 addressable geographies globally segmented into large enterprise, enterprise, medium business and small business categories. We apply a per employee price, depending on the segment, using internally generated data of actual customer spend based on the customer size and location. For our KnowBe4 Compliance Manager, or KCM, product in the U.S., we apply an average contract value to a set number of organizations using internally generated data of actual customer spend based on the size of such organizations. For KCM internationally, we estimate the size of the market as a multiple of the U.S. market implied by the proportional market sizes for our KMSAT and PhishER products. The aggregate sum
of the calculated values across KMSAT, PhishER and KCM, as described herein, represents our total estimated market opportunity. The estimated market opportunity for KMSAT represents approximately half of our total market opportunity.
For more information regarding the estimates of market opportunity included within this prospectus, see the section titled “Business—Our Market Opportunity.”
Our Growth Strategy
Key elements of our growth strategy include:
Expand Our Customer Base
We believe there is a significant opportunity to invest in our sales and marketing activities to drive broader market knowledge of the importance of security awareness. Increasing category awareness of our market enables us to expand our customer base with less education effort and more efficient go-to-market execution. In addition to growing the small to medium sized customer base that we have focused on since inception, we believe that there is significant opportunity to increase penetration in the enterprise segment.
Expand Internationally
The international market represents a clear expansion opportunity for us. We have grown our revenue generated by customers outside of North America from 6.0% in 2018 to 9.7% in 2019 and 11.9% in 2020. To pursue this opportunity, we are rapidly expanding our international operations, increasing our physical presence through headcount additions and investing in further localizing our platform. Our platform is currently accessible in over 30 languages and we plan to expand this language support in the future, along with increasing our region-specific content offerings.
Grow Our Partner Network
We plan to increase our channel partnerships to help us efficiently reach new territories and opportunities. Growing our international channel partnerships will help us reach new jurisdictions where we have not yet developed extensive brand awareness and local customer relationships. We believe managed service providers, or MSPs, and channel partners represent an efficient way to sell to smaller customers, as organizations with limited or no IT departments often rely on MSPs to provide specialized security skills or knowledge. In 2020, MSPs and channel partners were involved in generating 37.4% of our revenue. As our business becomes more mature, we believe the revenue contribution from channel partners and MSPs will continue to increase.
Expand Our Existing Customer Relationships
We plan to continue cross-selling products and upselling subscription tiers within our existing customer base. We believe that our integrated platform and the strength of our customer success program are key to our ability to cross-sell and upsell to our existing customers. We plan to continue to invest in our technology and platform and in customer success personnel to retain existing customers and drive increased product attachment rates.
Invest in Our Platform and Content
We believe that continued investment in our technology platform and content is important to our ability to maintain and extend our market leadership. We invest in technology and development activities to continuously strengthen our platform and release additional features and products to the market. We believe that our ability to leverage the immense amount of data collected from our customers’ usage and to incorporate their feedback into our platform and content offerings have contributed to our market-leading position. We continue to explore methods to monetize our data assets in the future and continue to integrate our customer feedback into future product development opportunities.
Selectively Pursue Strategic Acquisitions
We plan to pursue strategic acquisitions that we believe will be complementary to our existing platform, enhance our technology and our content and increase the value proposition we deliver to our customers. For example, we may pursue acquisitions that we believe will help us add new features, accelerate customer growth, enter new markets and add talents and expertise to our organization.
Summary Risk Factors
Investing in our Class A common stock involves risk. You should carefully consider all the information in this prospectus prior to investing in our Class A common stock. These risks are discussed more fully in the section entitled “Risk Factors” immediately following this prospectus summary. These risks and uncertainties include, but are not limited to, the following:
•We have a limited operating history, which makes it difficult to forecast our revenue and evaluate our business and future prospects.
•We have a history of losses and may not be able to achieve or sustain profitability in the future.
•The global COVID-19 pandemic, including the related containment efforts, has had, and we expect will continue to have, certain negative impacts on our business and operations, and we are unable to predict with certainty the extent to which it may continue to adversely affect our business, financial condition or results of operations.
•We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our profitability in the near term.
•If we are unable to attract new customers or develop new products that achieve market acceptance, our revenue growth and profitability will be harmed.
•If our customers do not renew their subscriptions for our platform and add additional products to their subscriptions, our future results of operations could be harmed.
•We recognize revenue from subscriptions over the term of our customer contracts, and as such, our reported revenue and related metrics may differ significantly in a given period, and our revenue in any period may not be indicative of our financial health and future performance.
•Failure to effectively develop and expand our marketing and sales capabilities or maintain successful relationships with our channel partners could harm our ability to increase our customer base and achieve broader market acceptance of our products.
•If we are not able to provide successful updates, enhancements and features to our technology to, among other things, keep up with emerging threats and customer needs, our business, financial condition and results of operations could be adversely affected.
•A network, systems or data security incident may allow unauthorized access to our network, systems or data or our customers’ data, harm our reputation, create additional liability and adversely impact our financial results.
•Complying with evolving privacy and other data related laws and requirements may be expensive and force us to make adverse changes to our business, and failure to comply with such laws and requirements could result in substantial harm to our business.
•The nature of our business requires the application of complex accounting rules, including revenue and expense recognition rules, and any significant changes in current rules, or interpretations thereof, could affect our financial statements and results of operations.
•Interruptions or delays in the services provided by third-party data centers or internet service providers could impair the delivery of our platform and products, expose us to litigation and negatively impacting our relationships with customers, adversely affecting our business.
•Our results of operations may be harmed if we are subject to a protracted infringement claim or a claim that results in a significant damage award.
•If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.
•The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, which will limit your ability to influence the outcome of important transactions, including a change in control.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:
•we are required to include only two years of audited consolidated financial statements in this prospectus in addition to any required interim financial statements, and correspondingly required to provide only reduced disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
•we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended;
•we may take advantage of extended transition periods for complying with new or revised accounting standards;
•we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes”; and
•we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to our median employee compensation.
We may take advantage of these provisions until the earliest to occur of: (i) the end of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of the first fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) the end of the fiscal year during which the fifth anniversary of this listing occurs. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act.
We currently intend to take advantage of certain of the exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you invest. However, we have elected to “opt out” of the extended transition period provision for complying with new or revised accounting standards and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
For risks related to our status as an emerging growth company, see “Risk Factors—Risks Related to Our Class A Common Stock and This Offering—We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.”
Company Information
We were formed as a limited liability company in Delaware in August 2010 under the name SEQRIT, LLC. We then converted into a Delaware corporation under the name KnowBe4, Inc. in January 2016. Our headquarters is located at 33 N. Garden Avenue, Clearwater, FL 33755 and our telephone number is (855) 566-9234. You can access our website at www.knowbe4.com. Information contained on our website is not part of this prospectus or the registration statement of which it forms a part and is not incorporated by reference in this prospectus or the registration statement of which it forms a part.
THE OFFERING
|
|
|
|
|
|
|
|
Class A common stock offered by us
|
shares
|
|
|
|
|
Class A common stock offered by the selling stockholders
|
shares (including the Selling Stockholder Liquidity RSUs and the Selling Stockholder Option Shares, each as described below)
|
|
|
|
|
Option to purchase additional shares of Class A common stock
|
We have granted the underwriters an option for a period of 30 days after the date of this prospectus to purchase up to an additional shares of our Class A common stock at the initial public offering price less underwriting discounts and commissions.
|
|
|
|
|
Class A common stock to be outstanding after this offering
|
shares (including the Selling Stockholder Liquidity RSUs and the Selling Stockholder Option Shares, each as described below), (or shares, if the underwriters exercise their option to purchase additional shares from us in full)
|
|
|
|
|
Class B common stock to be outstanding after this offering
|
shares
|
|
|
|
|
Total Class A common stock and Class B common stock to be outstanding after this offering
|
shares
|
|
|
|
|
Use of proceeds
|
We estimate that the net proceeds to us from the sale of shares of our Class A common stock in this offering will be approximately $ (or approximately $ if the underwriters exercise their option to purchase additional shares from us in full), based upon the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for working capital, capital expenditures and other general corporate purposes. We may also use a portion of our net proceeds to fund potential acquisitions, or investments in, technologies or businesses that complement our business, although we have no present commitments or agreements to enter into any such acquisitions or make any such investments. We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders. See “Use of Proceeds.”
|
|
|
|
|
|
|
|
|
|
|
|
Voting Rights
|
We will have two classes of common stock: Class A common stock and Class B common stock. Shares of Class A common stock are entitled to one vote per share. Shares of Class B common stock are entitled to 10 votes per share.
Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation. Following the completion of this offering, each share of our Class B common stock will be convertible into one share of our Class A common stock at any time and will convert automatically upon certain transfers and upon the earlier of the fifth anniversary of the filing and effectiveness of our amended and restated certificate of incorporation in connection with this offering or the affirmative vote of the holders of 66-2/3% of the voting power of our outstanding Class B common stock.
The holders of our outstanding Class B common stock will hold % of the voting power of our outstanding capital stock following this offering, with our directors, executive officers, and 5% stockholders and their respective affiliates holding % of the voting power in the aggregate. These stockholders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change of control transaction. See the sections titled “Principal and Selling Stockholders” and “Description of Capital Stock” for additional information.
|
|
|
|
|
Proposed Nasdaq Global Select Market symbol
|
“KNBE”
|
|
|
|
|
Risk factors
|
See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our Class A common stock.
|
|
|
|
|
Conflicts of Interest
|
Certain entities affiliated with Goldman Sachs & Co. LLC and KKR Capital Markets LLC, underwriters for this offering, each collectively beneficially own in excess of 10% of our issued and outstanding common stock. As a result, each of Goldman Sachs & Co. LLC and KKR Capital Markets LLC is deemed to have a “conflict of interest” under Rule 5121 of the Financial Industry Regulatory Authority, or FINRA. FINRA Rule 5121 requires that a “qualified independent underwriter” meeting certain standards participate in the preparation of the registration statement and prospectus and exercise the usual standards of due diligence in respect thereto. Morgan Stanley and Co. LLC will serve as a qualified independent underwriter within the meaning of FINRA Rule 5121 in connection with this offering. For more information, see “Underwriting.”
|
The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 3,911,090 shares of our Class B common stock outstanding, in each case, as of December 31, 2020, and reflects:
•the assumed conversion of all 2,854,115 outstanding shares of our convertible preferred stock into an equal number of shares of our common stock, which will occur immediately prior to the closing of this offering, or the Capital Stock Conversion;
•the reclassification of all outstanding shares of our common stock into an equal number of shares of our Class B common stock, which will occur immediately prior to the closing of this offering, or the Class B Reclassification;
• shares of our Class A common stock issued in connection with the vesting of restricted stock units, or RSUs, (assuming an aggregate value of $15.0 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were fully vested upon grant under our 2021 Equity Incentive Plan, or the 2021 Plan, in connection with this offering pursuant to applicable employment agreements to Messrs. Venkataraman and Letonoff, or the Liquidity RSU Shares, and the subsequent sale of of such shares in this offering, or the Selling Stockholder Liquidity RSU Shares (see the section titled “Executive Compensation” for additional information regarding the Liquidity RSU Shares); and
• shares of our Class B common stock to be issued upon the exercise of options by certain of our selling stockholders in this offering, or the Option Shares, and subsequently converted into the same number of shares of our Class A common stock, and the sale of of such shares by such selling stockholders in this offering, or the Selling Stockholder Option Shares.
The shares of our Class A common stock and Class B common stock outstanding as of December 31, 2020 exclude the following:
•355,495 shares of Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock outstanding as of December 31, 2020 under our 2016 Equity Incentive Plan, or the 2016 Plan, at a weighted-average exercise price of $109.20 per share, except the Selling Stockholder Option Shares;
•1,000 shares of Class B common stock issuable upon the exercise an option to purchase shares of our Class B common stock that we granted after December 31, 2020 under our 2016 Plan, at an exercise price of $792.49 per share;
•31,136 shares of common stock issued in connection with our acquisition of MediaPro Holdings, LLC in March 2021;
• shares of Class A common stock issuable in connection with the vesting of RSUs (assuming an aggregate value of $11.7 million, calculated based on an assumed initial public price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were granted in connection with this offering under our 2021 Plan to Messrs. Sjouwerman, Venkataraman and Letonoff, and are subject to vesting upon satisfaction of a service condition and achievement of certain performance metrics, or the Executive RSU Grants (see the section titled “Executive Compensation” for additional information regarding these grants);
• shares of Class A common stock reserved for future issuance under our 2021 Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan; and
• shares of Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective on the business day immediately prior to the date of
effectiveness of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan.
Except as otherwise indicated, all information in this prospectus assumes:
•the Capital Stock Conversion, which will occur immediately prior to the closing of this offering;
•the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, which will occur immediately prior to the closing of this offering;
•the Class B Reclassification, which will occur immediately prior to the closing of this offering, and the subsequent conversion of shares into an equivalent number of shares of our Class A common stock in connection with the sale of such shares by such selling stockholders in this offering;
•the Liquidity RSU Shares have been issued and the Selling Stockholder Liquidity RSU Shares have been sold in this offering;
•the Option Shares have been issued and the Selling Stockholder Option Shares have been sold in this offering;
•the effectiveness of a -for-1 stock split of our capital stock to be effected on ;
•no exercise of outstanding options after December 31, 2020 (other than the Option Shares); and
•no exercise by the underwriters of their option to purchase additional shares of Class A common stock from us in this offering.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
In the following tables, we provide our summary historical consolidated financial data. The summary historical consolidated statements of operations data for each of the years ended December 31, 2018, 2019 and 2020 as well as the summary consolidated balance sheet data as of December 31, 2020 are derived from our audited consolidated financial statements included elsewhere in this prospectus. You should read the summary historical consolidated financial data set forth below in conjunction with our consolidated financial statements, the notes to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our summary historical consolidated results are not necessarily indicative of results to be expected for future periods. The summary historical consolidated financial data in this section are not intended to replace our consolidated financial statements and are qualified in their entirety by our consolidated financial statements and related notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands, except share and per share data)
|
|
Summary Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
Revenues, net
|
$
|
71,287
|
|
|
$
|
120,575
|
|
|
$
|
174,886
|
|
|
Cost of revenues
|
12,062
|
|
|
20,579
|
|
|
26,730
|
|
|
Gross profit
|
59,225
|
|
|
99,996
|
|
|
148,156
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Sales and marketing
|
45,101
|
|
|
69,090
|
|
|
82,188
|
|
|
Technology and development
|
3,299
|
|
|
10,662
|
|
|
19,804
|
|
|
General and administrative
|
20,525
|
|
|
145,776
|
|
|
47,706
|
|
|
Total operating expenses
|
68,925
|
|
|
225,528
|
|
|
149,698
|
|
|
Operating loss
|
(9,700)
|
|
|
(125,532)
|
|
|
(1,542)
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
Interest income
|
505
|
|
|
799
|
|
|
197
|
|
|
Interest expense
|
(29)
|
|
|
(47)
|
|
|
(60)
|
|
|
Other income
|
76
|
|
|
90
|
|
|
807
|
|
|
Loss before income tax (expense) benefit
|
(9,148)
|
|
|
(124,690)
|
|
|
(598)
|
|
|
Income tax (expense) benefit
|
(98)
|
|
|
367
|
|
|
(1,832)
|
|
|
Net loss
|
$
|
(9,246)
|
|
|
$
|
(124,323)
|
|
|
$
|
(2,430)
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(4.18)
|
|
|
$
|
(76.51)
|
|
|
$
|
(2.31)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used to compute net loss per share:
|
|
|
|
|
|
|
Basic and diluted
|
2,212,964
|
|
|
1,673,960
|
|
|
1,051,246
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share(1)(2):
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted-average shares outstanding used to compute pro forma net loss per share(1)(2):
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
Actual
|
|
Pro Forma(1)
|
|
Pro Forma As Adjusted(2)(3)
|
|
|
(in thousands)
|
|
Summary Consolidated Balance Sheet Data:
|
|
|
Cash and cash equivalents
|
$
|
85,582
|
|
|
|
|
|
|
Total current assets
|
143,547
|
|
|
|
|
|
|
Total assets
|
218,210
|
|
|
|
|
|
|
Total current liabilities
|
134,385
|
|
|
|
|
|
|
Total liabilities
|
221,369
|
|
|
|
|
|
|
Stockholders’ deficit
|
(3,159)
|
|
|
|
|
|
________________
(1)The unaudited pro forma net loss per share, pro forma weighted-average shares outstanding and pro forma consolidated balance sheet data as of December 31, 2020 presents our weighted-average shares outstanding and consolidated balance sheet data to give effect to (i) the Capital Stock Conversion; (ii) the Class B Reclassification; and (iii) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering. The pro forma column does not reflect the use of approximately $13.3 million of cash and 31,136 shares of our Class B common stock issued in connection with the acquisition of MediaPro Holdings, LLC on March 1, 2021.
(2)The unaudited pro forma net loss per share, pro forma weighted-average shares outstanding and pro forma as adjusted consolidated balance sheet data as of December 31, 2020 presents our net loss, weighted-average shares outstanding and consolidated balance sheet data to give effect to (i) the pro forma adjustments set forth in footnote (1) above; (ii) the issuance and sale of shares of Class A common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us; (iii) the conversion of shares of our Class B common stock held by certain of our selling stockholders into an equivalent number of our Class A common stock upon the sale by selling stockholders in this offering; (iv) the issuance of the Liquidity RSU Shares and the sale of the Selling Stockholder Liquidity RSU Shares in this offering; and (v) the issuance of the Option Shares and the sale of the Selling Stockholder Option Shares in this offering. The pro forma as adjusted column does not reflect the use of approximately $13.3 million of cash and 31,136 shares of Class B common stock issued in connection with the acquisition of MediaPro Holdings, LLC on March 1, 2021.
(3)Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease), as applicable, each of cash and cash equivalents, total current assets, total assets and total stockholders’ deficit by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1,000,000 share increase or decrease in the number of shares offered in this offering would increase (decrease), as applicable, each of cash and cash equivalents, total assets and total stockholders’ deficit by $ million, assuming that the price per share for the offering remains at $ (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Key Business Metrics
In addition to GAAP measures of performance, we regularly monitor a number of financial and operating metrics, including the following key metrics, in order to measure our current performance and estimate our future performance, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Number of customers
|
22,521
|
|
|
30,259
|
|
|
36,753
|
|
|
Year-over-year growth
|
53
|
%
|
|
35
|
%
|
|
21
|
%
|
|
Annual recurring revenue (in thousands)
|
$
|
88,645
|
|
|
$
|
145,369
|
|
|
$
|
198,369
|
|
|
Year-over-year growth
|
91
|
%
|
|
64
|
%
|
|
36
|
%
|
Number of Customers
We believe that our ability to increase and retain the number of customers on our platform is an indicator of our market penetration, the growth of our business and potential future business opportunities. Increasing awareness of our platform and products, combined with further overall awareness of the need to address the human risk within cybersecurity, has continued to expand our customer base to include organizations of all sizes across all industries. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution or a distinct business unit of a large company that has an active contract with us to access our platform. We do not consider our channel partners as separate customers as our contracts are executed with the end user, and we treat MSPs, who may purchase our products on behalf of multiple companies, as a single customer. Our number of customers increased on an absolute basis, but there has been a decrease in year-over-year growth in number of customers since December 31, 2018 as a result of an increased focus on enterprise customers and MSPs, which are subject to longer sales cycles. Additionally, as our customer base grows and as our market penetration increases, we do not expect to continue to grow at the same year-over-year rate.
Annual Recurring Revenue
We believe that ARR is a key metric to measure our business performance because it is driven by our ability to acquire new customers and to maintain and expand our relationship with existing customers. We define ARR as the annualized value of all contractual subscription agreements as of the end of the period. We perform this calculation on an individual contract basis by dividing the total dollar amount of a contract by the total contract term stated in months and multiplying this amount by twelve to annualize. Calculated ARR for each individual contract is then aggregated to arrive at total ARR. ARR does not have a standardized meaning and therefore may not be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. Specifically, ARR, as calculated under the definition herein, does not adjust for the timing impact of revenue recognition for specific performance obligations identified within a contract. ARR is not a forecast and the active contracts at the date used in calculating ARR may or may not be extended by our customers. We expect ARR in total dollars to continue to grow as we execute on our growth strategies and increase our market penetration, but we do not expect to continue to grow at the same year-over-year rate as we become a larger, more mature business.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.
Non-GAAP Operating (Loss) Income
We define non-GAAP operating (loss) income as GAAP operating loss excluding stock-based compensation expense and amortization of acquired intangible assets, and acquisition-related expenses. Costs associated with acquisitions include legal, accounting and other professional fees, as well as changes in the fair value of contingent consideration obligations. We believe non-GAAP operating (loss) income provides our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of
operations, as this metric generally eliminates the effects of certain variables unrelated to our overall operating performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Operating loss
|
$
|
(9,700)
|
|
|
$
|
(125,532)
|
|
|
$
|
(1,542)
|
|
|
Add: Stock-based compensation expense
|
883
|
|
|
118,105
|
|
|
5,234
|
|
|
Add: Amortization of acquired intangible assets
|
819
|
|
|
247
|
|
|
332
|
|
|
Add: Acquisition related costs
|
276
|
|
|
292
|
|
|
—
|
|
|
Non-GAAP operating (loss) income
|
$
|
(7,722)
|
|
|
$
|
(6,888)
|
|
|
$
|
4,024
|
|
Free Cash Flow
We define free cash flow as net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, less purchases of property, equipment, amounts capitalized for internal-use software and principal payments on finance leases. We believe that free cash flow is a meaningful indicator of liquidity to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and capitalized internal-use software, can be used for strategic initiatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
$
|
17,716
|
|
|
$
|
29,718
|
|
|
$
|
44,864
|
|
|
Less: Purchases of property and equipment
|
(3,957)
|
|
|
(5,573)
|
|
|
(5,426)
|
|
|
Less: Capitalized internal-use software
|
(5,514)
|
|
|
(5,223)
|
|
|
(2,682)
|
|
|
Less: Principal payments on finance leases
|
—
|
|
|
—
|
|
|
(35)
|
|
|
|
|
|
|
|
|
|
Free Cash Flow
|
$
|
8,245
|
|
|
$
|
18,922
|
|
|
$
|
36,721
|
|
RISK FACTORS
An investment in our Class A common stock offered by this prospectus involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide to purchase shares of our Class A common stock. The occurrence of any of the following risks could materially adversely affect our business, financial condition or results of operations and prospectus. In that case, the trading price of our Class A common stock could decline, and you may lose part or all of your investment.
Risks Related to Our Business and Our Industry
We have a limited operating history, which makes it difficult to forecast our revenue and evaluate our business and future prospects.
We have been in existence since 2010 and much of our growth has occurred in recent periods. As a result of our limited operating history, our ability to forecast our future results of operations and plan for and model future growth is limited and subject to a number of uncertainties. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. Additionally, the sales cycle for the evaluation and implementation of our platform and products, which can range from several days for small businesses to multiple months for enterprise deals, may also cause us to experience uncertainty in the timing between increasing operating expenses and the generation of corresponding revenue, if any. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of uncertainties arising from these factors, and our results of operations in future reporting periods may be below the expectations of investors. If we do not address these risks successfully, our results of operations could differ materially from our estimates and forecasts or the expectations of investors, causing our business to suffer and our stock price to decline.
We have a history of losses and may not be able to achieve or sustain profitability in the future.
We have incurred net losses in all annual periods since our inception, and we expect we will continue to incur net losses for the foreseeable future. We experienced net losses of $9.2 million, $124.3 million and $2.4 million for the years ending December 31, 2018, 2019 and 2020, respectively. As of December 31, 2020, we had an accumulated deficit of $161.3 million. Because the market for our platform and products has not yet reached widespread adoption, it is difficult for us to predict our future results of operations. Overall growth of our revenue depends on a number of factors, including:
•pricing our platform and products effectively so that we are able to attract new customers and expand sales to our existing customers;
•continuing to develop and offer products that are superior to those of competitors;
•expanding the functionality of our platform and products;
•expanding the number of customers who purchase and renew subscriptions to our platform and products;
•providing our customers with support that meets their needs;
•continuing to introduce our platform and products to new markets outside of the United States; and
•our ability to hire and retain sufficient numbers of sales and marketing, research and development and general and administrative personnel, and expand our global operations.
In addition, we expect our operating expenses to increase significantly over the next several years, as we continue to hire additional personnel, particularly in sales and marketing, expand our operations and infrastructure, both domestically and internationally, and continue to develop our platform and products. In addition to the expected costs to grow our business, we also expect to incur significant additional legal, accounting and other expenses as a newly public company. If we fail to increase our revenue to offset the increases in our operating expenses, we may not achieve or sustain profitability in the future.
We have experienced rapid growth in recent periods, and if we do not manage our future growth, our business and results of operations will be adversely affected.
We have experienced rapid revenue growth in recent periods and we expect to continue to invest broadly across our organization to support our growth. For example, our headcount grew from 621 employees as of December 31, 2018, to 840 employees as of December 31, 2019, to 1,014 employees as of December 31, 2020. Although we have experienced rapid growth historically, we may not sustain our current growth rates nor can we assure you that our investments to support our growth will be successful. The growth and expansion of our business will require us to invest significant financial and operational resources and will require the continuous dedication of our management team. We have encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing companies in evolving industries, including market acceptance of our platform and products, adding new customers, intense competition and our ability to manage our costs and operating expenses. Our future success will depend in part on our ability to manage our growth effectively, which will require us to, among other things:
•effectively attract, integrate and retain a large number of new employees, particularly members of our sales and marketing and research and development teams;
•further improve our platform and products to support our business needs;
•provide a high level of customer service;
•maintain our corporate culture;
•enhance our information and communication systems to ensure that our employees and offices around the world are well coordinated and can effectively communicate with each other and our growing base of channel partners and customers; and
•improve our financial, management and compliance systems and controls.
If we fail to achieve these objectives effectively, our ability to manage our expected growth, ensure uninterrupted operation of our platform and products, and comply with the rules and regulations applicable to our business could be impaired. Additionally, the quality of our platform and products could suffer and we may not be able to adequately address competitive challenges. Any of the foregoing could adversely affect our business, financial condition and results of operations.
The global COVID-19 pandemic, including the related containment efforts, has had, and we expect will continue to have, certain negative impacts on our business and operations, and we are unable to predict with certainty the extent to which it may continue to adversely affect our business, financial condition or results of operations.
In December 2019, a novel strain of coronavirus, or COVID-19, was first reported to the World Health Organization, or WHO, and in January 2020, the WHO declared the outbreak to be a public health emergency. In March 2020, the WHO characterized COVID-19 as a pandemic. Since then, the COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide. As a result, we have enabled our employees and contractors to work remotely, implemented travel restrictions and shifted some company events and meetings to virtual experiences, all of which represent a significant disruption in how we operate our business. The operations of our partners, vendors and customers have likewise been disrupted.
While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment and mitigation actions, it has already had an adverse effect on the global economy, and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the conditions caused by this pandemic may affect the rate of global IT spending, which could adversely affect demand for our platform and products. Further, the COVID-19 pandemic has caused us to experience, in some cases, longer sales cycles and an increase in certain prospective and current customers seeking lower prices or other more favorable contract terms, and has limited the ability of our direct sales force to travel to industry events for lead generation. In addition, the COVID-19 pandemic could reduce
the value or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from our customers, cause some of our customers to go out of business and affect contraction or attrition rates of our customers, all of which could adversely affect our business, financial condition and results of operations. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets, which may adversely affect our stock price and our ability to access capital markets in the future.
Conversely, the COVID-19 pandemic may temporarily increase demand for our platform and products. Many companies have implemented long term work-from-home policies, with employees accessing their systems remotely, which has increased cybersecurity and privacy risks for these companies. Increased awareness of cyber and privacy risks could increase interest in our platform and products and there is no assurance that the levels of interest, demand and use of our platform and products will continue or will not decrease after the pandemic ends. Any such decrease could have an adverse effect on our growth and the success of our platform and products.
We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our profitability in the near term.
Part of our business strategy is to primarily focus on our long-term growth. As a result, our profitability may be lower in the near term than it would be if our strategy were to maximize short-term profitability. Significant expenditures on sales and marketing efforts, growing our platform and products and expanding our research and development, each of which we intend to continue to invest in, may not ultimately grow our business or cause long-term profitability. If we are ultimately unable to achieve profitability at the level anticipated by industry or financial analysts and our stockholders, our stock price may decline.
We provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, financial condition and results of operations.
Our customer agreements contain service level commitments, under which we guarantee specified availability of our platform and products. In light of our historical experience with meeting our service level commitments, we do not currently have any material liabilities accrued on our balance sheet for these commitments. Any failure of or disruption to our cloud-based platform could make our products unavailable to our customers. If we are unable to meet the stated service level commitments to our customers or suffer extended periods of unavailability of our platform and products, we may be contractually obligated to provide affected customers with service credits for future subscriptions, or customers could elect to terminate and receive refunds for prepaid amounts related to unused subscriptions. Our revenue, other results of operations and financial condition could be harmed if we suffer unscheduled downtime that exceeds the service level commitments under our agreements with our customers, and any extended service outages could adversely affect our business and reputation as customers may elect not to renew and we could lose future sales.
If we are unable to attract new customers or develop new products that achieve market acceptance to cross-sell or upsell to our existing customers, our revenue growth and profitability will be harmed.
Since our customers tend to adopt our platform across their entire organizations, to increase our revenue and achieve and maintain profitability, we must expand our customer base. To attract customers, we must drive a broader awareness of the pervasive risks of social engineering and successfully convey our platform’s ability to convert an organization’s employees into an effective last line of defense. We will continue to invest in our inside sales force complemented by a channel strategy designed to increase brand awareness and to enable us to reach new territories and acquire new customers. Numerous factors, however, may impede our ability to acquire new customers, including our failure to recruit talented sales and marketing personnel and to retain and motivate our current sales and marketing personnel, to develop or expand relationships with effective channel partners and managed service providers, or MSPs, to successfully deploy products for new customers, to provide quality customer support once deployed and to execute on our marketing strategies.
In addition, our ability to increase revenue depends in large part on our ability to develop compelling new products to cross-sell and upsell to our existing customer base. To do so, we must continue to invest in our
technology and platform in order to create new adjacencies and use cases. The success of any new product deployment will depend on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with our existing platform and products and overall market acceptance. If we are unable to successfully develop new products or otherwise gain market acceptance, we may not be able to increase revenues by cross-selling or upselling to our existing customer base, and our business, results of operations and financial condition would be harmed.
If our customers do not renew their subscriptions for our platform and add additional products to their subscriptions, our future results of operations could be harmed.
In order for us to maintain or improve our results of operations, it is important that our customers renew their subscriptions for our platform and products when existing contract terms expire and that we expand our commercial relationships with our existing customers. Our customers have no obligation to renew their subscriptions for our platform and products after the expiration of their contractual period, which is typically one to three years, and in the normal course of business, some customers have elected not to renew. In addition, our customers may renew for fewer products, renew for shorter contract lengths or switch to a lower-cost tier. If our customers do not renew their subscriptions, we could incur impairment losses related to our deferred contract acquisition costs. It is difficult to accurately predict long-term customer retention because of our varied customer base and given the length of our subscription contracts. Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our products, our customer support, our prices and pricing plans, our customers’ spending levels, mergers and acquisitions involving our customers, competition and deteriorating general economic conditions.
Our future success also depends in part on the rate at which we cross-sell or upsell to our current customers, which is driven by a number of factors, including customer satisfaction with our services, general economic conditions and customer reaction to our pricing. If our efforts to expand our relationship with our existing customers are not successful, our business may materially suffer.
We recognize revenue from subscriptions over the term of our customer contracts, and as such, our reported revenue and related metrics may differ significantly in a given period, and our revenue in any period may not be indicative of our financial health and future performance.
The subscription terms of our customer contracts range from one to three years and are invoiced on an annual basis. A substantial majority of our revenue is recognized over the term of the subscription. As a result, much of the revenue we report each quarter is derived from contracts that we entered into with customers in prior periods. Consequently, a decline in new or renewed subscriptions in any quarter will not be fully reflected in revenue or other results of operations in that quarter but will negatively affect our revenue and other results of operations across future quarters. Any increases in the average term of subscriptions would result in revenue for those contracts being recognized over longer periods of time with less positive impact on our results of operations in the near term. Accordingly, our revenue in any given period may not be an accurate indicator of our financial health and future performance.
Failure to effectively develop and expand our marketing and sales capabilities or maintain successful relationships with our channel partners could harm our ability to increase our customer base and achieve broader market acceptance of our products.
Our ability to increase our customer base and achieve broader market acceptance of our platform and products will depend to a significant extent on our ability to expand our marketing and sales operations and to maintain successful relationships with our channel partners. We plan to continue expanding our direct inside sales force and engaging additional channel partners, both domestically and internationally. This expansion will require us to invest significant financial and other resources. Our business will be harmed if our efforts do not generate a corresponding increase in revenue. We may not achieve anticipated revenue growth from expanding our direct sales force if we are unable to hire and develop talented direct inside sales personnel, if our new direct inside sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if we are unable to retain our existing direct inside sales personnel.
In order to grow our business, we anticipate that we will continue to depend on our relationships with our channel partners who we rely on, in addition to our direct sales force, to sell and support our products. For the years ended December 31, 2018, 2019 and 2020, while no individual channel partner accounted for 10% or more of our sales, in the aggregate, our channel partners accounted for 20.4%, 32.3% and 37.4% of our revenue, respectively, and we expect that sales to channel partners will continue to account for a substantial portion of our revenue for the foreseeable future. We utilize channel partners to efficiently increase the scale of our marketing and sales efforts and increase our market penetration to customers who we otherwise might not reach on our own. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our channel partners.
Our agreements with our channel partners are generally non-exclusive, meaning our channel partners may offer customers competitive products from different companies, and generally allow the channel partner to terminate its agreements with us for any reason upon 30 days’ notice. For example, some of our channel partners also sell or provide integration and administration services for our competitors’ products, and if such channel partners devote greater resources to marketing, reselling and supporting competing products, this could harm our business, financial condition and results of operations. If our channel partners do not effectively market and sell our products, choose to use greater efforts to market and sell their own products or those of others or fail to meet the needs of our customers, our ability to grow our business, sell our products and maintain our reputation may be adversely affected. The loss of key channel partners, our possible inability to replace them or the failure to recruit additional channel partners could materially and adversely affect our results of operations. If we are unable to maintain our relationships with these channel partners, our business, financial condition, results of operations or cash flows could be adversely affected
If we are not able to provide successful updates, enhancements and features to our technology to, among other things, keep up with emerging threats and customer needs, our business, financial condition and results of operations could be adversely affected.
Our industry is marked by rapid technological developments and demand for new and enhanced products and features to address the evolving risks associated with social engineering. In particular, cybersecurity threats are becoming increasingly sophisticated and responsive to the new security measures designed to thwart them. If we fail to identify and respond to new and increasingly complex methods of attack and update our products to address such threats, our business and reputation will suffer. The success of any new enhancements, features or products that we introduce depends on several factors, including the timely completion, introduction and market acceptance of such enhancements, features or products. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. Furthermore, modifications to existing technologies will increase our research and development expenses. If we are unable to successfully enhance our existing products to meet customer requirements, increase adoption and usage of our products or develop new products, enhancements and features, our business, financial condition and results of operations will be harmed.
In addition, our future success depends, in part, on continued market adoption of cloud-based technologies such as our platform as an alternative to on-premise offerings. While the market for cloud-based technologies is growing, it is not as mature as the market for legacy on-premise offerings, and organizations that have invested substantial resources into on-premise systems may be reluctant or unwilling to migrate to cloud-based platforms. It is uncertain whether cloud-based technologies will achieve and sustain high levels of customer demand and market acceptance. Our success depends on the adoption of cloud-based technologies globally and across industries. It is difficult to predict market adoption rates and the future growth rate and size of the market for cloud-based technologies. If cloud-based technologies do not achieve widespread adoption or there is a reduction in demand for cloud-based technologies caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and solutions, reductions in corporate spending or otherwise, our business, financial condition and results of operations will be harmed.
Certain estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate.
This prospectus includes our internal estimates of the addressable market for security awareness products. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this prospectus relating to the size and expected growth of our target market, market demand and adoption, capacity to address this demand and pricing may prove to be inaccurate. In particular, estimates regarding our current and projected market opportunity are difficult to predict. In addition, our internal estimates of the addressable market for security awareness products reflect the opportunity available from all participants and potential participants in the market. The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all.
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that our corporate culture has been a contributor to our success, which we believe fosters innovation, teamwork, passion and focus on building and marketing our platform and products. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could harm our future success, including our ability to retain and recruit personnel, innovate and operate effectively and execute on our business strategy. Additionally, our productivity and the quality of our products may be adversely affected if we do not integrate and train our new employees quickly and effectively. If we experience any of these effects in connection with future growth, it could impair our ability to attract new customers, retain existing customers and expand their use of our products, all of which would adversely affect our business, financial condition and results of operations.
Our financial results may fluctuate due to increasing variability in our sales cycles.
We plan our expenses based on certain assumptions about the length and variability of our sales cycle. These assumptions are based upon historical trends for sales cycles and conversion rates associated with our existing customers. As we continue to focus on sales to larger organizations, we expect our sales cycles to lengthen and become less predictable, which may harm our financial results. Factors that may influence the length and variability of our sales cycle include, among other things:
•the need to raise awareness about the benefits of our platform and products;
•the discretionary nature of purchasing and budget cycles and decisions;
•the competitive nature of evaluation and purchasing processes;
•announcements or planned introductions of new products, features or functionality by us or our competitors; and
•potentially lengthy purchasing approval processes.
Our increasing focus on sales to larger organizations may further increase the variability of our financial results. If we are unable to close one or more expected significant transactions with large organizations in a particular period, or if an expected transaction is delayed until a subsequent period, our results of operations for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be harmed.
A network, systems or data security incident may allow unauthorized access to our network, systems or data or our customers’ data, harm our reputation, create additional liability and adversely impact our financial results.
Increasingly, companies are subject to a wide variety of attacks on their networks and systems on an ongoing basis. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), employee or contractor theft or misuse and denial-of-service attacks, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). Despite significant efforts to create security barriers to such threats, it is virtually impossible for us to entirely mitigate these risks. The security measures we have integrated into our internal networks and systems, and into our platform and products, which are designed to detect unauthorized activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect our internal networks, platform and products against certain attacks. In addition, techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or implement adequate preventative measures to prevent an electronic intrusion into our networks or systems, unauthorized access to or disclosure of data or other security breaches or incidents.
Third parties also may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information or otherwise compromise the security of our networks, electronic systems and/or physical facilities in order to gain access to our data or our customers’ data, which could result in significant legal and financial exposure, the loss, alteration or compromise of our sensitive or otherwise critical business information, a loss of confidence in the security of our platform and products, interruptions or malfunctions in our operations, and, ultimately, harm to our future business prospects and revenue. As a well-known provider of products in the security awareness market, we may be a particularly attractive target for these and other forms of attacks.
Our customers’ storage and use of data concerning, among others, their employees, contractors, customers and partners is essential to their use of our platform and products, which stores, transmits and processes customers’ proprietary information and personally identifiable information. If a breach of customer data security were to occur or to be perceived to occur, as a result of third-party action, employee or contractor error, malfeasance or otherwise, and the confidentiality, integrity or availability of our customers’ data was disrupted or believed to have been disrupted, we could face claims by and incur significant liability to our customers and to individuals or businesses whose information was being stored by our customers, and our platform and products may be perceived as less desirable, which could negatively affect our business and damage our reputation. In addition, a network, systems or other security breach, whether or not impacting or being perceived to impact the confidentiality, integrity or availability of our customers’ data, could result in the loss of customers and make it more challenging to acquire new customers.
In addition, security breaches impacting our platform and products could result in a risk of loss, alteration or unauthorized access to or disclosure of information maintained on or processed by our platform and products, which, in turn, could lead to claims, litigation, governmental audits and investigations and possible liability, damage our relationships with our existing customers and have a negative impact on our ability to attract and retain new customers. These breaches, or any perceived breach, of our employees, networks or systems, in particular, because of our position as a security awareness company, may also undermine confidence in our platform or products and result in damage to our reputation, negative publicity, loss of channel partners, customers and sales, increased costs to remedy any problem and costly litigation. In addition, a breach of the security measures of one of our key channel partners or independent software vendors could result in the exfiltration of confidential corporate information or other data that may provide additional avenues of attack. If a high profile security breach occurs with respect to another Software-as-a-Service, or SaaS, provider, our customers and potential customers may lose trust in the security of the SaaS business model generally, which could adversely impact our ability to retain existing customers or attract new ones, potentially causing a negative impact on our business. Any of these negative outcomes could adversely impact market acceptance of our products and could harm our business, financial condition and results of operations.
We may be required to expend significant capital and financial resources to protect against the foregoing threats and to alleviate problems caused by actual or perceived security breaches. We may face difficulties or delays in identifying, remediating and responding to attacks and actual or perceived security breaches. Additionally, we use third party service providers to provide data hosting and other services to us, and they face similar risks. Any actual or perceived security breach at a company providing services to us could result in the impacts described above. The current COVID-19 pandemic has resulted in increased employees and other personnel working remotely, which increases the risk we and our service providers face.
While we maintain insurance that may cover certain liabilities relating to security breaches, subject to applicable deductibles and policy limitations, our insurance may be insufficient to cover all liabilities incurred. We cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, premiums or deductibles could have a material adverse effect on our business, results of operations and financial condition.
Complying with evolving privacy and other data related laws and requirements may be expensive and force us to make adverse changes to our business, and failure to comply with such laws and requirements could result in substantial harm to our business.
Laws and regulations governing data privacy and protection, information security, the use of the Internet as a commercial medium, the use of data in artificial intelligence and machine learning and data sovereignty requirements are rapidly evolving, extensive, complex and include inconsistencies and uncertainties. Examples of recent and anticipated developments that have or could impact our business include the following:
•The General Data Protection Regulation, or GDPR, took effect in May 2018 and established several requirements applicable to the handling of personal data of individuals in the European Economic Area, or EEA. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including imposing accountability obligations requiring data controllers and processors to maintain a record of their data processing and implement policies and procedures as part of its mandated privacy governance framework. It also requires data controllers to be transparent and disclose to data subjects how their personal data will be used; establishes rights for individuals with respect to their personal data, including rights of access and deletion in certain circumstances; imposes limitations on retention of personal data; establishes data breach notification requirements; and sets standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.
•The GDPR and substantially equivalent legislation in the United Kingdom, or UK, also imposes strict rules applied to the transfer of personal data out of the EEA, and the UK to third countries deemed to lack adequate privacy protections (including the United States), unless an appropriate safeguard is implemented, such as the Standard Contractual Clauses, or SCCs, approved by the European Commission, or a derogation applies. The Court of Justice of the European Union, or CJEU, deemed the SCCs valid in July 2020. However, the CJEU ruled that transfers made pursuant to the SCCs and other alternative transfer mechanisms must be analyzed on a case-by-case basis to ensure European Union, or EU, standards of data protection are met in the jurisdiction where the data importer is based, and concerns remain about the potential for the SCCs and other mechanisms to face additional challenges. European regulators have issued guidance following the CJEU ruling that imposes significant new requirements on transferring data outside the EEA, including under an approved transfer mechanism. This guidance requires an “essential equivalency” assessment of the laws of the destination country. If essentially equivalent protections are not available in the destination country, the exporting entity must then assess if supplemental measures can be put in place that, in combination with the chosen transfer mechanism, would address the deficiency in the laws and ensure that essentially equivalent protection can be given to the data. Complying with this and other applicable guidance will be expensive and time consuming and may ultimately prevent or restrict us from transferring personal data outside the EEA and the UK, which would cause significant business disruption.
•The EU has proposed the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, which, if adopted, would impose new obligations on the use of personal data in the context of electronic communications, particularly with respect to online tracking technologies and direct marketing.
•In January 2020, the UK formally left the EU. The UK’s withdrawal from the EU, commonly referred to as “Brexit,” became effective December 31, 2020. The UK has implemented legislation that implements and complements the GDPR, and which provides for the implementation of GDPR requirements, including those related to cross-border data transfer. We cannot fully predict how UK data protection laws or regulations may develop in the longer term, including those relating to data transfers. We may be required to take steps to ensure the lawfulness of our data transfers.
•In January 2020, the California Consumer Privacy Act, or CCPA, took effect, providing California residents increased privacy rights and protections, including the ability to opt out of sales of their personal information. The CCPA went into effect in January 2020 and became enforceable by the California Attorney General in July 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and afford such consumers new rights with respect to their personal information, including the right to request deletion of their personal information, the right to receive the personal information on record for them, the right to know what categories of personal information generally are maintained about them, as well as the right to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
•California voters also approved a new privacy law, the California Privacy Rights Act, or CPRA, in the November 3, 2020 election. Effective January 1, 2023, the CPRA imposes additional obligations on covered companies and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that will have authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the CPRA are significant. They increase our potential exposure to regulatory enforcement and/or litigation and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply. Other U.S. states are considering adopting similar laws. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
Additionally, both U.S. and non-U.S. governments are considering regulating artificial intelligence and machine learning.
These and other similar legal and regulatory developments could contribute to legal and economic uncertainty, affect how we design, market, sell and operate our platform and products, how our customers process and share data, how we process, transfer and use data, which could negatively impact demand for our platform and products. We may incur substantial costs to comply with such laws and regulations, to meet the demands of our customers relating to their own compliance with applicable laws and regulations and to establish and maintain internal policies, self-certifications, and third-party certifications supporting our compliance programs. Our customers may bind us to certain obligations pursuant to the GDPR or other laws or regulations relating to privacy or data protection, and we may be or become bound by other contractual obligations relating to privacy, data protection or information security. We may be required to expend substantial resources to comply with these obligations. In addition, any actual or perceived non-compliance with applicable laws, regulations, policies, certifications or contractual or other actual or asserted obligations could result in proceedings, investigations or claims against us by regulatory authorities, customers or others, leading to reputational harm, significant fines, litigation costs and damages. For example, if regulators assert that we have failed to comply with the GDPR or the UK’s legislation implementing the GDPR, we may be subject to fines of up to EUR 20 million (or GBP 17.5 million) or 4% of our worldwide annual revenue, whichever is greater, as well as potential data processing restrictions. Authorities have shown a willingness to impose significant fines and issue orders preventing the processing of personal data on non-compliant businesses.
Moreover, individuals can claim damages resulting from infringement of the GDPR and other European and UK data protection laws. The GDPR also introduces the right for non-profit organizations to bring claims on behalf of data subjects. In addition to the foregoing, a breach of the GDPR or other applicable privacy and data protection laws and regulations could result in regulatory investigations, reputational damage, orders change our use of data, enforcement notices, or potential civil claims including class action type litigation. All of these impacts could have a material adverse effect on our business, financial condition and results of operations.
We publish privacy policies and other documentation regarding our collection, processing, use and disclosure of personal information, credit card information or other confidential information. Although we endeavor to comply with applicable laws and regulations relating to privacy, data protection, and information security, and our related policies, certifications, representations and documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving or maintaining compliance if our employees or service providers fail to comply with our policies, certifications, representations and documentation. Such actual or perceived failures can subject us to potential claims, litigation and international, local, state and federal action if they are found or alleged to be deceptive, unfair or to misrepresent our actual practices.
We also collect information about cyber threats from open sources, intermediaries and third parties that we make available to our customers in our industry publications. While we have implemented certain procedures to facilitate compliance with applicable laws and regulations in connection with the collection of this information, we cannot assure you that these procedures have been effective or that we, or third parties, many of whom we do not control, have complied with all laws or regulations in this regard. Failure by our employees, representatives, contractors, channel partners, agents, intermediaries or other third parties to comply with applicable laws and regulations in the collection of this information also could have negative consequences to us, including reputational harm, government investigations and penalties. Although we take precautions to prevent our information collection practices and services from being provided in violation of such laws, our information collection practices and services may have been in the past, and could in the future be, provided in violation of such laws.
Our international operations and plans for future international expansion expose us to significant risks, and failure to manage those risks could adversely impact our business, financial condition and results of operations.
We derived 6.0%, 9.7% and 11.9% of our total revenue from international customers for the years ended December 31, 2018, 2019 and 2020, respectively. We are continuing to adapt to and develop strategies to address international markets and our growth strategy includes expansion into target geographies including opportunistically through acquisitions, but there is no guarantee that such efforts will be successful. We expect that our international activities will continue to grow in the future, as we continue to pursue opportunities in international markets. These international operations will require significant management attention and financial resources and are subject to substantial risks, including:
•greater difficulty in negotiating contracts with standard terms, enforcing contracts and managing collections and longer collection periods;
•higher costs of doing business internationally, including costs incurred in establishing and maintaining office space and equipment for our international operations;
•management communication and integration problems resulting from cultural and geographic dispersion;
•risks associated with trade restrictions and foreign legal requirements, including any importation, certification and localization of our platform and products that may be required in foreign countries;
•greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties;
•compliance with anti-bribery laws, including, without limitation, compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, the U.S. Travel Act and the UK Bribery Act 2010, or the Bribery Act, violations of which could lead to significant fines, penalties and collateral consequences for our company;
•heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;
•the uncertainty of protection for intellectual property rights in some countries;
•general economic and political conditions or events in these foreign markets, including, but not limited to, Brexit;
•foreign exchange controls or tax regulations that might prevent us from repatriating cash earned outside the United States;
•political and economic instability in some countries;
•double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate;
•unexpected costs for the localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements;
•requirements to comply with foreign privacy, data protection and information security laws and regulations, and the risks and costs of noncompliance;
•greater difficulty in identifying, attracting and retaining local qualified personnel, and the costs and expenses associated with such activities;
•greater difficulty identifying qualified channel partners and maintaining successful relationships with such partners;
•differing employment practices and labor relations issues; and
•difficulties in managing and staffing international offices and increased travel, infrastructure and legal compliance costs associated with multiple international locations.
As we continue to develop and grow our business globally, our success will depend in large part on our ability to anticipate and effectively manage these risks. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to successfully manage our international operations and the associated risks could limit the future growth of our business.
The nature of our business requires the application of complex accounting rules, including revenue and expense recognition rules, and any significant changes in current rules, or interpretations thereof, could affect our financial statements and results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, or the FASB, the Securities and Exchange Commission, or the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have been focused on the integrity of financial reporting and internal controls over financial reporting. Many companies’ accounting policies and practices are being subject to heightened scrutiny by regulators and the public. In addition, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could significantly affect our reported financial results and could affect the reporting of transactions completed before the announcement of the change. Further, if we were to change our critical accounting estimates, our results of operations could be significantly affected.
We rely upon SaaS technologies from third parties to operate our business, and interruptions or performance problems with these technologies may adversely affect our business, financial condition and results of operations.
We rely on hosted SaaS applications from third parties in order to operate critical functions of our business, including platform delivery, enterprise resource planning, customer relationship management, billing, project management and accounting and financial reporting. If these services become unavailable due to extended outages, interruptions or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and our processes for managing sales of our platform and products and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business, financial condition and results of operations.
Interruptions or delays in the services provided by third-party data centers or internet service providers could impair the delivery of our platform and products, expose us to litigation and negatively impact our relationships with customers, adversely affecting our business.
We host our platform using Amazon Web Services, or AWS, data centers, a provider of cloud infrastructure services, and, therefore, we are vulnerable to service interruptions at AWS, which could impact the ability of our customers to access our platform at any time, without interruption or degradation of performance. All of our products reside on hardware owned or leased and operated by us in these locations. Our operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture and interconnection specifications, as well as the information stored in these virtual data centers, which third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, hacking and other security attacks, natural disasters, war, criminal acts, military actions, terrorist attacks and other similar events beyond our control could negatively affect the security or availability of our platform and products. A prolonged AWS service disruption affecting our platform and products for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use.
AWS enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice.
Our platform and products are accessed by a large number of customers, often at the same time. As we continue to expand the number of our customers and products available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of AWS data centers or third-party internet service providers to meet our capacity requirements could result in interruptions or delays in access to our platform and products or impede our ability to scale our operations. In the event that our AWS service agreements are terminated, or there is a lapse of service, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform and products as well as delays and additional expense in arranging new facilities and services.
Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
We depend on our executive officers and other key employees, the loss of whom could adversely affect our business.
We believe that our success is substantially dependent on our ability to attract, retain and motivate the members of our management team and other key employees throughout our organization. In particular, we depend on the services of Stu Sjouwerman, our founder and Chief Executive Officer, who is critical to our future vision and strategic direction. We rely on our leadership team in the areas of research and development, operations, security, marketing, sales, customer support and general and administrative functions. Although we have entered into employment agreements with our leadership team, our employees, including our executive officers, work for us on an “at-will” basis, which means they may terminate their employment with us at any time. If Mr. Sjouwerman or one or more of our key employees or members of our management team resigns or otherwise ceases to provide us with their service, and if we fail to have in place and execute an effective succession plan for key executives, our business could be harmed.
In addition, because our future success is dependent on our ability to continue to refresh and enhance our library of differentiated security awareness content and expand our platform features, we are heavily dependent on our ability to attract and retain qualified personnel with the requisite background and industry experience to drive content creation and product development. As we expand our business domestically and globally, our continued success will also depend on our ability to attract and retain qualified content development personnel capable of creating localized, culturally relevant security awareness content, as well as to attract and retain qualified sales, marketing and operational personnel capable of supporting a larger and more diverse customer base. The loss of the services of a significant number of our content, technology or sales personnel could be disruptive to our content and product development efforts, which could harm our ability to retain existing customers and to expand our global customer base.
If our platform and products fail to perform properly, our reputation could be adversely affected and our market share could decline, which could have a material adverse effect on our business, financial condition and results of operations.
Our platform and products are inherently complex and may contain material defects or errors. In the future we may experience website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors or negligence, viruses, hacking and other security attacks, fraud, increased resource consumption from expansion or modification to our code and spikes in customer usage. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages and our operations infrastructure may fail to keep pace with increased sales, causing new customers to experience delays. We may be required to issue credits or refunds for prepaid amounts related to unused services; see “—We provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, financial condition and results of operations” above. Any defects in functionality or that cause interruptions in the availability of our platform and products could result in:
•loss or delayed market acceptance and sales;
•breach of warranty or other contractual claims for damages incurred by customers;
•loss of customers;
•diversion of development and customer service resources; and
•injury to our reputation;
any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the costs incurred in correcting any material defects or errors might be substantial.
The market in which we participate is competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.
The market for our platform and products is rapidly evolving and fragmented, and we expect competition to increase in the future. Although we believe competitors that compete with our platform and products to manage the ongoing problem of social engineering are currently limited, a number of companies have developed, or are developing, products that currently are, or in the future may be, competitive with our offerings. For example, certain larger enterprise providers, such as Proofpoint, Mimecast and Cofense, all attempt to address human risk through a product offering that is often tied to other products and is not given a singular focus. Nevertheless, competition continues to increase in the market segments in which we operate, and we expect competition to further increase in the future. Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions. These competitive pressures may cause our subscription prices to decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new products by competitors or promotional programs offered by us or our competitors. If we are unable to maintain our pricing due to competitive pressures or other factors, our margins will be reduced and our gross profits, business, financial condition and results of operations would be adversely affected. As a result, as competition in our market increases, it could result in increased pricing pressure, decreased revenue, increased sales and marketing expenses and loss of market share for us, any of which could adversely affect our business, financial condition and results of operations.
We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.
Our quarterly results of operations fluctuate as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to:
•the level of demand for our platform and products;
•the timing and success of new product introductions by us or our competitors or any other change in the competitive landscape of our market;
•pricing pressure as a result of competition or otherwise;
•seasonal buying patterns for IT spending;
•errors in forecasting the demand for our products, which could lead to lower revenue, increased costs or both;
•increases in and timing of sales and marketing and other operating expenses that we may incur to grow and expand our operations and to remain competitive;
•credit or other difficulties confronting our channel partners;
•adverse litigation judgments, settlements or other litigation-related costs;
•changes in the legislative or regulatory environment, including with respect to privacy, data protection and security and enforcement by government regulators, including fines, orders or consent decrees;
•system failures or actual or perceived security breaches;
•fluctuations in foreign currency exchange rates;
•costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs and possible write-downs; and
•general economic conditions in either domestic or international markets, including geopolitical uncertainty and instability.
Any one or more of the factors above may result in significant fluctuations in our results of operations. You should not rely on our past results as an indicator of our future performance. The variability and unpredictability of our quarterly results of operations or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
We may face exposure to foreign currency exchange rate fluctuations.
Today, our international contracts are sometimes denominated in local currencies; however, the majority of our international costs are denominated in local currencies. Over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
We may need to raise additional capital to expand our operations and invest in new products, which capital may not be available on terms acceptable to us, or at all, and which could reduce our ability to compete and could harm our business.
We expect that our existing cash and cash equivalents, cash provided by operating activities, available borrowings under a credit agreement with Bank of America for a revolving line of credit, or the Revolving Credit Facility, with maximum borrowings of up to $100.0 million and unbilled amounts related to contracted non-cancelable subscription agreements, which are not reflected on the balance sheet, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Retaining or expanding our current levels of personnel and product offerings may require additional funds to respond to business challenges, including the need to develop new products and enhancements to our platform and products, improve our operating infrastructure or acquire complementary businesses and technologies. Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products could reduce our ability to compete and could harm our business. Accordingly, we may need to engage in additional equity or debt financings to secure additional funds. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the market price of our Class A common stock could decline. If we engage in debt financing, the holders of debt may have priority over the holders of our Class A common stock, and we may be required to accept terms that restrict our operations or our ability to incur additional indebtedness or to take other actions that would otherwise be in the interests of the debt holders. Any of the above could harm our business, financial condition and results of operations.
Adverse economic conditions or reduced IT security spending may adversely impact our revenue and profitability.
Our operations and performance depend in part on worldwide economic conditions and the impact these conditions have on levels of spending on IT networking and security solutions. Our business depends on the overall demand for these solutions and on the economic health and general willingness of our current and prospective customers to purchase our platform and products. Weak economic conditions or a reduction in IT security spending could materially and adversely affect our business, financial condition and results of operations in a number of ways, including by reducing sales, lengthening sales cycles and lowering prices for our platform and products.
Any future litigation against us could be costly and time-consuming to defend.
We may become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management’s attention and
resources, which might seriously harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us (including premium increases or the imposition of large deductible or co-insurance requirements). A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
Failure to comply with laws and regulations applicable to our business could subject us to fines and penalties.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including, but not limited to, agencies responsible for monitoring and enforcing privacy, data protection and information security laws and regulations, employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import and export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. Actual or alleged noncompliance by us, our employees, representatives, contractors, channel partners, agents, intermediaries or other third parties with applicable regulations or requirements could subject us to:
•investigations, enforcement actions and sanctions;
•mandatory changes to our platform, products or business practices;
•disgorgement of profits, fines and damages;
•civil and criminal penalties or injunctions;
•claims for damages by our customers or channel partners;
•termination of contracts;
•loss of intellectual property rights; and
•temporary or permanent debarment from sales to government organizations.
If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, financial condition and results of operations.
In addition, we endeavor to properly classify employees as exempt versus non-exempt under applicable law. Although there are no pending or threatened material claims or investigations against us asserting that some employees are improperly classified as exempt, the possibility exists that some of our current or former employees could have been incorrectly classified as exempt employees.
Sales to government entities are subject to a number of challenges and risks.
A number of our customers are U.S., state or foreign government entities. Such entities may demand contract terms that are less favorable than standard arrangements with private sector customers and may have statutory, contractual or other legal rights to terminate contracts with us or our partners for convenience or for other reasons. Any such termination may adversely affect our ability to contract with other government customers as well as our reputation, business, financial condition and results of operations.
In addition, as a vendor for government entities, we must comply with laws, regulations and policies governing such governmental bodies, including those related to their cybersecurity practices. For example, the State of California Office of Information Security Phishing Exercise Standard (SIMM 5320-A), released in October 2020,
established specific requirements for California state entities and agencies to coordinate phishing exercises with the California Department of Technology Office of Information Security and the California Cybersecurity Integration Center and other requirements for execution. Other states and jurisdictions may adopt versions of this standard or consider other new cybersecurity or data protection measures in the future, imposing additional compliance burdens on us and our customers.
Generally, the laws, regulations and policies that govern our ability to contract with government customers impose added costs on our business, and failure by us, our employees, representatives, contractors, channel partners, agents, intermediaries or other third parties to comply with applicable regulations and requirements could lead to claims for damages, penalties, termination of contracts, loss of exclusive rights in our intellectual property and temporary suspension or permanent debarment from government contracting. Any such damages, penalties, disruptions or limitations in our ability to do business with the public sector could result in reduced sales of our products, reputational damage, penalties and other sanctions, any of which could harm our reputation, business, financial condition and results of operations.
We are subject to laws and regulations, including governmental export and import controls, sanctions, anti-boycott regulations and anti-corruption laws that could impair our ability to compete in our markets and subject us to liability if we are not in full compliance with applicable laws.
We are subject to laws and regulations, including governmental export controls, that could subject us to liability or impair our ability to compete in our markets. Our products are subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations, and we and our employees, representatives, contractors, agents, intermediaries and other third parties are also subject to various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. Furthermore, U.S. export control laws and economic sanctions prohibit the export and provision of certain cloud-based solutions to, and other transactions and dealings with, countries, governments and persons targeted by U.S. sanctions.
In connection with our March 1, 2021 acquisition of MediaPro Holdings, LLC, we identified potential violations related to limited dealings by MediaPro Holdings, LLC in 2016 with Sudatel, a Sudanese telecommunications and internet service provider. As a condition of closing, MediaPro Holdings, LLC filed voluntary self-disclosures with the Office of Foreign Assets Control and the Office of Antiboycott Compliance, both of which remain pending. Although we have technical controls, policies and procedures in place designed to ensure our compliance, there is no guarantee that we will not inadvertently provide our products and services, including our publicly available online free tools, to persons targeted by U.S. sanctions, despite our reasonable efforts to prevent it.
If we or our employees, representatives, contractors, channel partners, agents, intermediaries or other third parties fail to comply with these laws and regulations, we could be subject to civil or criminal penalties, including the possible loss of export privileges and fines. We may also be adversely affected through reputational harm, loss of access to certain markets, government investigations or otherwise. Obtaining the necessary authorizations including any required license for a particular transaction may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities.
Various countries regulate the export and import of certain encryption technology, including through export and import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our customers with international operations from deploying our products globally or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations or change in the countries, governments, persons or technologies targeted by such regulations could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.
We are also subject to the FCPA, Bribery Act and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws in the United States and other countries in which we conduct activities. Anti-corruption and anti-bribery laws, which have been enforced aggressively and are interpreted broadly, prohibit companies and their employees, agents, intermediaries and other third parties from promising, authorizing, making or offering improper payments or other benefits to government officials and others in the private sector. We leverage third parties, including intermediaries, agents and channel partners, to conduct our business in the United States and abroad to sell subscriptions to our products and to collect information about cyber threats. We and these third parties may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, agents, intermediaries and other third parties, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with the FCPA, Bribery Act and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws, we cannot assure you that they will be effective, or that all of our employees, representatives, contractors, channel partners, agents, intermediaries or other third parties have taken, or will not take, actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, severe criminal or civil sanctions, settlements, prosecution, loss of export privileges, suspension or debarment from U.S. government contracts, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, whistleblower complaints, adverse media coverage and other consequences. Any investigations, actions or sanctions could harm our reputation, business, financial condition and results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history, do not expect to become profitable in the near future, and may never achieve profitability. Unused U.S. federal net operating losses, or NOLs, may be carried forward to offset future taxable income, if any, until such unused NOLs expire. Under the Tax Cuts and Jobs Act, or the Tax Act, enacted in 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, enacted on March 27, 2020, U.S. federal NOLs incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. Our NOLs may also be subject to limitations under state law. For example, California recently enacted legislation suspending the use of NOLs for taxable years 2020, 2021 and 2022 for many taxpayers.
As of December 31, 2020, we had federal and state NOL carryforwards of $41.3 million and $33.8 million, respectively, all of which were incurred in taxable years beginning after December 31, 2017. The federal NOLs can be carried forward indefinitely and the state NOLs will begin to expire in 2022, if not utilized.
In addition, under Section 382 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. We do not expect to experience an ownership change in connection with this offering, though any such ownership change could result in increased future tax liability. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.
Changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our customers could increase the costs of our products and harm our business.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Those enactments could harm our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on
a prospective or retroactive basis, as well as require us or our customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to purchase our products in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers’ and our compliance, operating and other costs, as well as the costs of our products. Further, these events could decrease the capital we have available to operate our business. Any or all of these events could harm our business, financial condition and results of operations.
Our business may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales. Any successful action by state, foreign or other authorities to collect additional or past sales tax could harm our business.
States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of sales taxes to our platform and products in various jurisdictions is unclear. It is possible that we could face sales tax audits and that our liability for these taxes could exceed our estimates as state tax authorities could still assert that we are obligated to collect additional amounts as taxes from our customers and remit those taxes to those authorities. We could also be subject to audits in states and international jurisdictions for which we have not accrued tax liabilities. A successful assertion that we should be collecting additional sales or other taxes on our products in jurisdictions where we have not historically done so and do not accrue for sales taxes could result in substantial tax liabilities for past sales, discourage customers from purchasing our products or otherwise harm our business, financial condition and results of operations.
We file sales tax returns in certain states within the United States as required by law. We do not collect sales or other similar taxes in other states and many of such states do not apply sales or similar taxes to the products that we provide. However, one or more states or foreign authorities could seek to impose additional sales, use or other tax collection and record-keeping obligations on us or may determine that such taxes should have, but have not been, paid by us. Liability for past taxes may also include substantial interest and penalty charges. Any successful action by state, foreign or other authorities to compel us to collect and remit sales, use or other taxes, either retroactively, prospectively or both, could harm our business, financial condition and results of operations.
We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.
As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and results of operations. Furthermore, one or more jurisdictions in which we do not believe we are currently subject to tax payment, withholding or filing requirements could assert that we are subject to such requirements. Any of these claims or assertions could have a material impact on us and the results of our operations.
If we fail to enhance our brand cost-effectively, our ability to expand our customer base will be impaired and our business, financial condition and results of operations may suffer.
We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our existing and future products and is an important element in attracting new customers. Furthermore, we believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful products at competitive prices. In the past, our efforts to build our brand have involved significant expenses. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers or retain our existing customers to the extent necessary
to realize a sufficient return on our brand-building efforts, and our business, financial condition and results of operations could suffer.
Catastrophic events may disrupt our business.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could harm our business. We have a large employee presence in Clearwater, Florida and the east coast of the United States is often subject to seasonal hurricanes. In the event of a major hurricane, earthquake or other catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our products, breaches of data security and loss, alteration or compromise of critical data, all of which could harm our business, financial condition and results of operations. In addition, the insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions.
Our Revolving Credit Facility contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.
The terms of our Revolving Credit Facility include a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate with other companies or sell substantially all of our assets, pay dividends, make redemptions and repurchases of stock, make investments, loans and acquisitions, or engage in transactions with affiliates. The terms of our Revolving Credit Facility may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy, including potential acquisitions, and compete against companies which are not subject to such restrictions.
A failure by us to comply with the covenants or payment requirements specified in our credit agreement could result in an event of default under the agreement, which would give the lenders the right to terminate their commitments to provide additional loans under our Revolving Credit Facility and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. If the debt under our Revolving Credit Facility were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately adversely affect our business, cash flows, results of operations, and financial condition. Even if we were able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. As of December 31, 2020, there were no amounts outstanding under the Revolving Credit Facility.
Risks Related to Our Intellectual Property
Our results of operations may be harmed if we are subject to a protracted infringement claim or a claim that results in a significant damage award.
A key tenet of our security awareness platform and products is the ability for our customers to perform simulated social engineering attacks on their users as part of our comprehensive training program. These social engineering attacks, typically in the form of a simulated phishing email, often use actual third-party names, logos, marks and other content in order to enhance the effectiveness of the simulation. In addition, we register domain names containing third-party names or marks, or variations thereof, to be used in connection with our simulated phishing emails. Although we do not believe that the use of such names, logos, marks and other content for our customers’ internal training purposes infringes upon the trademark rights or other intellectual property rights of others, some third parties have objected to such use of training materials. These third parties have sent us requests or demands to remove their names, logos, marks and other content from our platform and products, and others have alleged that such use infringes upon their trademark rights or copyrights or otherwise creates actionable claims under state law. Also, some third parties have sent us privacy service requests or demands to cease use of and transfer domains containing their names, marks or variations thereof. To date, we have taken a case-by-case approach and worked to resolve all brand-owner demands directly with the individual brand owners. Although no legal actions have resulted from historical demands, there is no assurance that legal actions will not result in the future from
objecting brand owners. Additionally, as knowledge of our business expands, we may experience such demands with increasing frequency. Such legal actions, regardless of their merit, could require us to expend significant financial resources and attention by management and other personnel, result in injunctions against us that prevent us from using third-party names, logos, marks and other content on our platform and products, require us to pay monetary awards to third parties and/or transfer domain name registrations.
Furthermore, because any legal actions could involve novel questions of law regarding simulated phishing activities for which there is no or very little precedent, and, because the outcomes of any such actions could depend on questions of specific state laws that vary from state to state, the outcomes of any such legal proceedings are uncertain and could vary depending on the jurisdiction in which an action is brought. Any such outcomes could adversely impact our relationship with our customers, including by prompting them to discontinue their business relationship with us. The occurrence of any of these results could also materially adversely affect our business, financial condition and results of operations.
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary information and technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our products may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. To the extent we expand our international activities, our exposure to unauthorized use of our products and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.
We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new products, and we cannot assure you that we will be able to license that technology on commercially reasonable terms or at all, and our inability to license this technology could harm our ability to compete.
We use open source software in our products, which could negatively affect our ability to offer our products and subject us to litigation or other actions.
We use open source software in our products and may use more open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. However, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our business, financial condition and results of operations or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar products with less development effort and time. If we inappropriately use open source software, or if the license terms for open source software that we use change, we may be required to re-engineer our products, incur additional costs, discontinue the sale of some or all of our products or take other remedial actions.
In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurances of title or controls on origin of the software. In addition, many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all of our use of open source software is in a manner that is consistent with our current policies and procedures, or will not subject us to liability.
We incorporate technology from third parties into our platform and products, and our inability to obtain or maintain rights to the technology could harm our business.
We license software and other technology from third parties that incorporate into or integrate with, our platform and products. We cannot be certain that our licensors are not infringing on the intellectual property rights of third parties or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our platform and products. In addition, many licenses are non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Some of our agreements with our licensors may be terminated for convenience by them, or otherwise provide for a limited term. If we are unable to continue to license any of this technology for any reason, our ability to develop and sell our platform and products containing such technology could be harmed. Similarly, if we are unable to license necessary technology from third parties now or in the future, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and we may be required to use alternative technology of lower quality or performance standards. This could limit and delay our ability to offer new or competitive products and increase our costs of production. As a result, our business and results of operations could be significantly harmed. Additionally, as part of our longer-term strategy, we plan to open our platform and products to third-party developers and applications to further extend their functionality. We cannot be certain that such efforts to grow our business will be successful.
Risks Related to Our Class A Common Stock and This Offering
There has been no prior public trading market for our Class A common stock, and an active trading market for our Class A common stock may never develop or be sustained.
We have applied to list our Class A common stock on the Nasdaq Global Select Market, or Nasdaq, under the symbol “KNBE.” However, we cannot assure you that an active trading market for our Class A common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our Class A common stock will develop or be
maintained, the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares.
The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, which will limit your ability to influence the outcome of important transactions, including a change in control.
Our Class B common stock has ten votes per share, and our Class A common stock, which is the stock we and the selling stockholders are offering in this initial public offering, has one vote per share. Following this offering, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, will hold in the aggregate % of the combined voting power of our Class A common stock and Class B common stock, assuming an initial public offering price of $ per share, the midpoint of the price range on the cover page of this prospectus. Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and will therefore, if acting together, be able to control all matters submitted to our stockholders for approval until the earlier of the fifth anniversary of the filing and effectiveness of our amended and restated certificate of incorporation in connection with this offering or the affirmative vote of the holders of 66-2/3% of the voting power of our outstanding Class B common stock. This concentrated control will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Future transfers by holders of shares of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, including but not limited to, transfers effected for estate planning purposes and transfers among affiliates, to the extent the transferee continues to remain an affiliate. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those individual holders of Class B common stock who retain their shares in the long term. See the section titled “Description of Capital Stock—Anti-Takeover Provisions” for additional information.
The market price of our Class A common stock may be volatile, and you could lose all or part of your investment.
Prior to this offering, there has been no public market for shares of our Class A common stock. The initial public offering price of our Class A common stock will be determined through negotiation among us and the underwriters. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our Class A common stock following this offering. In addition, the market price of our Class A common stock following this offering is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our Class A common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our Class A common stock include the following:
•price and volume fluctuations in the overall stock market from time to time;
•volatility in the market prices and trading volumes of technology stocks;
•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
•sales of shares of our Class A common stock by us or our stockholders, as well as the anticipation of lock-up releases;
•failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;
•the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
•announcements by us or our competitors of new offerings or platform features;
•the public’s reaction to our press releases, other public announcements and filings with the SEC;
•rumors and market speculation involving us or other companies in our industry;
•short selling of our Class A common stock or related derivative securities;
•actual or anticipated changes or fluctuations in our results of operations;
•actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
•announced or completed acquisitions of businesses, offerings or technologies by us or our competitors;
•developments or disputes concerning our intellectual property or other proprietary rights;
•litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•system failures or actual or perceived privacy or security incidents;
•changes in accounting standards, policies, guidelines, interpretations or principles;
•any significant change in our management; and
•general economic conditions and slow or negative growth of our markets.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, would result in substantial costs and a diversion of our management’s attention and resources.
A substantial portion of the outstanding shares of our capital stock after this offering will be restricted from immediate resale but may be sold on a stock exchange in the near future. The large number of shares of our capital stock eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our Class A common stock.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our Class A common stock. After this offering, we will have outstanding shares of Class A common stock (or shares, if the underwriters exercise in full their option to purchase additional shares of Class A common stock from us) and shares of Class B common stock (after giving effective to the Capital Stock Conversion, the Class B Reclassification and the subsequent conversion of shares of our Class B common stock into an equivalent number of our Class A common stock upon the sale of such shares by selling stockholders in this offering, the issuance of the Liquidity RSU Shares and Option Shares, and the subsequent sale of the Selling Stockholder Liquidity RSU Shares and Selling Stockholder Option Shares by the selling stockholders in this offering). The total number of shares outstanding includes the shares of Class A common stock being sold in this offering, which may be resold immediately, and shares of Class A common stock and shares of Class B common stock which will become available for sale 180 days after the date of this prospectus under the terms of a
lock-up agreement (or earlier pursuant to the early release provisions described below), all subject to applicable limitations imposed under federal securities laws. Our executive officers and directors, the selling stockholders and the holders of substantially all of our capital stock and securities convertible into or exchangeable for our capital stock have entered into lock-up agreements with the underwriters under which they have agreed or will agree, subject to specific exceptions, not to, without the prior written consent of Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC on behalf of the underwriters, dispose of or hedge any of our stock for 180 days (or earlier pursuant to the early release provisions described below) following the date of this prospectus.
With respect to employees and other stockholders (excluding directors and executive officers), 15% of the holder’s shares of common stock acquired more than 180 days prior to the date of this prospectus will be released from the lock-up agreements on the day that is two trading days after the date that the closing price of our common stock exceeded 133% of the initial public offering price set forth on the cover page of this prospectus for at least 10 trading days in the 15 consecutive trading day period immediately following the 90th day after the date of this prospectus, or the Early Lock-Up Expiration; provided, that we have filed at least one quarterly report on Form 10-Q or annual report on Form 10-K; provided further that, if the Early Lock-Up Expiration would occur when we are in a blackout period or within five trading days prior to a blackout period, the Early Lock-Up Expiration shall be delayed until immediately prior to the opening of trading on the second trading day following the first date that we are no longer in a blackout period. Notwithstanding the foregoing, in the event that at least 120 days have elapsed since the date of this prospectus and the lock-up period is set to expire during a blackout period or five trading days prior to a blackout period, then the lock-up period shall end 10 trading days prior to the commencement of the blackout period; provided that we have publicly released our earnings for the quarterly period during which this offering occurred.
Upon completion of this offering, stockholders owning an aggregate of up to shares of our common stock will be entitled, under our Amended and Restated Investors’ Rights Agreement, dated May 1, 2019, or our IRA, described further in the section titled “Description of Capital Stock—Registration Rights,” to require us to register shares of our Class A common stock for public sale in the United States. In addition, we intend to file a registration statement to register shares reserved for future issuance under our equity compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and the expiration or waiver of the lock-up agreements referred to above, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding restricted stock unit awards will be available for immediate resale in the United States in the open market.
Sales of our Class A common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.
Sales, directly or indirectly, of shares of our Class A common stock by existing equityholders could cause our stock price to decline.
Sales, directly or indirectly, of a substantial number of shares of our Class A common stock, or the public perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Many of our existing equityholders have substantial unrecognized gains on the value of the equity they hold, and may take, or attempt to take, steps to sell, directly or indirectly, their shares or otherwise secure, or limit the risk to, the value of their unrecognized gains on those shares.
While our executive officers, directors and the holders of substantially all of our capital stock and securities convertible into or exchangeable for our capital stock have entered into lock-up agreements with the underwriters, sales, short sales or hedging transactions involving our equity securities, whether before or after this offering and whether or not we believe them to be prohibited, could adversely affect the price of our Class A common stock. Further, record holders of our securities are typically the parties to the lock-up agreements, while holders of beneficial interests in our shares who are not also record holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that holders of beneficial interests who
are not record holders and are not bound by lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, to the extent an equityholder does not comply with or the underwriters are unable to enforce the terms of a lock-up agreement, such equityholder may be able to sell, short sell, transfer, hedge, pledge or otherwise dispose of or attempt to sell, short sell, transfer, hedge, pledge or otherwise dispose of, their equity interests at any time after the closing of this offering, which could negatively impact the price of our Class A common stock.
If you purchase our Class A common stock in this offering, you will incur immediate and substantial dilution.
The assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding Class A common stock of $ per share as of December 31, 2020. Investors purchasing shares of our Class A common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. Therefore, if you purchase Class A common stock in this offering, you will incur immediate dilution of $ per share in the net tangible book value per share from the price you paid.
This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased shares prior to this offering. In addition, as of December 31, 2020, options to purchase 355,495 shares of our Class B common stock with a weighted-average exercise price of $109.20 per share were outstanding under our equity plans (excluding the Option Shares). The exercise of any of these options would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive less than the purchase price paid in this offering, if anything, in the event of our liquidation.
The issuance of additional stock in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other stockholders.
Our amended and restated certificate of incorporation that will be in effect immediately prior to the completion of this offering authorizes us to issue up to shares of Class A common stock, up to shares of Class B common stock and up to shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue shares of Class A common stock or securities convertible into shares of our Class A common stock from time to time in connection with a financing, acquisition, investment, our equity incentive plans, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our Class A common stock to decline.
We have broad discretion over the use of the net proceeds from this offering and we may not use them effectively.
We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these proceeds effectively could adversely affect our business, financial condition and results of operations. Pending their use, we may invest our proceeds in a manner that does not produce income or that loses value. Our investments may not yield a favorable return to our investors and may negatively impact the price of our Class A common stock.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of Nasdaq. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs; make some activities more difficult, time-consuming and costly; and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
In connection with the audit of our consolidated financial statements for the years ended December 31, 2018 and 2019, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our case arose from the lack of appropriate levels of finance resources with the right skill sets to perform timely and effective reviews of complex accounting positions, the period end close process and financial reporting and not having the appropriate staffing in place to timely and effectively analyze the accounting impact of specific accounting transactions. This material weakness was remediated in 2020, as we significantly expanded our financial resources in anticipation of our initial public offering.
Although our previously identified material weakness has been remediated, other material weaknesses or other deficiencies may arise in the future. Our current controls and any new controls we develop may become inadequate because of changes in conditions in our business. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Class A common stock.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate we will continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. If our internal controls are perceived as inadequate or we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.
We are not currently required to comply with the SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, and we are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K. To comply with the requirements of being a public company, we will need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, financial condition and results of operations, and could cause a decline in the price of our stock.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the first fiscal year following the fifth anniversary of our initial public offering; (ii) the first fiscal year after our annual gross revenue is $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the date we qualify as a “large accelerated filer,” which means the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us, our business or our market, or if they change their recommendations regarding our Class A common stock adversely, the market price and trading volume of our Class A common stock could decline.
The trading market for our Class A common stock will depend, in part, on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If any of the analysts who cover us change their recommendation regarding our Class A common stock adversely, provide more favorable relative recommendations about our competitors or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and demand for our securities could decrease, which could cause the price and trading volume of our Class A common stock to decline.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, our Revolving Credit Facility contains restrictions on our ability to pay dividends. As a result, stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future gains on their investment.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we will be subject to the reporting and corporate governance requirements of the Exchange Act, the listing requirements of Nasdaq and other applicable securities rules and regulations, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial condition and results of operations and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business, financial condition and results of operations.
Although we have already hired additional personnel to help comply with these requirements, we may need to further expand our legal and finance departments in the future, which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business and prospects may be harmed. As a result of disclosure of information in the filings required of a public company and in this prospectus, our business, financial condition and results of operations will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business, financial condition and results of operations could be materially harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially harm our business, financial condition and results of operations.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly to serve on our audit committee and compensation committee.
In addition, as a result of our disclosure obligations as a public company, we will have reduced strategic flexibility and will be under pressure to focus on short-term results, which may materially and adversely affect our ability to achieve long-term profitability.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our Class A common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that may make the acquisition of our company more difficult, including the following:
•our board of directors will be classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause;
•certain amendments to our amended and restated certificate of incorporation will require the approval of at least 66-2/3% of the voting power of the outstanding shares of our stock entitled to vote generally in the election of directors, voting together as a single class;
•our dual class common stock structure will provide pre-IPO stockholders with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding capital stock;
•our stockholders will only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter;
•our amended and restated certificate of incorporation will not provide for cumulative voting;
•vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;
•a special meeting of our stockholders may only be called by the chairperson of our board of directors, our Chief Executive Officer or a majority of our board of directors;
•certain litigation against us can only be brought in Delaware;
•our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and
•advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
In addition, while we have opted out of Section 203 of the Delaware General Corporation Law, or the DGCL, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three year period following the time that the stockholder became an interested stockholder, unless:
•prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
•upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the votes of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or
•at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least 66-2/3% of the votes of our outstanding voting stock that is not owned by the interested stockholder.
Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of the votes of our outstanding voting stock. For purposes of this provision, “voting stock” means any class or series of stock entitled to vote generally in the election of directors. Our amended and restated certificate of incorporation provides that any interested stockholder who became an interested stockholder prior to our IPO and Mr. Sjouwerman and any of their respective direct or indirect designated transferees (other than in certain market transfers and gifts) and any group of which such persons are a party do not constitute “interested stockholders” for purposes of this provision.
Under certain circumstances, this provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with our company for a three year period. This provision may encourage companies interested in acquiring us to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
These provisions, alone or together, could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
We cannot predict the impact our dual class structure may have on the market price of our Class A common stock.
We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have restrictions on including companies with multiple-class share structures in certain of their indexes. In July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Under these policies, our dual class capital structure would make us ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices will not be investing in our stock. Because of our dual class structure, we will likely be excluded from certain of these indexes and we cannot assure you that other stock indexes will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.
Our amended and restated bylaws will designate a state or federal court located within the State of Delaware and the federal district courts of the United States as the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants. Our amended and restated bylaws further provide that the federal district courts of the United States will be the exclusive forum for resolving any complaints asserting a cause of action arising under the Securities Act of 1933, as amended, or the Securities Act.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. This exclusive forum provision will not apply to any causes of action arising under the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Further, the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However, this decision may be reviewed and ultimately overturned by the Delaware Supreme Court. If a court were to find either exclusive forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance, capital expenditures, use of proceeds from this offering, introduction of new products, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology. Actual events or results may differ from those expressed in these forward-looking statements, and these differences may be material and adverse. Forward looking statements contained in this prospectus include, but are not limited to, statements about:
•our future financial performance, including our revenue, cost of revenue, gross profit or gross margin and operating expenses;
•the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;
•our ability to attract new customers, cross-sell or upsell our existing customers and develop new products;
•our ability to maintain the security and availability of our platform and products;
•our ability to continue to build our direct sales organization;
•our ability to effectively manage our growth and future expenses;
•our ability to increase our number of customers;
•our ability to successfully expand in our existing markets and into new markets;
•our ability to effectively manage our growth and future expenses;
•our estimated total addressable market;
•our ability to expand our network of channel partners;
•our ability to maintain, protect and enhance our intellectual property;
•our ability to comply with modified or new laws and regulations applying to our business;
•our anticipated investments in sales and marketing and research and development;
•our ability to successfully defend litigation brought against us;
•the increased expenses associated with being a public company; and
•our use of the net proceeds from this offering.
We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in the section captioned “Risk Factors” and elsewhere in this prospectus. These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the
results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this prospectus or to conform such statements to actual results or revised expectations, except as required by law.
MARKET AND INDUSTRY DATA
This prospectus also contains estimates and other information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications, surveys and forecasts or other publicly available information, as well as other information based on our internal sources. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause actual results to differ from those expressed in these publications, surveys and forecasts.
Certain information in the text of this prospectus is contained in independent industry publications and publicly-available reports. The source of these independent industry publications is provided below:
•Forrester Research, Inc., The Forrester WaveTM: Security Awareness and Training Solutions, Q1 2020, February 25, 2020
•IBM Security, Cost of a Data Breach Report 2020, 2020
•International Data Corporation, Inc., Worldwide Security Spending Guide, July 2020
•(ISC)2, Strategies for Building and Growing Strong Cybersecurity Teams: (ISC)2 Cybersecurity Workforce Study, 2020
•KPMG, Harvey Nash / KPMG CIO Survey 2020, 2020
•Krombholz, K., Hobel, H., Huber, M., Weippl, E. (2014), “Advanced Social Engineering Attacks.” Journal of Information Security and Applications, Volume 22, June 2015
•Microsoft, Azure Active Directory App Gallery, 2021
•National Institute of Standards and Technology Special Publication 800-53, Security and Privacy Controls for Information Systems and Organizations, December 2020
•Okta Inc., Businesses at Work, 2021
•Trend Micro Research, Mapping the Future: Dealing with Pervasive and Persistent Threats, 2019
•Verizon, 2020 Data Breach Investigations Report (DBIR), 2020
•VMware Carbon Black, Global Threat Report: Extended Enterprise Under Threat, June 2020
•World Economic Forum, The Global Risks Report 2019, 14th Edition, 2019
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares of our Class A common stock that we are selling in this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares of our Class A common stock in full), based on an assumed initial public offering price of $ per share, the mid-point of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.
The principal purposes of this offering are to create a public market for our Class A common stock and to facilitate our future access to the public equity markets, as well as to obtain additional capital.
Except as discussed below, we currently have no specific plans for the use of a significant portion of the net proceeds of this offering. However, we anticipate that we will use the net proceeds from this offering for general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses. We currently have no agreements or commitments with respect to acquisitions of complementary products, technologies or businesses. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Accordingly, our management will have broad discretion in applying the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds from this offering. Pending these uses, we intend to invest the net proceeds of this offering primarily in short-term, investment-grade, interest-bearing instruments.
Assuming no exercise of the underwriters’ option to purchase additional shares, if we were to price the offering at $ per share, the low end of the range on the cover of this prospectus, we estimate that we would receive net proceeds of $ million, assuming the total number of shares offered by us remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If we were to price the offering at $ per share, the high end of the range on the cover of this prospectus, then we estimate that we would receive net proceeds of $ million, assuming the total number of shares of Class A common stock offered by us remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders. We will, however, bear the costs, other than the underwriting discounts and commissions, associated with the sale of these shares.
DIVIDEND POLICY
We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Accordingly, although we paid a one-time special dividend in the year ended December 31, 2019, we do not expect to pay cash dividends on our Class A common stock or Class B common stock in the foreseeable future. See Note 10 to our consolidated financial statements included elsewhere in this prospectus. In addition, the terms of our Revolving Credit Facility contain restrictions on our ability to declare and pay cash dividends on our capital stock.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2020:
•on an actual basis without any adjustments to reflect subsequent or anticipated events;
•on a pro forma basis to give effect to (i) the Capital Stock Conversion; (ii) the Class B Reclassification; and (iii) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering; and
•on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments set forth above; (ii) the issuance and sale of shares of Class A common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us; (iii) the conversion of shares of our Class B common stock held by certain of our selling stockholders into an equivalent number of our Class A common stock upon the sale of such shares by selling stockholders in this offering; (iv) the issuance of the Liquidity RSU Shares and the sale of the Selling Stockholder Liquidity RSUs in this offering; and (v) the issuance of the Option Shares and the sale of the Selling Stockholder Option Shares in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
Actual
|
|
Pro Forma
|
|
Pro Forma
As Adjusted(2)
|
|
|
(in thousands, except share and per share data)
|
|
Cash and cash equivalents(1)
|
$
|
85,582
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
Preferred stock Series A, $0.00001 par value per share, 763,126 shares authorized; 763,126 shares issued and outstanding, actual; no shares issued or outstanding pro forma and pro forma as adjusted
|
—
|
|
|
—
|
|
|
|
|
Preferred stock Series A-1, $0.00001 par value per share, 169,124 shares authorized; 169,124 shares issued and outstanding, actual; no shares issued or outstanding pro forma and pro forma as adjusted
|
—
|
|
|
|
|
|
|
Preferred stock Series B, $0.00001 par value per share, 448,896 shares authorized; 448,896 shares issued and outstanding, actual; no shares issued or outstanding pro forma and pro forma as adjusted
|
—
|
|
|
|
|
|
|
Preferred stock Series C, $0.00001 par value per share, 162,785 shares authorized; 162,785 shares issued and outstanding, actual; no shares issued or outstanding pro forma and pro forma as adjusted
|
—
|
|
|
|
|
|
|
Preferred stock Series C-1, $0.00001 par value per share, 1,310,184 shares authorized; 1,310,184 shares issued and outstanding, actual; no shares issued or outstanding pro forma and pro forma as adjusted
|
—
|
|
|
|
|
|
|
Class A common stock, $0.00001 par value per share; 4,400,000 shares authorized actual and pro forma; shares authorized pro forma as adjusted; 1,056,975 shares issued and outstanding, actual; shares issued and outstanding pro forma; and shares issued and outstanding pro forma as adjusted
|
—
|
|
|
|
|
|
|
Class B common stock, $0.00001 par value per share; shares authorized actual and pro forma; shares authorized pro forma as adjusted; shares issued and outstanding, actual; shares issued and outstanding pro forma; and shares issued and outstanding pro forma as adjusted
|
|
|
|
|
|
|
Additional paid-in capital(1)
|
158,483
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
(161,303)
|
|
|
|
|
|
|
Accumulated deficit
|
(339)
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
$
|
(3,159)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total capitalization
|
$
|
82,423
|
|
|
$
|
—
|
|
|
$
|
—
|
|
________________
(1)This amount does not reflect the use of $13.3 million of cash and 31,136 shares of our Class B common stock issued in connection with our acquisition of MediaPro Holdings, LLC on March 1, 2021.
(2)Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease), as applicable, the amount of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1,000,000 share increase or decrease in the number of shares offered in this offering would increase (decrease), as applicable, the amount of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by $ million, assuming that the price per share for the offering remains at $ (which is the midpoint of the price range set forth on the cover
page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 3,911,090 shares of our Class B common stock outstanding, in each case, as of December 31, 2020, and reflects:
•the assumed conversion of all 2,854,115 outstanding shares of our convertible preferred stock into an equal number of shares of our common stock, which will occur immediately prior to the closing of this offering, or the Capital Stock Conversion;
•the reclassification of all 1,056,975 outstanding shares of our common stock into an equal number of shares of our Class B common stock, which will occur immediately prior to the closing of this offering, or the Class B Reclassification;
• shares of our Class A common stock issued in connection with the vesting of restricted stock units, or RSUs, (assuming an aggregate value of $15.0 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were fully vested upon grant under our 2021 Equity Incentive Plan, or the 2021 Plan, in connection with this offering pursuant to applicable employment agreements to Messrs. Venkataraman and Letonoff, or the Liquidity RSU Shares, and the subsequent sale of of such shares in this offering, or the Selling Stockholder Liquidity RSU Shares (see the section titled “Executive Compensation” for additional information regarding the Liquidity RSU Shares); and
• shares of our Class B common stock to be issued upon the exercise of options by certain of our selling stockholders in this offering, or the Option Shares, and subsequently converted into the same number of shares of our Class A common stock, and the sale of of such shares by such selling stockholders in this offering, or the Selling Stockholder Option Shares.
The shares of our Class A common stock and Class B common stock outstanding as of December 31, 2020 exclude the following:
•355,495 shares of Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock outstanding as of December 31, 2020 under our 2016 Equity Incentive Plan, or the 2016 Plan, at a weighted-average exercise price of $109.20 per share, except the Selling Stockholder Option Shares;
•1,000 shares of Class B common stock issuable upon the exercise of an option to purchase shares of our Class B common stock that we granted after December 31, 2020 under our 2016 Plan, at an exercise price of $792.49 per share;
•31,136 shares of common stock issued in connection with our acquisition of MediaPro Holdings, LLC in March 2021;
• shares of Class A common stock issuable in connection with the vesting of RSUs (assuming an aggregate value of $11.7 million, calculated based on an assumed initial public price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were granted in connection with this offering under our 2021 Plan to Messrs. Sjouwerman, Venkataraman and Letonoff, and are subject to vesting upon satisfaction of a service condition and achievement of certain performance metrics, or the Executive RSU Grants (see the section titled “Executive Compensation” for additional information regarding these grants);
• shares of Class A common stock reserved for future issuance under our 2021 Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan; and
• shares of Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan.
DILUTION
If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share of our Class A common stock after this offering.
Our pro forma net tangible book value as of December 31, 2020 was $ million, or $ per share. Pro forma net tangible book value per share is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock deemed to be outstanding, after giving effect to (i) the Capital Stock Conversion; (ii) the Class B Reclassification; and (iii) the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering.
After giving effect to (i) the receipt of the net proceeds from our issuance and sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share of Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, (ii) the conversion of shares of our Class B common stock held by certain of our selling stockholders into an equivalent number of our Class A common stock upon the sale by the selling stockholders in this offering, (iii) the issuance of the Liquidity RSU Shares and the sale of the Selling Stockholder Liquidity RSU Shares in this offering, and (iv) the issuance of the Option Shares and the sale of the Selling Stockholder Option Shares in this offering, our pro forma as adjusted net tangible book value as of December 31, 2020 would have been approximately $ million, or $ per share of Class A common stock. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately $ per share to new investors purchasing shares of our Class A common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the estimated offering price that a new investor will pay for a share of Class A common stock. The following table illustrates this dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
$
|
|
Pro forma net tangible book value per share as of December 31, 2020 before this offering
|
$
|
|
|
|
Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing Class A common stock in this offering and the exercise of options by certain selling stockholders in connection with this offering
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after this offering
|
|
|
$
|
|
Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering
|
|
|
$
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $ per share, and dilution in pro forma as adjusted net tangible book value per share to new investors by approximately $ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each increase (decrease) of 1,000,000 shares in the number of shares offered in this offering, as set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value after this offering by approximately $ million, or $ per share, and would increase (decrease) the dilution per share to new investors by $ per share, assuming that the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value after the offering would be $ per share, the increase in pro forma as adjusted net tangible
book value per share to existing stockholders would be $ per share and the dilution in pro forma as adjusted net tangible book value to new investors would be $ per share, in each case assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of December 31, 2020, after giving effect to the pro forma adjustments described above, the number of shares of Class A common stock purchasable from us, the total consideration payable, or to be paid, to us and the average price per share payable, or to be paid, by existing stockholders and by the new investors. The calculation below is based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
Total Consideration
|
|
Average Price Per Share
|
|
|
Number
|
|
Percent
|
|
Number
|
|
Percent
|
|
|
Existing Investors
|
|
|
%
|
|
$
|
|
%
|
|
$
|
|
New Investors
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
%
|
|
$
|
|
%
|
|
$
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the total consideration paid by new investors and the total consideration paid by all stockholders by $ million, assuming the number of shares offered by us remains the same and after deducting the estimated underwriting discounts and commissions, but before estimated offering expenses payable by us.
Sales of shares of our Class A common stock by the selling stockholders in this offering will reduce the total number of shares of Class B common stock held by existing stockholders to or approximately % of the total shares of Class A common stock and Class B common stock outstanding after the completion of this offering, and will increase the number of shares of Class A common stock held by investors to , or approximately % of the total shares of Class A common stock and Class B common stock outstanding after the completion of this offering.
The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 3,911,090 shares of our Class B common stock outstanding, in each case, as of December 31, 2020, and reflects:
•the assumed conversion of all 2,854,115 outstanding shares of our convertible preferred stock into an equal number of shares of our common stock, which will occur immediately prior to the closing of this offering, or the Capital Stock Conversion;
•the reclassification of all 1,056,975 outstanding shares of our common stock into an equal number of shares of our Class B common stock, which will occur immediately prior to the closing of this offering, or the Class B Reclassification;
• shares of our Class A common stock issued in connection with the vesting of restricted stock units, or RSUs, (assuming an aggregate value of $15.0 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were fully vested upon grant under our 2021 Equity Incentive Plan, or the 2021 Plan, in connection with this offering pursuant to applicable employment agreements to Messrs. Venkataraman and Letonoff, or the Liquidity RSU Shares, and the subsequent sale of of such shares in this offering, or the Selling Stockholder Liquidity RSU Shares (see the section titled “Executive Compensation” for additional information regarding the Liquidity RSU Shares); and
• shares of our Class B common stock to be issued upon the exercise of options by certain of our selling stockholders in this offering, or the Option Shares, and subsequently converted into the same number of
shares of our Class A common stock, and the sale of of such shares by such selling stockholders in this offering, or the Selling Stockholder Option Shares.
The shares of our Class A common stock and Class B common stock outstanding as of December 31, 2020 exclude the following:
•355,495 shares of Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock outstanding as of December 31, 2020 under our 2016 Equity Incentive Plan, or the 2016 Plan, at a weighted-average exercise price of $109.20 per share, except the Selling Stockholder Option Shares;
•1,000 shares of Class B common stock issuable upon the exercise of an option to purchase shares of our Class B common stock that we granted after December 31, 2020 under our 2016 Plan, at an exercise price of $792.49 per share;
•31,136 shares of common stock issued in connection with our acquisition of MediaPro Holdings, LLC in March 2021;
• shares of Class A common stock issuable in connection with the vesting of RSUs (assuming an aggregate value of $11.7 million, calculated based on an assumed initial public price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were granted in connection with this offering under our 2021 Plan to Messrs. Sjouwerman, Venkataraman and Letonoff, and are subject to vesting upon satisfaction of a service condition and achievement of certain performance metrics, or the Executive RSU Grants (see the section titled “Executive Compensation” for additional information regarding these grants);
• shares of Class A common stock reserved for future issuance under our 2021 Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan; and
• shares of Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this prospectus. See “Cautionary Note Regarding Forward-Looking Statements.”
Overview
KnowBe4 has developed the leading security awareness platform enabling organizations to assess, monitor and minimize the ongoing cybersecurity threat of social engineering attacks. We are pioneering an integrated approach to security awareness that incorporates cloud-based software, machine learning, artificial intelligence, advanced analytics and insights with engaging content. Our 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.
KnowBe4 was founded in 2010 by cybersecurity veterans based on the observation that social engineering tactics targeted at the human level often allowed attackers to bypass and evade security infrastructure defenses. Attackers often use low-cost, high-volume social engineering methods to gain access to systems during the initial phase of broader, multi-stage cyberattacks that can result in devastating security breaches. Social engineering represents a universal cybersecurity risk, as it specifically targets the employees rather than the infrastructure of an organization. As such, social engineering affects organizations of all sizes and across all industries, regardless of their level of security infrastructure spend.
The KnowBe4 platform is designed to be powerful, yet highly scalable, intuitive and easy to deploy, in order to reduce the administrative burden of managing social engineering risk on security and IT professionals. Customers typically deploy our platform quickly across their entire organization to monitor and reduce the cybersecurity risk associated with their employees’ behavior.
We began selling our initial product, which was the precursor to our Kevin Mitnick Security Awareness Training, or KMSAT, product, in 2011 and began experiencing more significant market adoption in 2014, which coincides with the emergence of ransomware attacks spread via social engineering tactics. Our initial product provided the foundation for our future offerings, as it focused on enabling organizations to assess their social engineering risks and providing security awareness training to mitigate these risks. Over time, we have developed additional functionality to enhance management and risk assessment capabilities of our platform, as well as additional content to improve the efficacy of our security awareness modules. We later released KnowBe4 Compliance Manager, or KCM, a product enabling organizations to manage compliance and audit cycles. In December 2018, we released PhishER, our security orchestration and automation product, that enables security operations teams to prioritize and automate security workstreams in order to respond to and remediate social engineering attacks.
We have established a significant market presence, with almost 37,000 customers as of December 31, 2020, across virtually all industries and multiple geographies. No single direct customer represented more than 1% of our revenue as of December 31, 2020.
Our business has experienced significant growth and is capital efficient. Since inception, we have raised $34.7 million of capital, net of share repurchases, and we had $85.6 million of cash and cash equivalents as of December 31, 2020. We generated revenue of $71.3 million, $120.6 million and $174.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. As of the ends of the same periods, we had annual recurring revenue, or ARR, of $88.6 million, $145.4 million and $198.4 million. For the years ended December 31, 2018, 2019 and 2020 we had net losses of $9.2 million, $124.3 million and $2.4 million, which included $0.9 million, $118.1 million and $5.2 million of stock-based compensation expense, respectively. Our cash flows from operations were $17.7 million, $29.7 million and $44.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. Our free cash flow was $8.2 million, $18.9 million and $36.7 million over the same periods. See the sections titled “—Key Business Metrics—Annual Recurring Revenue” for additional information regarding ARR and “—Non-GAAP Financial Measures—Free Cash Flow” for additional information regarding free cash flow and for a reconciliation of free cash flow to the most directly comparable financial measure calculated in accordance with U.S. generally accepted accounting principles, or GAAP.
Our Business Model
We sell our products to customers of all sizes both directly through our dedicated inside sales teams for enterprise and small and medium businesses, or SMB, and indirectly through channel partners and managed service providers, or MSPs. We focus our selling efforts on evangelizing within our market and the need for comprehensive security awareness. Our sales motion targets IT and security professionals, who advocate for the purchase of our platform within their organization, by demonstrating the value and ease of use of our platform. We run hundreds of webcasts annually and participate in a large number of both physical and virtual security industry events. As part of our lead generation strategy, we offer over a dozen free tools that both add value to our customers and demonstrate the need for our platform. In addition, we have a deeply integrated ecosystem of channel partners, who significantly expand our market reach and ability to expand our sales efforts. Our inside sales representatives work alongside our network of channel partners to engage in joint marketing activities. As a result of our ongoing MSP and channel development efforts, our partners have increasingly driven net new business, and in particular, in our international markets. For the year ended December 31, 2020, MSPs and channel partners were involved in generating 37.4% of our revenue.
Customers typically deploy individual products on our platform to their entire employee base upon initial subscription. Because our products are designed to change human behavior within the entire organization, rollout of our products is performed organization-wide at the onset of a contract rather than focused on certain departments or portions of an organization. We utilize our team of customer success managers to ensure successful adoption and use of our products, while dedicated pricing specialists are tasked with negotiating customer renewals, along with upselling and cross-selling.
We generate substantially all of our revenue from the sale of subscriptions to access our cloud-based platform. Our platform is priced individually by product then based on the subscription tier and number of subscribed users. This pricing model allows us to offer organizations flexibility to meet their individual needs without compromising the overall value of our platform. For KMSAT and PhishER, the number of subscribed users typically includes all or a majority of the employees of the customer organization. For KCM, the number of subscribed users typically includes the employees responsible for the administration of governance and compliance functions within the customer organization. KMSAT and KCM each feature premium tiers, which offer customers access to additional features, including many of our APIs and AI functionality. Additionally, the premium tiers of KMSAT offer customers access to more differentiated content options, including highly produced, serialized content, interactive modules, games and compliance modules.
Generally, the subscription terms of our customer contracts range from one to three years and are invoiced on an annual basis. A substantial majority of our revenue is recognized over the period of the subscription. For our KMSAT product, a portion of revenue earned from subscriptions is recognized at the point-in-time that the customer’s subscription begins. Revenue recognized at contract inception relates to our customer’s ability to download content from our platform, which represents a separate performance obligation.
Key Factors Affecting Our Performance
Market Adoption and Technology Leadership
Our future success depends in large part on the growth in the market for security awareness which encompasses all products designed to address the risks of social engineering. We believe the only way to truly defend against attacks on the human layer is to increase the security awareness of all employees within an organization so they can actively combat these attacks. The limitations of infrastructure-centric security products, which we believe have failed to adequately reduce the risks of social engineering, coupled with a dynamic and growing threat landscape, are intensifying the need for organizations to empower their employees to actively defend against attacks at the human layer. As organizations grow and develop a more distributed and remote employee base, the attack surface available to sophisticated adversaries targeting their data and IT infrastructure expands. Many organizations have yet to deploy technology to address the risks associated with the human layer; as such, we view this market as a largely greenfield opportunity. To ensure comprehensive threat protection, we believe organizations need to adopt a
sophisticated, purpose-built technology platform that utilizes AI and machine learning to enable organizations to defend the human layer.
Maintaining our market-leading position in the emerging market for security awareness is a key to our future success. We were identified as a Leader in the 2020 Forrester Wave Security Awareness and Training Solutions report. Our position is, in large part, attributable to the combination of software, content and data analytics on our platform, thoughtful design of our products, prioritization of content development and an unrelenting focus on customer service. To maintain this position, we intend to continue to innovate our existing products and develop new features and products that complement our existing offerings and further address the ongoing risks of social engineering. Additionally, we expect to generate training content that is responsive in near real-time to the current threat environment and is localized to the geographies where we plan to expand.
Investment in Customer Acquisition and Retention
We believe there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales and marketing and brand awareness. Our ability to attract new customers will depend on a number of factors, including our success in recruiting, training and retaining talented salespeople while scaling our sales and marketing organization and competitive dynamics in our target markets. We anticipate increasing our marketing team headcount and are investing in programs designed to increase quarterly lead-generation and consistently penetrate up-market accounts. We intend to expand both our direct inside sales force and our channel partnerships, with a focus on increasing sales to large organizations. While our platform is built for organizations of all sizes and industries, we plan to further focus our selling efforts, both internally and through our channel partners, on enterprise customers. We expect new customer acquisition, which is measured through number of customers and ARR, to drive significant growth in the near term. During the years ended December 31, 2019 and 2020, $48.0 million and $48.4 million, respectively, of our total ARR was generated by contracts entered into with new customers. Additionally, we believe that our dedicated teams of customer success managers contribute to our ability to both upsell and cross-sell across our existing customer base in the future.
We have experienced steady retention rates across our existing customer base as measured by our dollar-based gross retention rate which was 87.3%, 89.4% and 89.0% as of December 31, 2018, 2019 and 2020, respectively. Our dollar-based gross retention rate measures our ability to retain existing customers excluding the impact of any upsell and cross-sell to those customers. We calculate our dollar-based gross retention rate by determining the lesser of: (i) the aggregate ARR for all customers who had active contracts at the end of the prior year and (ii) the aggregate ARR for the same group of customers at the end of the current year. We then divide the lesser amount by the aggregate ARR for all customers who had active contracts at the end of the prior year.
We have a history of attracting new customers and maintaining strong relationships with our existing customers over time. The chart below illustrates ARR from each customer cohort over the years presented. Each cohort
represents customers that made their initial purchase from us during a given year. For example, the 2019 cohort represents all customers that made their initial purchase from us during 2019.
We employ a business model centered around offering products that are easy to adopt and have a very short time to value. As of December 31, 2020, approximately 13.7% of our customers were using more than one product,
up from approximately 7.7% as of December 31, 2019 and approximately 1.2% as of December 31, 2018. We believe these metrics indicate strong momentum in the uptake of our newer products.
Expansion of International Operations
Revenue generated from international customers during the years ended December 31, 2018, 2019 and 2020 was 6.0%, 9.7% and 11.9% of our total revenue, respectively. A substantial portion of our revenue from international customers has been generated through the establishment of our international sales operations and MSPs and channel partnerships. Additionally, our recent acquisitions have resulted in further international revenue growth. We believe that there is significant opportunity to continue to grow our international business through these sales operations and further development of our international channel partnerships. We believe that global demand for our platform and products will continue to increase as international market awareness grows. We have invested, and plan to continue to invest, ahead of this potential demand, in sales, marketing and support personnel.
Key Business Metrics
We regularly monitor a number of financial and operating metrics, including the following key metrics, in order to measure our current performance and estimate our future performance, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Number of customers
|
22,521
|
|
|
30,259
|
|
|
36,753
|
|
|
Year-over-year growth
|
52.9
|
%
|
|
34.4
|
%
|
|
21.5
|
%
|
|
Annual recurring revenue (in thousands)
|
$
|
88,645
|
|
|
$
|
145,369
|
|
|
$
|
198,369
|
|
|
Year-over-year growth
|
90.9
|
%
|
|
64.0
|
%
|
|
36.5
|
%
|
Number of Customers
We believe that our ability to increase and retain the number of customers on our platform is an indicator of our market penetration, the growth of our business and potential future business opportunities. Increasing awareness of our platform and products, combined with further overall awareness of the need to address the human risk within cybersecurity, has continued to expand our customer base to include organizations of all sizes across all industries.
We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution or a distinct business unit of a large company that has an active contract with us to access our platform. We do not consider our channel partners as separate customers as our contracts are executed with the end user, and we treat MSPs, who may purchase our products on behalf of multiple companies, as a single customer. Our number of customers increased on an absolute basis, but there has been a decrease in year-over-year growth in number of customers since December 31, 2018 as a result of an increased focus on enterprise customers and MSPs, which are subject to longer sales cycles. Additionally, as our customer base grows and as our market penetration increases, we do not expect to continue to grow at the same year-over-year rate.
Annual Recurring Revenue
We believe that ARR is a key metric to measure our business performance because it is driven by our ability to acquire new customers and to maintain and expand our relationship with existing customers. We define ARR as the annualized value of all contractual subscription agreements as of the end of the period. We perform this calculation on an individual contract basis by dividing the total dollar amount of a contract by the total contract term stated in months and multiplying this amount by twelve to annualize. Calculated ARR for each individual contract is then aggregated to arrive at total ARR. ARR does not have a standardized meaning and therefore may not be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue, deferred revenue and remaining performance obligations and is not intended to be combined with or to replace any of those items. Specifically, ARR, as calculated under the definition herein, does not adjust for the timing impact of revenue recognition for specific performance obligations identified within a contract. ARR is not a forecast and the active contracts at the date used in calculating ARR may or may not be extended by our customers. We expect ARR in total dollars to continue to grow as we execute on our growth strategies and increase our market penetration, but we do not expect to continue to grow at the same year-over-year rate as we become a larger, more mature business.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.
Non-GAAP Operating (Loss) Income
We define non-GAAP operating (loss) income as GAAP operating loss excluding stock-based compensation expense, amortization of acquired intangible assets and acquisition-related costs. Costs associated with acquisitions include legal, accounting and other professional fees, as well as changes in the fair value of contingent consideration obligations. We believe non-GAAP operating (loss) income provides our management and investors consistency and
comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of certain variables unrelated to our overall operating performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Operating loss
|
$
|
(9,700)
|
|
|
$
|
(125,532)
|
|
|
$
|
(1,542)
|
|
|
Add: Stock-based compensation expense
|
883
|
|
|
118,105
|
|
|
5,234
|
|
|
Add: Amortization of acquired intangible assets
|
819
|
|
|
247
|
|
|
332
|
|
|
Add: Acquisition related costs
|
276
|
|
|
292
|
|
|
—
|
|
|
Non-GAAP operating (loss) income
|
$
|
(7,722)
|
|
|
$
|
(6,888)
|
|
|
$
|
4,024
|
|
Free Cash Flow
We define free cash flow as net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, less purchases of property, equipment, amounts capitalized for internal-use software and principal payments on finance leases. We believe that free cash flow is a meaningful indicator of liquidity to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and capitalized internal-use software, can be used for strategic initiatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
$
|
17,716
|
|
|
$
|
29,718
|
|
|
$
|
44,864
|
|
|
Less: Purchases of property and equipment
|
(3,957)
|
|
|
(5,573)
|
|
|
(5,426)
|
|
|
Less: Capitalized internal-use software
|
(5,514)
|
|
|
(5,223)
|
|
|
(2,682)
|
|
|
Less: Principal payments on finance leases
|
—
|
|
|
—
|
|
|
(35)
|
|
|
Free Cash Flow
|
$
|
8,245
|
|
|
$
|
18,922
|
|
|
$
|
36,721
|
|
Components of Our Operating Results
Revenue
We derive substantially all of our revenue from subscription services fees paid by customers for access to our cloud-based platform, which includes support services and feature upgrades throughout the duration of the customer’s contract. While contracts with our customers do not provide the customer with the right to take possession of software operating on our global cloud-based platform, certain arrangements allow our customers the ability to download and use our content within their own learning management systems. Our content is only available to customers throughout the duration of their subscription and is accessed through our cloud-based platform. Subscription services fees and access to content for download are considered separate performance obligations. Invoiced amounts are allocated between subscription services fees and access to content and are recorded as deferred revenue and revenue, respectively. Deferred revenue primarily consists of amounts invoiced to customers for our subscription services and is generally recognized ratably over the subscription period while revenue related to content downloads is recognized at contract inception.
Subscription terms typically range from one year to three years and generally begin on the date access to our platform is made available to the customer. Our subscriptions are generally invoiced upfront for the duration of the contract term or in annual installments. Our arrangements are primarily noncancellable and nonrefundable. We collect our receivables in advance of the subscription service period and often issue renewal invoices in advance of the renewal service period.
Because we recognize revenue ratably over the terms of our subscription contracts, a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during previous periods. Consequently, increases or decreases in new sales or renewals in any one period may not be immediately reflected as revenue for that period. Accordingly, the effect of downturns in sales and market acceptance of our platform, and potential changes in our rate of renewals, may not be fully reflected in our results of operations until future periods.
Cost of Revenue and Gross Margin
Cost of revenue consists of costs associated with delivering our platform and providing support. These costs include employee-related costs such as salaries and bonuses, stock-based compensation expense and benefits costs associated with our operations and support personnel, costs associated with third-party hosting services, amortization of capitalized internal-use software and content, and allocated overhead. We expect cost of revenue to increase in absolute dollars and as a percentage of revenue, relative to the extent of the growth of our business.
Gross margin is gross profit expressed as a percentage of total revenue. Our gross margin has been and will continue to be affected by various factors, including the timing and amount of costs associated with supporting our platform and the extent to which we expand our customer success team and develop additional content to be hosted on our platform. We intend to continue to invest additional resources in our platform, content development and support services which we expect to result in steady gross margin over time.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of employee-related costs, including salaries and wages, stock-based compensation expenses and sales commissions, costs of general marketing programs and promotional activities, travel-related expenses and allocated overhead. Sales commissions earned by our sales force that are considered to be incremental to the cost of acquiring a customer are deferred and amortized over the estimated period of benefit. Marketing programs consist of advertising, events, including our KB4-CON customer conference, which has historically been held during the second quarter of each year, corporate communications, brand building and product marketing activities. We expect our sales and marketing expenses to increase on an absolute dollar basis as we continue to make significant investments in our sales and marketing organization to drive additional revenue, increase market share and expand our global customer base.
Technology and Development
Technology and development costs consist primarily of research and development activities, non-capitalizable costs of developing content and certain overhead allocations. These costs include employee-related costs, consulting services, expenses related to the design, development, testing and enhancements of our subscription services. Technology and development costs are expensed as incurred. From a unit cost standpoint, our technology and development costs are lower primarily due to favorable costs of living in the geographic locations in which our offices are based. We expect that our technology and development expenses will increase in absolute dollars and may increase as a percentage of our revenue as we continue to enhance our platform functionality and develop new content and features. Additionally, our technology and development expense may fluctuate as a percentage of our revenue from period to period depending on the timing of development.
General and Administrative
General and administrative expenses consist primarily of employee-related costs for accounting, finance, legal, IT and human resources personnel and also include expenses related to consulting services, audit fees, tax services, legal services and other general corporate items. Our general and administrative costs also include our investment in internal initiatives and tools which we believe promotes our corporate culture and helps us attract and retain talent. We expect our general and administrative expenses to increase in absolute dollars in future periods as we continue to expand our operations, hire additional personnel and incur costs to support the requirements of being a public company.
Interest and Other Income
Interest and other income primarily consists of interest earned on overnight cash deposits and fluctuates with market rates of interest and overall cash balances.
Interest Expense
Interest expense primarily relates to imputed interest calculated on certain contingent liabilities arising from our historical business combinations.
Income Tax Benefit (Expense)
Income tax benefit (expense) consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. Our provision for income taxes has not historically been significant to our business as we have incurred operating losses to date. We maintain a valuation allowance on our U.S. federal, state and foreign deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be realized.
Results of Operations
The following table is a summary of our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Revenues, net
|
$
|
71,287
|
|
|
$
|
120,575
|
|
|
$
|
174,886
|
|
|
Cost of revenues(1)
|
12,062
|
|
|
20,579
|
|
|
26,730
|
|
|
Gross profit
|
59,225
|
|
|
99,996
|
|
|
148,156
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Sales and marketing(1)
|
45,101
|
|
|
69,090
|
|
|
82,188
|
|
|
Technology and development(1)
|
3,299
|
|
|
10,662
|
|
|
19,804
|
|
|
General and administrative(1)
|
20,525
|
|
|
145,776
|
|
|
47,706
|
|
|
Total operating expenses
|
68,925
|
|
|
225,528
|
|
|
149,698
|
|
|
Operating loss
|
(9,700)
|
|
|
(125,532)
|
|
|
(1,542)
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest income
|
505
|
|
|
799
|
|
|
197
|
|
|
Interest expense
|
(29)
|
|
|
(47)
|
|
|
(60)
|
|
|
Other income
|
76
|
|
|
90
|
|
|
807
|
|
|
Loss before income tax (expense) benefit
|
(9,148)
|
|
|
(124,690)
|
|
|
(598)
|
|
|
Income tax (expense) benefit
|
(98)
|
|
|
367
|
|
|
(1,832)
|
|
|
Net loss
|
$
|
(9,246)
|
|
|
$
|
(124,323)
|
|
|
$
|
(2,430)
|
|
________________
(1)Amounts include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Cost of revenues
|
$
|
28
|
|
|
$
|
83
|
|
|
$
|
188
|
|
|
Sales and marketing
|
223
|
|
|
5,750
|
|
|
1,579
|
|
|
Technology and development
|
43
|
|
|
162
|
|
|
896
|
|
|
General and administrative
|
589
|
|
|
112,110
|
|
|
2,571
|
|
|
Total stock-based compensation expense
|
$
|
883
|
|
|
$
|
118,105
|
|
|
$
|
5,234
|
|
Comparison of the Years Ended December 31, 2019 and 2020
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2019
|
|
2020
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Revenues, net
|
$
|
120,575
|
|
|
$
|
174,886
|
|
|
$
|
54,311
|
|
|
45.0
|
%
|
Revenues increased by $54.3 million, or 45.0%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. Approximately $39.0 million of the year-over-year increase in revenue is related to the recognition of revenue from contracts entered into in prior periods. Revenue generated by contracts from new customers represented $6.0 million of the total increase, as our customer base grew by approximately 21.5% over the same period. Additional increases in revenues largely relate to renewals of contracts with existing customers and continued expansion into international markets, with revenues from jurisdictions located outside of North America representing 11.9% of total revenues for the year ended December 31, 2020, an increase of 2.1% over the prior year.
Cost of Revenues and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2019
|
|
2020
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Cost of revenues
|
$
|
20,579
|
|
|
$
|
26,730
|
|
|
$
|
6,151
|
|
|
29.9
|
%
|
|
Gross margin
|
82.9
|
%
|
|
84.7
|
%
|
|
|
|
|
Cost of revenues increased by $6.2 million, or 29.9%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. The overall increase in cost of revenues is primarily driven by increased headcount to support our overall business growth combined with increases in amortization related to our developed technology and content assets. The year-over-year increase in cost of revenues is slightly less than the increase in revenues over the same period due to efficiencies experienced in our customer support functions which contributed to the slight increase in gross margins for the year ended December 31, 2020 when compared to December 31, 2019.
Operating Expenses
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2019
|
|
2020
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Sales and marketing
|
$
|
69,090
|
|
|
$
|
82,188
|
|
|
$
|
13,098
|
|
|
19.0
|
%
|
Sales and marketing expenses increased by $13.1 million, or 19.0%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. The increase in sales and marketing expenses relates to a $8.4 million increase in employee-related costs, including salaries and commissions, primarily driven by increased headcount during the year, a $2.6 million increase in software license fees and additional increases in expenditures for marketing and promotional activities and allocated overhead.
Technology and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2019
|
|
2020
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Technology and development
|
$
|
10,662
|
|
|
$
|
19,804
|
|
|
$
|
9,142
|
|
|
85.7
|
%
|
Technology and development expenses increased by $9.1 million, or 85.7%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. The increase in technology and development costs is driven
by an $8.0 million increase in employee-related research and development costs associated with the development of new platform features and preliminary development activity related to new products. The increase is further attributable to increased overhead allocations and production expenses which are in line with the overall growth of our business.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2019
|
|
2020
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
General and administrative
|
$
|
145,776
|
|
|
$
|
47,706
|
|
|
$
|
(98,070)
|
|
|
(67.3)
|
%
|
General and administrative expenses decreased by $98.1 million, or 67.3%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. The decrease is primarily due to $110.6 million of stock-based compensation expense recognized in conjunction with the Series C and C-1 Preferred Stock transactions during the year ended December 31, 2019. Excluding the impact of these transactions, the change in general and administrative expenses was an increase of $12.5 million or 35.4%. These increases in general and administrative expenses as compared to the prior year relate to $9.4 million in additional employee-related expenses within our administrative functions along with an additional $3.1 million of costs to support overall growth in the business including professional fees and other general operating costs, such as depreciation and amortization expenses, lease and utilities costs.
Income Tax Benefit (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2019
|
|
2020
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Income tax benefit (expense)
|
$
|
367
|
|
|
$
|
(1,832)
|
|
|
$
|
(2,199)
|
|
|
(599.2)
|
%
|
Income tax expense increased by $2.2 million, or (599.2)%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. This increase is primarily due to a $2.7 million valuation allowance recorded as a result of continuing losses generated at our German subsidiary. We anticipate income tax benefit (expense) normalizing to our historical rates in the near term but increasing in the future based on growth in jurisdictions in which we generate operating income.
Comparison of the Years Ended December 31, 2018 and 2019
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2018
|
|
2019
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Revenues, net
|
$
|
71,287
|
|
|
$
|
120,575
|
|
|
$
|
49,288
|
|
|
69.1
|
%
|
Revenues increased by $49.3 million, or 69.1%, for the year ended December 31, 2019, compared to the year ended December 31, 2018. Approximately $29.8 million of the year-over-year increase in revenue is related to the recognition of revenue from contracts entered into in prior periods. Revenue generated by contracts with new customers represented $5.7 million of the total increase, as our customer base grew by approximately 34.4% year-over-year. Additional drivers of the increases in revenues relate to renewals of contracts with existing customers, continued expansion into international markets and the addition of our new PhishER product, which was released in December 2018 and grew significantly over the prior year period but represented a smaller driver of overall growth.
Cost of Revenues and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2018
|
|
2019
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Cost of revenues
|
$
|
12,062
|
|
|
$
|
20,579
|
|
|
$
|
8,517
|
|
|
70.6
|
%
|
|
Gross margin
|
83.1
|
%
|
|
82.9
|
%
|
|
|
|
|
Cost of revenues increased by $8.5 million, or 70.6%, for the year ended December 31, 2019, compared to the year ended December 31, 2018. The overall increase in cost of revenues is in line with our increase in revenues and is primarily driven by increased headcount to support our overall business growth combined with increases in amortization related to our developed technology and content assets. Gross margins remained consistent for the year ended December 31, 2019 when compared to December 31, 2018.
Operating Expenses
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2018
|
|
2019
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Sales and marketing
|
$
|
45,101
|
|
|
$
|
69,090
|
|
|
$
|
23,989
|
|
|
53.2
|
%
|
Sales and marketing expenses increased by $24.0 million, or 53.2%, for the year ended December 31, 2019, compared to the year ended December 31, 2018. The increase in sales and marketing expenses primarily relates to a $19.9 million increase in employee-related costs, including salaries and commissions and included $5.5 million of stock-based compensation expenses, the majority of which related to the Series C and C-1 Preferred Stock transactions occurring during the year ended December 31, 2019. The overall increase in sales and marketing costs is in line with our business growth over the same period.
Technology and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2018
|
|
2019
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
Technology and development
|
$
|
3,299
|
|
|
$
|
10,662
|
|
|
$
|
7,363
|
|
|
223.2
|
%
|
Technology and development expenses increased by $7.4 million, or 223.2%, for the year ended December 31, 2019, compared to the year ended December 31, 2018. The increase in technology and development costs is driven by a $5.4 million increase in employee-related research and development costs associated with the development of new platform features and preliminary development activity related to new products. The increase is further attributable to increased overhead allocations which are in line with the overall growth of our business.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
|
2018
|
|
2019
|
|
$
|
|
%
|
|
|
(in thousands)
|
|
General and administrative
|
$
|
20,525
|
|
|
$
|
145,776
|
|
|
$
|
125,251
|
|
|
610.2
|
%
|
General and administrative expenses increased by $125.3 million, or 610.2%, for the year ended December 31, 2019, compared to the year ended December 31, 2018. The increase is primarily due to $110.6 million of stock-based compensation expense recognized in conjunction with the Series C and C-1 Preferred Stock transactions. Excluding the impact of these transactions, the change in general and administrative expenses was an increase of $14.7 million or 71.6%. Additional increases in general and administrative expenses as compared to the prior year relate to $9.6 million in additional employee-related expenses within our administrative functions along with an
additional $4.2 million of costs to support overall growth in the business including professional fees, amortization expenses and lease costs.
Quarterly Results of Operations
The following tables set forth selected unaudited quarterly statements of operations data for each of the eight quarters ended December 31, 2020, as well as the percentage of total revenue that each line item represents for each quarter. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
2019
|
|
June 30,
2019
|
|
September 30, 2019
|
|
December 31,
2019
|
|
March 31,
2020
|
|
June 30,
2020
|
|
September 30, 2020
|
|
December 31, 2020
|
|
|
(in thousands, except customer data)
|
|
Revenues, net
|
$
|
24,899
|
|
|
$
|
27,924
|
|
|
$
|
31,440
|
|
|
$
|
36,312
|
|
|
$
|
39,178
|
|
|
$
|
41,489
|
|
|
$
|
44,932
|
|
|
$
|
49,287
|
|
|
Cost of revenues (1)
|
4,138
|
|
|
4,848
|
|
|
5,538
|
|
|
6,055
|
|
|
6,043
|
|
|
6,303
|
|
|
6,918
|
|
|
7,466
|
|
|
Gross profit
|
20,761
|
|
|
23,076
|
|
|
25,902
|
|
|
30,257
|
|
|
33,135
|
|
|
35,186
|
|
|
38,014
|
|
|
41,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (1)
|
15,735
|
|
|
15,986
|
|
|
18,198
|
|
|
19,171
|
|
|
19,627
|
|
|
19,875
|
|
|
20,752
|
|
|
21,934
|
|
|
Technology and development (1)
|
2,214
|
|
|
2,425
|
|
|
2,592
|
|
|
3,431
|
|
|
4,906
|
|
|
4,391
|
|
|
4,822
|
|
|
5,685
|
|
|
General and administrative(1)
|
17,724
|
|
|
8,089
|
|
|
111,825
|
|
|
8,138
|
|
|
10,120
|
|
|
10,976
|
|
|
13,440
|
|
|
13,170
|
|
|
Total operating expenses
|
35,673
|
|
|
26,500
|
|
|
132,615
|
|
|
30,740
|
|
|
34,653
|
|
|
35,242
|
|
|
39,014
|
|
|
40,789
|
|
|
Operating (loss) income
|
(14,912)
|
|
|
(3,424)
|
|
|
(106,713)
|
|
|
(483)
|
|
|
(1,518)
|
|
|
(56)
|
|
|
(1,000)
|
|
|
1,032
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
193
|
|
|
189
|
|
|
232
|
|
|
185
|
|
|
125
|
|
|
14
|
|
|
20
|
|
|
38
|
|
|
Interest expense
|
(4)
|
|
|
(7)
|
|
|
(25)
|
|
|
(11)
|
|
|
(13)
|
|
|
(16)
|
|
|
(16)
|
|
|
(15)
|
|
|
Other income
|
13
|
|
|
27
|
|
|
30
|
|
|
20
|
|
|
33
|
|
|
80
|
|
|
29
|
|
|
665
|
|
|
(Loss) income before income tax (expense) benefit
|
(14,710)
|
|
|
(3,215)
|
|
|
(106,476)
|
|
|
(289)
|
|
|
(1,373)
|
|
|
22
|
|
|
(967)
|
|
|
1,720
|
|
|
Income tax (expense) benefit
|
(165)
|
|
|
(14)
|
|
|
(6)
|
|
|
552
|
|
|
12
|
|
|
407
|
|
|
(735)
|
|
|
(1,516)
|
|
|
Net (loss) income
|
$
|
(14,875)
|
|
|
$
|
(3,229)
|
|
|
$
|
(106,482)
|
|
|
$
|
263
|
|
|
$
|
(1,361)
|
|
|
$
|
429
|
|
|
$
|
(1,702)
|
|
|
$
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of customers
|
24,261
|
|
|
26,058
|
|
|
28,095
|
|
|
30,259
|
|
|
31,823
|
|
|
33,056
|
|
|
34,604
|
|
|
36,753
|
|
|
Annual recurring revenue(2)
|
$
|
101,231
|
|
|
$
|
113,514
|
|
|
$
|
128,268
|
|
|
$
|
145,369
|
|
|
$
|
157,920
|
|
|
$
|
169,003
|
|
|
$
|
181,924
|
|
|
$
|
198,369
|
|
|
Free cash flow(2)
|
$
|
4,319
|
|
|
$
|
6,112
|
|
|
$
|
6,344
|
|
|
$
|
2,147
|
|
|
$
|
10,386
|
|
|
$
|
11,201
|
|
|
$
|
11,017
|
|
|
$
|
4,117
|
|
________________
(1)Amounts include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
2019
|
|
June 30,
2019
|
|
September 30, 2019
|
|
December 31,
2019
|
|
March 31,
2020
|
|
June 30,
2020
|
|
September 30, 2020
|
|
December 31, 2020
|
|
|
(in thousands)
|
|
|
|
Cost of revenues
|
$
|
6
|
|
|
$
|
21
|
|
|
$
|
25
|
|
|
$
|
31
|
|
|
$
|
21
|
|
|
$
|
31
|
|
|
$
|
70
|
|
|
$
|
66
|
|
|
Sales and marketing
|
3,210
|
|
|
117
|
|
|
2,146
|
|
|
277
|
|
|
151
|
|
|
251
|
|
|
423
|
|
|
754
|
|
|
Technology and development
|
15
|
|
|
34
|
|
|
20
|
|
|
93
|
|
|
70
|
|
|
100
|
|
|
153
|
|
|
573
|
|
|
General and administrative
|
9,041
|
|
|
236
|
|
|
102,550
|
|
|
283
|
|
|
461
|
|
|
934
|
|
|
588
|
|
|
588
|
|
|
Total stock-based compensation expense
|
$
|
12,272
|
|
|
$
|
408
|
|
|
$
|
104,741
|
|
|
$
|
684
|
|
|
$
|
703
|
|
|
$
|
1,316
|
|
|
$
|
1,234
|
|
|
$
|
1,981
|
|
(2)See the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Annual Recurring Revenue” for additional information regarding ARR and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Free Cash Flow” for additional information regarding free cash flow and for a reconciliation of free cash flow to the most directly comparable financial measure calculated in accordance with U.S. generally accepted accounting principles, or GAAP.”
Percentage of Revenues Data
All values from the statement of operations, expressed as percentage of total revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
June 30,
2019
|
|
September 30,
2019
|
|
December 31,
2019
|
|
March 31, 2020
|
|
June 30,
2020
|
|
September 30, 2020
|
|
December 31, 2020
|
|
Revenues, net
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of revenues
|
16.6
|
%
|
|
17.4
|
%
|
|
17.6
|
%
|
|
16.7
|
%
|
|
15.4
|
%
|
|
15.2
|
%
|
|
15.4
|
%
|
|
15.1
|
%
|
|
Gross margin
|
83.4
|
%
|
|
82.6
|
%
|
|
82.4
|
%
|
|
83.3
|
%
|
|
84.6
|
%
|
|
84.8
|
%
|
|
84.6
|
%
|
|
84.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
63.2
|
%
|
|
57.2
|
%
|
|
57.9
|
%
|
|
52.8
|
%
|
|
50.1
|
%
|
|
47.9
|
%
|
|
46.2
|
%
|
|
44.5
|
%
|
|
Technology and development
|
8.9
|
%
|
|
8.7
|
%
|
|
8.2
|
%
|
|
9.4
|
%
|
|
12.5
|
%
|
|
10.6
|
%
|
|
10.7
|
%
|
|
11.5
|
%
|
|
General and administrative
|
71.2
|
%
|
|
29.0
|
%
|
|
355.7
|
%
|
|
22.4
|
%
|
|
25.8
|
%
|
|
26.5
|
%
|
|
29.9
|
%
|
|
26.7
|
%
|
|
Total operating expenses
|
143.3
|
%
|
|
94.9
|
%
|
|
421.8
|
%
|
|
84.7
|
%
|
|
88.5
|
%
|
|
84.9
|
%
|
|
86.8
|
%
|
|
82.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
(59.9)
|
%
|
|
(12.3)
|
%
|
|
(339.4)
|
%
|
|
(1.3)
|
%
|
|
(3.9)
|
%
|
|
(0.1)
|
%
|
|
(2.2)
|
%
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
0.8
|
%
|
|
0.7
|
%
|
|
0.7
|
%
|
|
0.5
|
%
|
|
0.3
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.1
|
%
|
|
Interest expense
|
—
|
%
|
|
—
|
%
|
|
(0.1)
|
%
|
|
0.0
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Other income
|
0.1
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax (expense) benefit
|
(59.1)
|
%
|
|
(11.5)
|
%
|
|
(338.7)
|
%
|
|
(0.8)
|
%
|
|
(3.5)
|
%
|
|
0.1
|
%
|
|
(2.2)
|
%
|
|
3.5
|
%
|
|
Income tax (expense) benefit
|
(0.7)
|
%
|
|
(0.1)
|
%
|
|
—
|
%
|
|
1.5
|
%
|
|
—
|
%
|
|
1.0
|
%
|
|
(1.6)
|
%
|
|
(3.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
(59.7)
|
%
|
|
(11.6)
|
%
|
|
(338.7)
|
%
|
|
0.7
|
%
|
|
(3.5)
|
%
|
|
1.0
|
%
|
|
(3.8)
|
%
|
|
0.4
|
%
|
Quarterly Trends
Our quarterly revenue increased in each of the periods presented due primarily to increases in the number of new customers and contract renewals with existing customers as well as sales of our newer products. Additionally, our fourth quarter has historically been our strongest quarter for new business and renewals, driven by the overall timing of customer contracts, including renewals and customer budget timing. The effect of this seasonality in both invoicing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual invoices.
Cost of revenue has increased in the majority of the periods presented. This overall increase in cost of revenues is in line with our increase in revenue and is primarily driven by increased headcount to support our overall business growth, particularly within our customer success team, combined with increases in amortization related to our developed internal-use software and content assets. Gross margin has improved slightly over the periods presented. We expect margins to remain steady or decrease slightly in the future as we continue to build out our customer support structure to support our overall business growth.
Our operating expenses have generally increased over the periods presented primarily due to increases in headcount and other related expenses to support our growth. Any periods in which operating expenses have not increased sequentially were due to variability in our stock-based compensation expense. Additionally, our technology and development expenses fluctuate quarter to quarter based on the timing and extent of research and development and content production activities while our sales and marketing expenses can be impacted by the timing of industry events. During the first and third quarters of 2019, we experienced significantly higher general and administrative costs driven by the impact of non-recurring stock-based compensation expense recognized during those periods. Excluding the impact of the non-recurring stock-based compensation expense, our general and administrative expenses remain consistent quarter over quarter when considering the growth in our business.
Liquidity and Capital Resources
At December 31, 2020, our principal sources of liquidity were cash and cash equivalents totaling $85.6 million and accounts receivable of $38.7 million. Our cash and cash equivalents are comprised of time deposits with financial institutions. To date, we have financed our operations primarily through payments received from customers using our platform supplemented by private placements of our equity securities. Our positive cash flows from operations on an annual basis enable us to make continued investments in the growth of our business. Following the completion of this offering, we expect that our operating cash flows, in addition to our cash and cash equivalents, will enable us to continue to make such investments in the future. We expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.
We typically invoice our subscription customers annually in advance. Therefore, a substantial source of our cash is from customer prepayments, which are included on our consolidated balance sheets as deferred revenue. Deferred revenue consists of invoiced fees for our subscription services, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of December 31, 2020, we had deferred revenue of $185.7 million, of which $112.5 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria are met.
As of December 31, 2020, our remaining performance obligation was $223.8 million. Our remaining performance obligation represents contracted revenue that has not yet been recognized and includes deferred revenue, which has been invoiced and is recorded on the balance sheet, and unbilled amounts that are not recorded on the balance sheet, that will be recognized as revenue in future periods.
We believe our existing cash and cash equivalents, cash provided by operating activities, available borrowings under our Revolving Credit Facility and unbilled amounts related to contracted non-cancelable subscription agreements, which are not reflected on the balance sheet, will be sufficient to meet our working capital and capital expenditure needs over the next 12 months. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products and technologies, and intellectual property rights, though we currently have no agreements or commitments to do so. To facilitate these acquisitions or investments, we may seek additional equity
or debt financing, which may not be available on terms favorable to us or at all, impacting our ability to complete subsequent acquisitions or investments.
On March 12, 2021, we entered into a credit agreement with Bank of America for a revolving line of credit, or the Revolving Credit Facility, with maximum borrowings of up to $100.0 million. The Revolving Credit Facility matures on March 12, 2024. Loans under the Revolving Credit Facility bear interest, at our option, at (i) a base rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest in effect for such date as publicly announced from time to time by Bank of America as its “prime rate”, or (c) the eurodollar rate plus 1.0%, provided that such rate shall not be less than 0.5%. We are also obligated to pay other customary fees for a credit facility of this size and type, including letter of credit fees, an upfront fee, and an unused commitment fee. We expect to use the Revolving Credit Facility for general corporate purposes, including potential future acquisitions and expansions. No amounts have been borrowed under the Revolving Credit Facility as of the date of this prospectus, and we had no issued letters of credit outstanding from the credit agreement.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
$
|
17,716
|
|
|
$
|
29,718
|
|
|
$
|
44,864
|
|
|
Net cash used in investing activities
|
$
|
(12,743)
|
|
|
$
|
(15,766)
|
|
|
$
|
(8,108)
|
|
|
Net cash used in financing activities
|
$
|
(168)
|
|
|
$
|
(9,612)
|
|
|
$
|
(436)
|
|
Operating Activities
Our largest source of cash flows from operations is cash collections from our customers for subscription services while our primary use of cash for operating activities is for employee-related expenses, including salaries, commissions and monthly performance bonuses. We have historically generated positive cash flows from operations as a result of our efficient sales model and period-over-period growth in subscription services.
Net cash provided by operating activities during 2018 was $17.7 million, which consisted of a net loss of $9.2 million, adjusted for non-cash charges of $8.3 million and net cash inflows of $18.7 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of $7.1 million of amortization of deferred commissions, $4.3 million of depreciation and amortization of our capital assets, approximately $0.9 million of stock-based compensation expense offset by additions to capitalized content of $4.1 million. Cash outflows from changes in operating assets and liabilities primarily resulted from a $7.9 million increase in the accounts receivable balance and a $8.9 million increase in the total deferred commissions balance. The increase in both accounts receivable and deferred commissions balances is due to the addition of new customers along with the timing of cash collections received. Cash inflows from changes in operating assets and liabilities primarily relate to a $39.6 million increase in the total deferred revenue balance resulting from the sale of additional subscription services under our standard advanced invoicing practices.
Net cash provided by operating activities during 2019 was $29.7 million, which consisted of a net loss of $124.3 million, adjusted for non-cash charges of $131.3 million and net cash inflows of $22.7 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of $118.1 million of stock-based compensation expense, $12.3 million of amortization of deferred commissions and $7.9 million of depreciation and amortization of our capital assets. Cash outflows from changes in operating assets and liabilities primarily resulted from a $11.8 million increase in the accounts receivable balance and a $10.1 million increase in the total deferred commissions balance. The increase in both accounts receivable and deferred commissions balances is due to the addition of new customers along with the timing of cash collections received. Cash inflows from changes in operating assets and liabilities primarily relate to an $55.3 million increase in the total deferred revenue balance resulting from the sale of additional subscription services under our standard advanced invoicing practices.
Net cash provided by operating activities during 2020 was $44.9 million, which consisted of a net loss of $2.4 million, adjusted for non-cash charges of $26.9 million and net cash inflows of $20.4 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of $5.3 million of stock-based compensation expense, $14.2 million of amortization of deferred commissions and $11.8 million of depreciation and amortization of our capital assets. Cash outflows from changes in operating assets and liabilities primarily resulted from a $6.7 million increase in the accounts receivable balance and a $8.0 million increase in the total deferred commissions balance. The increase in both accounts receivable and deferred commissions balances is due to the addition of new customers along with the timing of cash collections received. Cash inflows from changes in operating assets and liabilities primarily relate to an $46.7 million increase in the total deferred revenue balance resulting from the sale of additional subscription services under our standard advanced invoicing practices.
Investing Activities
Net cash used in investing activities during both 2018 and 2019 is related to $3.3 million and $5.0 million of business combinations completed during 2018 and 2019, respectively, combined with $9.5 million and $10.8 million of capital expenditures for internal-use software and the purchase of property and equipment during 2018 and 2019, respectively. Net cash used in investing activities during 2020 relates to $8.1 million of capital expenditures for internal-use software and the purchase of property and equipment during the year.
Financing Activities
Net cash used in financing activities during 2018 related to proceeds from the exercise of stock options and were not material to our overall cash activity during the period.
Net cash used in financing activities during 2019 primarily related to a $10.0 million one-time dividend payment issued to our existing shareholders offset by the net impact of the Series C and C-1 Preferred Stock transactions where we received proceeds of $340.4 million for the issuance of preferred stock and paid $339.9 million to repurchase existing common stock and outstanding stock options.
Net cash used in financing activities during 2020 primarily related to $4.9 million paid for the repurchase of common stock and options offset by $4.3 million of cash received upon the issuance of common stock.
Backlog
Our backlog is made up of remaining performance obligations associated with our customer contracts. These remaining performance obligations represent all future revenue under contract that has not yet been recognized which includes deferred revenue and unbilled amounts.
Indemnification Agreements
Our subscription agreements generally contain standard indemnification obligations. Pursuant to these agreements, we will indemnify, defend and hold the other party harmless with respect to a claim, suit, or proceeding brought against the other party by a third party alleging that our intellectual property infringes upon the intellectual property of the third party, or results from a breach of our representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. Typically, these indemnification provisions do not provide for a maximum potential amount of future payments we could be required to make. However, in the past we have not been obligated to make significant payments for these obligations and no liabilities have been recorded for these obligations on our consolidated balance sheet as of December 31, 2018, 2019 or 2020.
We also indemnify our officers and directors for certain events or occurrences, subject to certain limits, while the officer is or was serving at our request in such capacity. The maximum amount of potential future indemnification is unlimited. However, our director and officer insurance policy limits our exposure and enables us to recover a portion of any future amounts paid. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations on our consolidated balance sheet as of December 31, 2018, 2019 or 2020.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
Quantitative and Qualitative Disclosures About Market Risk
We have operations in the United States and internationally and we are exposed to market risk in the ordinary course of business.
Inflation Rate Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Interest Rate Risk
Our cash and cash equivalents primarily consist of cash on hand and highly liquid investments in money market funds, including overnight investments. As of December 31, 2020, we had cash and cash equivalents of $85.6 million. The carrying amount of our cash equivalents reasonably approximates fair value, due to the short maturities of these instruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments. However, due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio. We therefore do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
Foreign Currency Risk
The vast majority of our sales contracts are denominated in U.S. dollars, with a small number of contracts denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound, Brazilian Real and South African Rand. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. During the years ended December 31, 2018, 2019 and 2020, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based upon our financial statements and notes to our financial statements, which were prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The accounting estimates we use in the preparation of our financial statements will change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. Changes in
estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates.
While our significant accounting policies are more fully described in Note 2 of our consolidated financial statements included elsewhere in this prospectus, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification, or ASC, Topic 606 - Revenue from Contracts with Customers, and apply the following five-step approach for considering contracts:
1.Identification of the contract, or contracts, with the customer.
2.Identification of the performance obligations in the contract.
3.Determination of the transaction price.
4.Allocation of the transaction price to the performance obligations in the contract.
5.Recognition of revenue when, or as, we satisfy a performance obligation.
We recognize revenue at the time the related performance obligation is satisfied by transferring the service to a customer in an amount that reflects the consideration we expect to be entitled to in exchange for those services, net of any sales or other tax. Our subscription contracts typically vary from one year to three years and are generally noncancellable and nonrefundable.
Subscription services revenue consists of subscription fees earned from providing access to our cloud-based platform, including support services and feature upgrades, if and when available. Our cloud-based platform also includes training content which can be downloaded by the customer during their subscription term. Our subscription service contracts do not provide customers with the right to take possession of the software operating on the cloud platform and, as a result, are accounted for as service arrangements. Our customers’ ability to access our platform represents a series of distinct services, which fulfills our performance obligation over the subscription term. Accordingly, the amounts invoiced related to the ratable portion of subscription revenue are recorded as deferred revenue and recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer.
Our customers’ ability to access and download the content hosted within our KMSAT product is considered distinct and accounted for as a separate performance obligation, as our customers benefit from the use of the content independent of the KMSAT product through the download. The portion of the transaction price allocated to the downloadable content performance obligation is recognized as revenue at contract inception when the customer gains access to the downloadable content.
The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price, or SSP, basis, which requires significant judgment. We determine SSP using an adjusted market assessment approach based on the prices at which we sell subscription services, including adjustments for standard discounting practices. As it relates to the content available for download, the calculation of SSP primarily considers pricing differences among varying subscription tiers, which provide customers with differing levels of content.
Deferred Commissions
We capitalize sales commissions and associated payroll taxes and benefits paid to internal sales personnel that are considered incremental to the acquisition of customer contracts. These costs are recorded as deferred
commissions on the consolidated balance sheets upon invoicing to the customer and are paid upon cash collection from the customer. We determine whether costs should be deferred based on sales compensation plans if the commissions are incremental and would not have occurred absent the customer contract. Sales commissions related to an initial subscription contract are considered incremental to the acquisition of the customer contract to the extent that they exceed commissions earned on renewal sales. Sales commissions related to the renewal of a subscription contract are not considered commensurate with the commissions paid for the acquisition of the initial subscription contract given the substantive difference in commission rate between new and renewal contracts.
The portion of commissions paid upon the initial acquisition of a contract that are incremental to acquisition of the customer contract are amortized over an estimated period of benefit of six years. The portion of commissions paid upon initial acquisition that are commensurate with those paid on a renewal contract and commissions paid related to renewal contracts are amortized over the average length of the related revenue contract. An estimate of the portion of commissions related to the downloadable content performance obligation is made, which is recognized at contract inception consistent with the pattern of revenue recognition. This estimate is made in a consistent manner to the SSP allocated to the related portion of revenue, which requires judgment. Judgment is also required when determining the period of benefit for commissions paid for the acquisition of the initial subscription contract. We evaluate both qualitative and quantitative factors including the initial estimated customer life, the technological life of our platform and related significant features, customer attrition and industry practices.
Stock-Based Compensation
Stock-based compensation expense related to equity awards is recognized based on the fair value of the awards on the date of the grant. The fair value of each option award is estimated using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized over the requisite service period of the awards, which is four years. Our option awards have service-based vesting conditions and we record the expense for these awards net of forfeitures, which are recorded as incurred, using the straight-line method.
Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions, which represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. These assumptions and estimates are as follows:
•Fair Value of Common Stock - Because our common stock is not yet publicly traded, we must estimate the fair value of common stock, as discussed below in the section titled “Common Stock Valuations.”
•Expected Term - The expected term is estimated using the simplified method, due to a lack of historical exercise activity. The simplified method calculates the expected term as the mid-point of the vesting date and the contractual expiration date of the award.
•Volatility - Since we do not have a trading history of our common stock, the expected volatility is determined based on the historical stock volatilities of our comparable companies. Comparable companies consist of public companies in our industry, which are similar in size, stage of life cycle and financial leverage. We intend to continue to apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or until circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.
•Risk-Free Interest Rate - The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date closest to the grant date for U.S. Treasury zero-coupon issues with maturities approximating the expected term of the awards.
•Dividend Yield - The expected dividend assumption is based on our current expectations about our anticipated dividend policy. As we have a history of only paying a single one-time dividend and do not anticipate paying dividends in the future, we use an expected dividend yield of zero.
The following table summarizes the assumptions used in the Black-Scholes option pricing model to determine the fair value of our stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Expected term (years)
|
6.3
|
|
6.3
|
|
4.0 - 6.3
|
|
Expected stock price volatility
|
45.0
|
%
|
|
40.0% - 45.0%
|
|
45.0% - 50.0%
|
|
Risk-free interest rate
|
2.4% - 3.0%
|
|
1.4% - 2.5%
|
|
0.2% - 1.7%
|
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Common Stock Valuations
The fair value of the common stock underlying our stock-based awards was determined by our board of directors, with input from management and contemporaneous third-party valuations. Because our common stock is not publicly traded, our board of directors exercises judgment and considers numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including:
•valuations performed at or near the time of grant;
•rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;
•our actual operating and financial performance at the time of the option grant;
•likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business;
•the value of comparable companies with respect to industry, business model, stage of growth, financial risk or other factors;
•our stage of development and future financial projections;
•the lack of marketability of our common stock.
We have utilized unrelated third-party specialists to prepare valuations in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or AICPA Guide.
Through the end of 2019, in valuing our common stock, the fair value of our business, or enterprise value, was determined using a combination of approaches including an income approach, a market approach, an Option-Pricing Methodology, or OPM, backsolve method and recent transactions in our preferred and common stock. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values and adjusted to reflect the risks inherent in our cash flows. The market approach estimates value based on a comparison of the subject company to comparable public companies for which a representative market value multiple is determined and then applied to the subject company’s financial results to estimate the value of the subject company. The backsolve method applies a Black-Scholes based option pricing model to calculate an implied enterprise value based on a known component of the equity structure.
Starting in 2020, we changed from using the OPM method to the Probability Weighted Expected Return Method, or PWERM, as the PWERM is the preferred method for a company expecting a liquidity event in the near future. The OPM treats common stock and convertible preferred stock as call options on an enterprise value, with exercise prices based on the liquidation preference of our convertible preferred stock. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after our convertible preferred stock is liquidated. PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the
PWERM include an IPO as well as non-IPO market based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an IPO liquidity event and non-IPO outcomes, as well as the values we expect those outcomes could yield. We apply significant judgment in developing these assumptions and estimates, primarily based upon the enterprise value we determined, our knowledge of the business and our reasonable expectations of discrete outcomes occurring. After the equity value is determined and allocated to the various classes of shares, a discount for lack of marketability, or DLOM, is applied to arrive at the fair value of common stock. A DLOM is applied based on the theory that as an owner of a private company stock, the stockholder has limited opportunities to sell this stock and any such sale would involve significant transaction costs, thereby reducing overall fair market value.
Upon completion of this offering, our Class A common stock will be publicly traded and it will not be necessary to determine the fair value of our common stock.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements “Summary of Significant Accounting Policies” for more information.
LETTER FROM KNOWBE4 FOUNDER STU SJOUWERMAN
We are a founder-led company with a data-driven culture and an extreme ownership mentality.
A unique new cybersecurity category.
When I started KnowBe4 in 2010, I had been in cybersecurity for 15 years. Through that experience, I realized that despite the billions of dollars spent on security products, more often than not, it was the human letting the bad guys in.
Here’s the issue: organizations have been placing their faith — their spend — in the wrong thing. So, while the cybersecurity industry has been focused on the idea that better products will solve security problems, I started KnowBe4 to focus on the human. Our mission became enabling employees to make smarter security decisions, everyday.
Enabling any organization to create a strong human endpoint.
I wanted to build a platform dedicated to the human layer of security that included tools and capabilities that establish the human as the last line of defense. Today, users are the true endpoints that attackers are targeting, because they have access to multiple digital assets. This is a threat vector desperately in need of proactive management because the majority of breaches occur as a result of the human behind the keyboard.
Before we brought our platform to market it was not well understood that human risk could be managed. Unlike previous approaches, our platform does not offer a one-time solution, but rather continuous management to reinforce employees’ best security behaviors.
In fact, at KnowBe4 we simply do not use the word solution, because no security technology ever completely solves the cybersecurity problem. Our platform is designed to create real results, such as safe data handling, good password hygiene and, of course, reduced success rates of social engineering attacks.
We are hyper-focused on the continued growth of our platform as we pursue our vision to drive the ABC’s: Awareness, Behavior, and Culture across security. These stages reflect our goal, that by using our platform an organization can make all users aware of the security risks they face day-to-day, impart substantial behavioral change to address those risks and ultimately create a culture of security embodied by a sense of collective and proactive responsibility.
We’re off to a great start. But it’s only early days.
I have strategically taken the best operating practices in organizational design and operations from a number of successful technology companies and weaved them into KnowBe4 from the start. For example, KnowBe4 is run on the concept of establishing defined OKRs for every employee which aligns and connects our team members towards the organization’s strategic goals. Today we have a diverse employee base that openly embraces these practices to provide transparency and accountability. This has resulted in an organization driven by data that can scale marketing, sales, product and every other supporting division at high levels of efficiency.
I would like to leave you with our commitment. We’re committed to putting our customers, employees and shareholders first. We’re committed to finding the best people in the industry and helping them do their best work. We’re committed to always strive to do more today than we’ve done the day before. We’re committed to building a company that we can all be proud of and making the world a safer place.
We’re excited about what’s ahead. I thank you for considering an investment in KnowBe4 and welcome you to come along on our journey.
Stu Sjouwerman
Founder and Chief Executive Officer
BUSINESS
Mission
Our mission is to enable employees to make smarter security decisions, every day.
Overview
KnowBe4 has developed the leading security awareness platform enabling organizations to assess, monitor and minimize the ongoing cybersecurity threat of social engineering attacks. We are pioneering an integrated approach to security awareness that incorporates cloud-based software, machine learning, artificial intelligence, advanced analytics and insights with engaging content. Our 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.
We believe every organization’s greatest asset is also its greatest security risk – its people. As investments in security products grow significantly, attackers are increasingly leveraging social engineering to circumvent the traditional layers of cybersecurity defense. Social engineering relies on the manipulation of human behavior and can range from enlisting unsuspecting employees in schemes to defraud their employers to gaining access to systems during the initial phase of broader, multi-stage cyberattacks that can result in devastating breaches. Because these attacks are low-cost and high-volume and have a high probability of success, they enable the attacker to achieve a significant return on investment. Social engineering represents a universal cybersecurity risk, as it specifically targets the employees rather than the infrastructure of an organization. As such, social engineering risks affect every organization, regardless of the sophistication of their security infrastructure.
Historically, organizations have invested significantly in cybersecurity defenses with the belief that infrastructure-centric tools alone could provide adequate protection. According to a forecast from the International Data Corporation, or IDC, organizations spent $59 billion on IT security products in 2019, a figure that is expected to reach $79 billion by 2023. Despite significant amounts spent each year, security breaches continue to be reported with increasing frequency. Recent secular trends, including globally distributed workforces, work from home and the technological complexity of the modern digital workplace have vastly expanded the attack surface. A single click on a phishing email, insecure disposal of a sensitive document, use of a weak password and a host of other employee behaviors can prove disastrous to an organization. These effects are far-reaching, ranging from incident response costs and lost productivity to negative media coverage, loss of revenue and impacted customer confidence. More often than not, the difference between a secure and insecure interaction comes down to human behavior, but changing human behavior is a significant challenge.
We believe security awareness is the most effective way for organizations to manage the extraordinary unaddressed risk of social engineering, representing a fundamental shift in cybersecurity. Security awareness has historically been isolated to information security and IT professionals and focused on compliance and simplistic content delivery. Our platform is designed to promote awareness, change human behavior and drive a security-minded culture. The foundation of our security awareness platform combines automation, machine learning, artificial intelligence and continuous testing with data analysis and relevant and interactive content. Our products enable customers to strengthen their overall security posture by creating a security-minded culture characterized by active user participation with a focus on mitigating the human element of security risk across their entire organization. We enable organizations to effectively enhance the security awareness of their workforce, converting their employees into a critical last line of defense against cyberattacks.
Our platform currently includes:
•Security Awareness: enables continuous assessment of employees through simulated social engineering attacks across multiple mediums and remediation through real-time delivery of highly engaging modules that are curated based on relevant and specific risks;
•Security Orchestration, Automation and Response (SOAR): enables security professionals to prioritize and automate security workstreams in order to respond to and remediate social engineering attacks; and
•Governance, Risk and Compliance: enables organizations to analyze security risk and automate the management of compliance and audit functions.
We designed our platform to meet the needs of IT administrators, as effective, scalable, quick to deploy and easy to use for organizations of all sizes. Our platform design allows us to scale from small businesses to large enterprises using a single code base. Our products are deployed on a common data platform with embedded analytical tools and reporting APIs, resulting in seamless integration. Additionally, our products are designed to bring substantial amounts of data into an organization’s existing security stack allowing our customers to continually assess and monitor ongoing risks to the organization.
As the behavior of any employee could represent a threat, our customers tend to adopt our platform across the entire organization to protect all employees from social engineering threats. We have developed an effective go-to-market strategy that has been proven to help us reach both small and midsized businesses and large enterprises. We employ an efficient inside sales model that translates across all customer segments, complimented by channel partnerships that provide significant sales leverage and have enabled us to further penetrate the enterprise market. As a result, we have been able to grow our customer base rapidly in recent years, from more than 22,500 as of December 31, 2018 to more than 30,000 as of December 31, 2019. Our leadership in the security awareness market has been recognized by both Gartner Inc. and Forrester Research Inc. Additionally, we rose to the number five app by number of organizations within the 2020 Microsoft Azure Active Directory app gallery and were named as one of the most popular apps by number of customers and as the most popular people-centric security tool within the Okta 2021 Businesses at Work report.
We continue to experience significant growth, with total revenue of $71.3 million, $120.6 million and $174.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. As of the ends of the same periods, we had annual recurring revenue, or ARR, of $88.6 million, $145.4 million and $198.4 million. For the years ended December 31, 2018, 2019 and 2020 we had net losses of $9.2 million, $124.3 million and $2.4 million, which included $0.9 million, $118.1 million and $5.2 million of stock-based compensation expense, respectively. Our cash flows from operations were $17.7 million, $29.7 million and $44.9 million for the years ended December 31, 2018, 2019 and 2020, respectively. Our free cash flow was $8.2 million, $18.9 million and $36.7 million over the same periods. See the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Annual Recurring Revenue” for additional information regarding ARR and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Free Cash Flow” for additional information regarding free cash flow and for a reconciliation of free cash flow to the most directly comparable financial measure calculated in accordance with U.S. generally accepted accounting principles, or GAAP.
Industry Background
Social Engineering Attacks Targeting Humans Are the Most Successful Cyberattacks
Social engineering, which encompasses attacks on the human layer of an organization, is typically defined as leveraging identity manipulation to deceive individuals into providing malicious actors access to proprietary information or assets. Social engineering can take the form of phishing, spear phishing, pretexting, business email compromise, smishing (SMS-based phishing) and vishing (voice-based phishing). These methods can result in the direct compromise of proprietary information or can serve as the first phase in sophisticated multi-stage attacks, enabling credential theft, ransomware delivery and malware delivery, among other attacks, that can ultimately result in costly security breaches. In effect, by targeting human behavior rather than infrastructure, social engineering attacks can be utilized by attackers to circumvent multiple layers of security.
According to IDC, annual worldwide spending on security-related hardware and software will amount to $59 billion in 2019 and is projected to reach $79 billion by 2023. Despite these massive investments on cybersecurity products to protect people, devices and infrastructure, these products are not designed to specifically address vulnerabilities related to human behavior. While the infrastructure-centric approach to security has dominated security investments since the market’s inception, this approach does not deliver the reduction in social engineering risks that can be achieved with a knowledgeable and well-prepared employee population.
Due to the relative ease and cost-effectiveness of developing and deploying social engineering attacks, coupled with their effectiveness and the potential value of the resulting breaches, these methods have become the preferred and most frequent avenue for hackers to gain access to IT systems and sensitive information. Several recent high profile breaches, ranging from data loss events of major corporations and government entities, to account takeovers of prominent individuals, to ransomware attacks on local governments and hospitals, have all involved social engineering methods. Based on data from the 2020 Verizon Data Breach Investigations Report, we believe attacks on the human layer are now responsible for a majority of events leading to breaches.
Digital Transformation Has Expanded the Social Engineering Attack Surface
Not only has the widespread adoption of digital technologies significantly impacted how companies conduct business, it has also fundamentally changed the relationship of their employees with technology in their everyday professional and personal lives. Individuals increasingly use digital mediums, including email and text messaging, as their primary form of communication both at work and outside of the office, and increasingly rely on online services in everyday life, from ecommerce to personal banking and bill-pay. The expanding use of technology has provided attackers with a growing number of vectors to imitate in launching social engineering attacks.
Furthermore, the amount of personal data available for cyberattackers to use in crafting convincing social engineering attacks is staggering. According to Statista, over half of the global population currently uses social media, where accounts provide cyberattackers with a vast repository of knowledge about an individual, including their detailed personal history, interests, contacts and other valuable information. Cyberattackers have also taken advantage of the digitization of records to inflict severe breaches of valuable data upon companies in consumer-facing industries and government entities. These data loss events have collectively resulted in millions of records containing highly sensitive personally identifiable information being made available for distribution on the dark web. All of these trends have made individuals more susceptible than ever to social engineering attacks.
At the same time, businesses continue to modernize and invest in digital capabilities, with digital transformation expected to comprise 53% of IT budgets by 2023, according to IDC. However, the same technologies that have enabled global connectivity, productivity and innovation have also empowered cyberattackers. The widespread adoption of mobile devices, ubiquitous network connectivity and adoption of cloud technology have greatly expanded the social engineering attack surface that organizations must protect. The increasing number of employees working remotely, in cloud applications and on consumer-oriented devices that are often multi-purposed for enterprise uses but only partially enterprise-managed, has significantly eroded the traditional security perimeter. With a sustained shift to digital and remote workplaces, accelerated by the global coronavirus pandemic, we believe the threat of social engineering will become more pronounced. Since the onset of the pandemic, VMware reports that 88% of businesses have seen an increase in social engineering attacks. This changing landscape requires humans to become the last line of defense against cyber threats.
Attackers Are Launching Increasingly Targeted Cyberattacks at Scale
Cyberattackers across all levels of sophistication employ social engineering techniques. These attackers range from hackers leveraging basic techniques to more sophisticated criminal organizations motivated by financial gains, to highly-advanced military and intelligence services of well-funded nation-states. The most sophisticated adversaries today are increasingly well-equipped, possessing significant technological and human resources, and are highly deliberate and targeted in their attacks. These groups and individuals are responsible for many breaches that involve theft or ransom of privacy-related data, financial data, intellectual property and trade secrets. Regardless of their level of expertise, cyberattackers can leverage social engineering to launch targeted cyberattacks at scale.
As they do not depend on the technical exploitation of security infrastructure, the most basic social engineering attacks require minimal investment to develop and can be cost-efficiently distributed to a wide target audience, often to devastating results.
However, social engineering attacks are becoming increasingly advanced. For high value targets, cyberattackers conduct extensive background research on the individuals in order to develop highly customized and convincing messages. Other innovative techniques leverage emerging technologies such as AI, facial recognition and voice-based methods. One example is the recent emergence of doctored videos, or deep fakes, demonstrating the advanced
means through which hackers use artificial intelligence to impersonate voices for phishing purposes. Through doctored videos, hackers exploit realistic looking images and audio files to impersonate colleagues or senior executives with the intent of gaining access to proprietary systems or sensitive information.
Modern cyberattacks are pervasive, targeting businesses of all sizes across a broad range of industries including technology, transportation, healthcare, financial services, governments and political organizations, utility and retail. The World Economic Forum places the likelihood of data fraud or theft and cyberattacks in the top five global risks, as adversaries often launch devastating attacks that cause significant business disruption and result in billions of dollars in cumulative losses. According to the Center for Strategic and International Studies, the global cost of cybercrime is estimated to be approximately $1 trillion annually, and the Ponemon Institute and IBM Security estimate that the average cost of a data breach has increased by 10% since 2014 to $3.86 million.
Cybersecurity Resources Are Constrained
Cybersecurity resources have become highly constrained. Skills shortages are at an all-time high, particularly in the areas of big data and analytics, cybersecurity and AI, with 54% of chief information officers, or CIOs, stating that they struggle to find the right talent in response to the Harvey Nash/KPMG CIO Survey 2020. Specifically, the 2020 (ISC)2 Cybersecurity Workforce Study estimated a global gap of over 3.1 million cybersecurity professionals.
Companies do not have enough IT security staff to effectively train employees on how to protect against ever-changing social engineering techniques or efficiently address threats that are reported. Rebuilding security training internally every year and sorting through reported threats on an individual basis is not resource-efficient for companies. These resource gaps highlight the need for software and automation in developing security awareness to protect against social engineering.
Limitations of Existing Offerings
Historically, organizations have relied on either content-centric or infrastructure-centric vendors for security awareness, or have opted for limited or no training due to the inefficacy of existing offerings. Content-centric alternatives, including products from traditional vendors and internally-developed tools, provide organizations with generic and ineffective training programs that are primarily designed to satisfy minimum compliance requirements. Infrastructure-centric alternatives provide basic point products for security training that are typically secondary to core security infrastructure products. Neither of these alternatives offers an integrated platform-based approach to security awareness that is specifically designed to manage the risk of social engineering.
As a result, these alternatives feature one or more of the following limitations:
•Lack of Focus on Human Behavior. While some infrastructure-centric vendors offer basic security training capabilities to their customer base, their primary focus is on the development of threat protection products, such as email security or endpoint security. These security vendors attempt to mitigate cybersecurity risk entirely through infrastructure, and do not offer dedicated security awareness platforms designed to change human behavior and mitigate the risk of attackers leveraging social engineering to bypass infrastructure-based defenses.
•Limited Intelligence and Analytics. Alternative offerings do not provide analytics capabilities to accurately assess and monitor the social engineering susceptibility of the organization and its employees over time. As such, organizations are unable to measure the effectiveness of their security awareness investments and programs.
•Challenging to Administer. Alternative offerings provide limited functionality, flexibility and automation in the administration of security training. As a result, security professionals are required to take either a ‘one-size-fits-all’ or resource-intensive manual approach to develop and administer an effective security awareness program.
•Ineffective and Limited Content. Many content-centric vendors and internally-developed tools incorporate a limited library of generic, static and non-globalized training modules that are ineffective at
engaging employees. Alternative products are also inadequate in simulating realistic and zero-day threat situations based on the current environment and in addressing the full spectrum of human-based threat vectors.
•Costly to Deploy and Maintain. Infrastructure-centric security alternatives often require costly and time-consuming implementations, preventing organizations from quickly realizing the benefits of their investment. These systems are also complex to operate and maintain, requiring significant ongoing investment in IT and security resources and expertise.
•Do Not Address the Entire Market. Alternative offerings are often optimized to address only one segment of the market. Offerings targeting larger enterprises are often too expensive or complex for small and midsized business to utilize in a cost-effective manner. Conversely, offerings sold into the mid-market often lack the flexibility and scalability to meet the needs of larger enterprises.
Key Strengths of Our Platform
We provide an integrated platform that enables organizations to assess, monitor and mitigate the persistent threat of social engineering. Our cloud-based platform employs a differentiated combination of software, machine learning, artificial intelligence, analytics, insights, content and security workstreams that is designed to meaningfully impact human behavior to continually improve an organization’s security posture in response to social engineering threats. The key strengths of our platform include:
Targeted Focus on Human Behavior
Our platform is exclusively focused on human behavior, as we believe that elevating the security awareness of an organization’s employees is essential to managing the risk associated with social engineering. We believe that infrastructure-based security controls alone are inadequate, requiring humans to become the critical last line of defense for an organization. In growing the category for security awareness, we are focused on building a platform capable of changing insecure behaviors and reinforcing secure behaviors of individuals. This allows us to invest technology and development resources to drive innovation and differentiation in products designed to address the human layer of security. Our focus has helped us establish market leadership and we believe will position us favorably to capitalize as the scope of the human layer of security expands.
Our security awareness platform is built on a foundation of powerful software and technology, including machine learning, artificial intelligence and data analysis capabilities, and is uniquely imbued with behavioral science to bring about significant change in an organization’s security culture and posture. These foundational technology layers are based on extensive development, experience and expertise in the security awareness space, leveraging insights from what we believe is the largest set of human security behavioral data in existence. This integrated data set is sourced from the millions of users who access our platform and includes access to a unique data stream, consisting of user-reported threats that have bypassed security infrastructure defenses, only to be detected by humans providing the last line of defense.
Continuous Intelligence and Analytics
Our platform continuously assesses users and monitors social engineering risk, creating an active feedback loop that enables organizations to continually drive improvements in employee security awareness and overall security posture. Frequent training, knowledge checks and behavior-based intervention all reinforce secure behaviors and provide critical data for measuring, improving and maintaining security awareness within an organization. We believe that an ongoing approach to security awareness is essential in response to the dynamically evolving social engineering threat environment.
The advanced analytics delivered by our platform enable security administrators to identify, monitor and manage the social engineering risk of the organization as a whole, or of individual employees or groups of employees on an ongoing basis. Our platform analyzes a broad and extensive set of risk data including simulation history, training history, external breach data and job function. This results in billions of data points being used to assess the level of social engineering risks and measure changes over time. The platform also provides security
professionals with actionable insights to modify and improve security awareness programs based on risk profiles at the individual or group level.
Our platform also provides individual employees with visibility into their susceptibility to social engineering threats. Users have the ability to view a dashboard including their risk score, training and simulation test history, as well as specific recommendations for actions to lower their social engineering risk. The ability of employees to monitor their individual risk promotes continuous engagement and improvement in security awareness.
Effective and Efficient Security Awareness Administration
Our platform is designed to enable security administrators to mitigate social engineering risk through automated, machine learning-driven administration of simulated social engineering testing and training specifically customized to an individual user or group of users. The platform analyzes users’ behavior and allows organizations to categorize employees based on dynamic or custom groupings to tailor simulated social engineering campaigns, assignments and analytical reporting based on identified potential vulnerabilities. According to the National Institute of Standards and Technology, or NIST, recent updates to the Security and Privacy Controls for Information Systems and Organizations publication, organizations should provide practical exercises that simulate actual events and incidents as part of their security and privacy controls. Our platform leverages a machine learning engine to provide administrators with targeted recommendations based on the results of simulated tests and users’ risk scores prompting the delivery of relevant content with a demonstrated ability to reduce the risks associated with social engineering.
The platform also includes embedded SOAR functionality to prioritize and automate security operations related to user-reported social engineering threats. With these capabilities, security professionals can minimize risk to the organization by quickly responding to and effectively remediating the most severe social engineering threats. All together, these capabilities are designed to reduce the administrative burden of security awareness management and operations on resource-constrained IT and security professionals.
Expansive Library of Engaging and Effective Content
We have built an expansive library of differentiated security awareness content, containing approximately 1,000 pieces of content, that is continuously refreshed to ensure that our offerings always reflect the expanding range of social engineering threats. We leverage our extensive proprietary data set on human behavior and social engineering attacks, first-party threat environment research and crowd-sourcing methods to update our simulated threat templates in near real-time, in order to convincingly emulate real-world social engineering methods.
We believe the range and sophistication of our content library and technology makes our platform highly effective in changing human behavior to reduce social engineering risk. We employ dedicated content centers of excellence across geographies to produce differentiated content that reflects themes based on the broader global threat environment, but is highly localized and culturally relevant. Our distributed centers of excellence enable the rapid and efficient creation of a variety of content that is specific to a given market, thereby increasing the efficacy of our content in effecting behavioral change with its intended audience. The breadth and scope of our content enables it to fully meet the needs of large global enterprises with geographically diverse workforces, driving increased customer satisfaction and retention.
Ease of Platform Deployment and Use
We have designed our platform to be easy to deploy and use, enabling our customers to achieve rapid time-to-value and cost efficiency in security awareness operations. Our cloud-based platform requires minimal implementation efforts, enabling customers to quickly onboard and complete an initial baseline simulated social engineering campaign. We have also developed integrations with mainstream identity platforms, including Active Directory, that further streamline platform deployment and ongoing user administration. Our management console offers simple and automated administration of security awareness programs and related workstreams, reducing the resource and expertise requirements on the organization. For employees, the user interface of our platform has also been designed to deliver an intuitive, easy-to-use and high quality experience that is on par with best-in-class consumer experiences.
Designed to Serve the Entire Market
As we believe social engineering is a universal problem, the ability to scale our technology to meet the needs of all organizations has been a central tenet of our platform design philosophy from the beginning. As a result, we have designed our products to be both accessible to smaller organizations without dedicated IT departments and scalable to organizations with hundreds of thousands of users and multiple security teams dispersed across the world. Our cloud-based delivery model, scalable multi-tenant architecture and global content centers of excellence allow us to regularly introduce new content and platform features to our customers quickly and seamlessly.
Our Market Opportunity
We believe that companies of all sizes and across all industries and geographies require a security awareness platform to manage the ongoing threat of social engineering. As such, we estimate the total market opportunity for our platform currently to be approximately $15 billion for the year ended December 31, 2020.
For KMSAT and PhishER, we calculate our market opportunity by estimating the total number of employees in over 50 addressable geographies globally segmented into large enterprise, enterprise, medium business and small business categories. We apply a per employee price, depending on the segment, using internally generated data of actual customer spend based on the customer size and location. For KCM in the United States, we apply an average contract value to a set number of organizations using internally generated data of actual customer spend based on the size of such organizations. For KCM internationally, we estimate the size of the market as a multiple of the U.S. market implied by the proportional market sizes for our KMSAT and PhishER products. The aggregate sum of the calculated values across KMSAT, PhishER and KCM, as described herein, represents our total estimated market opportunity. The estimated market opportunity for KMSAT represents approximately half of our total market opportunity.
We define potential large enterprise customers as companies with greater than 10,000 employees, enterprise customers as companies with between 1,000 and 9,999 employees, medium customers as companies with between 100 and 999 employees and small customers as companies with between 20 and 99 employees. Data for companies and employees is based on various data sources from national statistical agencies in each respective region and country and international institutions, such as the U.S. Census Bureau, the World Bank, the European Statistical Office and the Organization for Economic Co-operation and Development, as compiled by Omdia.
The pricing assumptions applied to the estimated number of companies and employees in each market are calculated by leveraging internal data on actual customer spend by size and geography over the last 24 months. For each market segment, we have applied the median annualized spend per employee or organization, as adjusted for ordinary course price increases, which we believe represents a conservative estimate of spend for potential customers.
Our Growth Strategy
We believe we have significant opportunities to extend our market leadership. Key elements of our growth strategy include:
Expand Our Customer Base
We believe there is a significant opportunity to invest in our sales and marketing activities to drive broader market knowledge of the importance of security awareness. Increasing category awareness of our market enables us to expand our customer base with less education effort and more efficient go-to-market execution. We believe that businesses of all sizes are exposed to the risks of social engineering, and that there is a large opportunity to help both SMBs and large enterprises defend against this threat. In addition to growing the small to medium sized customer base that we have focused on since inception, we believe that there is significant opportunity to increase penetration in the enterprise segment.
Expand Internationally
The international market represents a clear expansion opportunity for us. We have grown our revenue generated by customers outside of North America from 6.0% in 2018 to 9.7% in 2019 and 11.9% in 2020. To pursue this opportunity, we are rapidly expanding our international operations and increasing our physical presence through headcount additions in Europe, the Middle East, Asia-Pacific and South America. We are also investing in further localizing our platform through foreign language translation and customized content. Our platform is currently accessible in over 30 languages and we plan to expand this language support in the future, along with increasing our region-specific content offerings.
Grow Our Partner Network
We plan to increase our channel partnerships to help us efficiently reach new territories and opportunities. Growing our international channel partnerships will help us reach new jurisdictions where we have not yet developed extensive brand awareness and local customer relationships. We believe managed service providers or MSPs, and channel partners represent an efficient way to sell to smaller customers, as organizations with limited or no IT departments often rely on MSPs to provide specialized security skills or knowledge. In 2020, MSPs and channel partners were involved in generating 37.4% of our revenue. As our business becomes more mature, we believe the revenue contribution from channel partners and MSPs will continue to increase.
Expand Our Existing Customer Relationships
We plan to continue cross-selling products and upselling subscription tiers within our existing customer base. Our extensive existing customer base provides substantial opportunity to expand use of our platform offerings as well as upgrade existing subscriptions to higher tiers. We believe that our integrated platform and the strength of our customer success program are key to our ability to cross-sell and upsell to our existing customers. We plan to continue to invest in our technology and platform, which then organically creates new adjacencies and use cases, and to invest in customer success personnel to retain existing customers and drive increased product attachment rates.
Invest in Our Platform and Content
We believe that continued investment in our technology platform and content is important to our ability to maintain and extend our market leadership. We invest in technology and development activities to continuously strengthen our platform and release additional features and products to the market. These development efforts stay true to our core principles that the human layer in cybersecurity is important and that the human layer can be addressed without adding significant complexity to the end user or IT security professional. We believe that our ability to leverage the immense amount of data collected from our customers’ usage and to incorporate their feedback into our platform and content offerings have contributed to our market-leading position. We continue to explore methods to monetize our data assets in the future and continue to integrate our customer feedback into future product development opportunities.
Selectively Pursue Strategic Acquisitions
We plan to pursue strategic acquisitions that we believe will be complementary to our existing platform, enhance our technology and our content, and increase the value proposition we deliver to our customers. For example, we may pursue acquisitions that we believe will help us add new features, accelerate customer growth, enter new markets and add talents and expertise to our organization. During 2018 and 2019, we completed five acquisitions, which expanded our international presence and added to our existing technological capabilities and content. Additionally, during the first quarter of 2021, we completed the acquisition of MediaPro Holdings, LLC which will expand our customer base and add new technological capabilities to our platform.
Our Platform
The KnowBe4 security awareness platform consists of:
•KMSAT, our security awareness training product, which enables continuous assessment of employees through simulated social engineering attacks across multiple mediums and remediation through real-time delivery of highly engaging modules that are curated based on relevant and specific risks;
•PhishER, our security orchestration, automation and response product, which enables security professionals to prioritize and automate security workstreams in response to attacks targeted at the human layer; and
•KCM, our governance, risk and compliance product, which enables organizations to analyze security risk and automate the management of compliance and audit functions
All of our products are built on a cloud-based architecture designed to be easy to deploy across organizations of all sizes. We also build machine learning and artificial intelligence into our products to increase the product’s ability to enable behavioral change and to allow the administration of our products to be streamlined and efficient.
Our platform features integrated capabilities that are designed to enhance the overall value proposition to our customers and their employees. Through advanced analytics and risk scoring capabilities, our platform enables customers to proactively identify social engineering risk within their organizations. When a customer is onboarded, our platform provides a baseline risk assessment based on the performance of individual users in an initial simulated phishing campaign. Based on the risk assessment, our platform can enable the automatic administration of high quality, effective training aimed at mitigating identified risk. Organizations are then able to continuously simulate a wide array of social engineering attacks, giving users the ability to fail safely, adjust their behavior and learn through action. This continuous cycle creates an active feedback loop and increases engagement helping prevent users from reverting to risky behavior.
As users become more effective at identifying and reporting potential social engineering attacks, our orchestration, automation and response capabilities help security professionals efficiently manage the workstreams associated with user-reported threats. We leverage a vast repository of proprietary data gathered from user-reported threats that have bypassed infrastructure-based security defenses to continually evolve our platform, automation capabilities and security content to reflect the latest threat environment. Our dataset continually expands and
becomes more valuable as the number of trained users utilizing the platform and the security awareness of those users increase. This greatly enhances our ability to leverage the data derived from our customer base in improving our platform.
Our platform’s underlying features and capabilities include AI and machine learning, advanced analytics, risk scoring, dashboards and reporting and flexible APIs. Organizations utilize these tools to continuously assess the ongoing risk of social engineering, respond to these threats and ultimately automate the enterprise’s defense against human-based cyberattacks. We also offer several free tools that provide IT professionals with the ability to identify and respond to a wide range of social engineering threats as well as to assess general end-user security behaviors. These free tools provide us with lead generation capabilities to focus on exposing organizations to our platform in a cost-efficient way. The capabilities of these tools are distinct from our paid products and focus on highlighting the need for effective security awareness.
Our Products
Kevin Mitnick Security Awareness Training (KMSAT)
Our flagship Security Awareness Training product, Kevin Mitnick Security Awareness Training, or KMSAT, is named after our Chief Hacking Officer, Kevin Mitnick. Kevin’s history as a hacker and as a security consultant gave him unique insights into the social engineering techniques that are used by hackers to target employees and gain access to corporate networks, credentials and information. KMSAT has been recognized by independent industry research firms, including Gartner and Forrester Research, as a leader in Security Awareness Training.
KMSAT is a “new-school” security awareness product that combines automated phishing and social engineering simulation tests with engaging and curated content spanning across a variety of mediums, including email, SMS and voice. Our robust machine learning and data analytics capabilities allow our cyberattack simulations and training curriculum to automatically adapt to learner needs. As a result, employees are able to transition from knowledge-based awareness to experience-based security behaviors shaped and informed by real-world social engineering attacks which we believe most effectively lead to desirable behavioral changes in both the near- and long-term. In a world where cyberattacks are always evolving, this type of dynamic training and behavioral conditioning is critical in defending against zero-day and trending attacks. We train employees to provide swift response against new attacks by delivering frequent updates to our catalog of social engineering templates patterned after real-life scenarios and current events.
We have developed advanced technological features including a full randomization feature that simulates the real world – every employee receives a random template at a random time, which is designed to eliminate the “prairie-dog effect” which occurs when co-workers alert each other of a test. The use of our patented Smart Groups allows organizations to categorize employees based on dynamic or custom groupings to tailor phishing campaigns, training assignments and analytical reporting. Our simulated phishing and social engineering tests have been carefully constructed to allow for whitelisting within an organizations’ existing security infrastructure or the use of direct message injection into users’ inboxes. We have also developed a machine learning engine that provides administrators with training recommendations based on the results of simulated social engineering tests and users’ risk scores. The data analysis capabilities offered by our Advanced Reporting features allow organizations to review the outcomes of social engineering and training campaigns across several dimensions. We have enabled enterprise-grade APIs to allow for customization of reports, integration with other business systems and ease of executive reporting.
Our Virtual Risk Officer ingests and calculates data across a multitude of sources, evaluates the data using machine learning and provides dynamic Risk Scores — assigned to users, groups and organizations as a whole — empowering customers to make data-driven decisions. Calculated using both internal and external factors, including training history, simulation history, breach data and job function, the Risk Score is designed to measure how likely the user is to be targeted with a phishing or social engineering attack, how they would react to these types of events and how severe the consequences would be if they fell for an attack. The user Risk Score dashboard is continually updated to reflect the users’ completion of training and responses to simulated phishing emails, with the goal of
providing an accurate view of the individual’s and organization’s overall susceptibility to social engineering attacks over time.
We believe we offer the world’s largest library of security awareness training with over a thousand items of content, including interactive modules, videos, games, posters and newsletters. Our content library is constantly being updated with new materials created based on the latest social engineering tactics. Our consumerized training portal is intuitive and easy to use, and the production value of our premium content is comparable to that of a TV series or film. Our localized learner experience is available in 30+ languages, giving users the option to choose the language they are most comfortable with for an immersive training experience. Additionally, optional customization features enable gamification, where users can compete against their peers on leaderboards and earn badges while learning how to keep their organization safe from cyberattacks.
KMSAT is offered on a SaaS subscription basis to serve the varying needs of our diverse customer base, from small businesses to large enterprises. We offer a range of subscription tiers at different pricing levels, which provide access to varying levels of functionality and content. Our basic tiers – Silver and Gold – offer access to features that are essential to an organization’s security awareness needs, including unlimited simulated social engineering tests, basic training content, machine learning-based individual security risk scoring and access to add-on features such as the Phish Alert button and phishing email reply tracking. Our Platinum tier provides users access to advanced reporting capabilities, such as reporting APIs and user event APIs, as well as advanced administrative functions, such as Smart Groups and Security Roles that help manage users, groups and various security roles within organizations. Our Platinum users also receive priority-level customer support. Our Diamond tier is our most popular subscription tier and includes access to our Artificial Intelligence-driven Agent, AIDA™, and over 850 additional pieces of premium content, including our award-winning The Inside Man series. The vast majority of our KMSAT customers subscribe to our Platinum and Diamond tiers.
PhishER
PhishER was created to help security administrators deal with the influx of user-reported social engineering attacks from an employee base made increasingly knowledgeable with KMSAT. PhishER allows the IT security team to analyze suspected attacks that employees report by clicking the Phish Alert Button, or PAB, within their email applications. PhishER integrates with major email platforms and related mobile applications, including Microsoft Outlook, Office 365 and G Suite. PhishER continues the remediation work-cycle by providing security
incident response teams with a powerful platform to forensically analyze reported emails and respond to threats faster and more effectively.
We designed PhishER to give security teams the ability to evaluate reported threats by using standard prioritization rules embedded in the platform or by creating custom rules to more closely align to their individual organization’s needs. These rules are applied to reported threats to automatically categorize them into “Emergency Rooms.” PhishER “Emergency Rooms” are built into the platform to show security teams pre-filtered views of reported messages, allowing drill down capabilities to take bulk actions on groups of messages. PhishER leverages our PhishML machine learning engine to analyze, categorize, evaluate threat levels and respond to each reported threat.
A key to the success of PhishER is that the emails used to train PhishML have already made it through email filters and security gateways to land in the end-users’ inboxes. This means that the machine learning model is being fed a unique stream of data that other security measures have failed to address, thereby improving the model’s accuracy and allowing more automated prioritization and decisioning. If an email is determined to be a threat, PhishER searches and, if directed, quarantines similar messages across all inboxes in the organization. Matching messages present in other users’ inboxes are then queued for further analysis, quarantine, or permanent deletion via our PhishRIP feature, which seamlessly integrates with major email platforms. If the user-reported email is determined to be safe and legitimate, it can be returned to the user. We believe the PhishER platform allows the IT Security team to close-the-loop on social engineering with the end-user and protect the organization.
KnowBe4 Compliance Manager (KCM)
KCM was designed to help our customers save time and resources by providing an intuitive user interface with streamlined workflows that enables visibility into the ongoing audit and compliance processes at all levels of the business. To further simplify the user experience, we developed workflow templates that are applicable to a variety of common compliance needs, including the Health Insurance Portability and Accountability Act (HIPAA), General Data Protection Regulation (GDPR) and Payment Card Industry Data Security Standard (PCI-DSS), among others. These templates, along with the ability for users to create their own custom workflows, allow the KCM product to easily scale across a variety of different compliance needs and programs. A recent addition to the KCM product is the Vendor Risk Management module, which allows our customers to centralize their vendor management process. This includes the onboarding of new vendors in a streamlined manner and tracking a vendor’s compliance with policies and procedures throughout the vendor lifecycle. Additionally, KCM dashboards have been specifically
designed with automated reminders to equip users with the tool in the timely completion and tracking of compliance activities.
Free Tools
As part of our go-to-market strategy, we offer a robust set of free tools that add value to our customers and help generate leads for our sales teams. Our free tools help users assess their security vulnerabilities and protect themselves against emerging security threats and challenges. Our strategy is to leverage the free tools as our lead generation engine to drive awareness, increase brand exposure and convert more users to long-term paying customers on our core products. Our free tools also provide important usage data and user feedback for our new product development. Oftentimes, we convert free tools into paid products after adding more functionalities. Our free tools offering include:
•Phishing Tools. We offer a set of phishing test tools that help organizations assess their vulnerability to various formats of phishing attacks and benchmark their security awareness levels against their peers. We also offer Phish Alert email add-in button which allows users to forward email threats to the security team for analysis in one click. We recently launched Second Chance, an anti-phishing tool that confirms with users before redirecting to URLs contained within emails, in the event a user clicked on a potentially unsafe or an unknown website.
•Security Awareness Training Tools. We offer tools that help IT teams create and deploy security awareness programs. Our Automated Security Awareness Program, or ASAP, tool provides detailed step-by-step guides that make it quick and easy for IT teams to quickly set up a fully mature, customized awareness training program
•Password Tools. We offer tools to evaluate password-related risks within organizations. Our tools can help identify weak password-related threats, check users’ browser-saved passwords against weak passwords, and identify whether passwords that might have been involved in a data breach are currently active within the organization’s network.
•Email Security Tools. We offer tools to assess email-related security threats including spear phishing, domain spoof or mail server malfunctions. Our Email Exposure Check Pro performs a deep web search through social media and thousands of breach databases to identify at-risk users within the organization.
We recently launched Domain Doppelgänger, a tool that enables IT teams to identify look-alike domains and generate assessments to test employees’ ability to recognize potentially fraudulent domains.
•Malware Tools. We offer tools to test an organization’s network against ransomware and cryptomining attacks. Our RanSim tool provides harmless simulations of real ransomware and cryptomining infection scenarios to test the organization’s existing network protection level. We also offer USB Security Test which allows IT teams to monitor employees’ behaviors related to unknown USB drives.
Customers
As of December 31, 2018, 2019 and 2020, we had 22,521, 30,259 and 36,753 customers, respectively. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us to access our platform. As security awareness is a fundamental need for all organizations, we represent virtually all industry verticals. We have experienced success in industries where cybersecurity is of particular importance, such as financial services, technology, professional services, healthcare and public sector. Additionally, we have received Federal Risk and Authorization Management Program, or FedRAMP, authorization to sell our platform to federal government agencies.
As of December 31, 2020, our customer base represents 135 different jurisdictions. Additionally, our customer base is highly diversified, with no single direct customer accounting for more than 1% of annual revenue.
Competition
We operate within the broader cybersecurity market and we believe we are one of the only companies that is primarily focused on the human layer of cybersecurity. The security awareness market is largely a greenfield market. Certain larger enterprise providers, such as Proofpoint, Mimecast and Cofense, attempt to address the security awareness market through their own infrastructure-centric product offerings. These offerings are often tied to other products within their portfolio and do not focus on changing human behavior. While there are some smaller security awareness focused companies in the market, none have grown to a meaningful scale to be considered a material competitor.
We believe that we compete primarily on the following factors:
•our ability to provide an integrated platform for organizations to assess, monitor and mitigate the persistent threat of social engineering;
•the incorporation of artificial intelligence, machine learning, automation and integrations into our platform;
•the overall strength of our sales, marketing and channel relationships;
•our brand awareness and reputation within the market;
•the perceived value of our products relative to the subscription cost;
•the quality and breadth of our content offerings; and
•our ability to provide a seamless customer experience for both IT personnel and individual users of our platform within the organization.
Although certain of our competitors may enjoy greater resources and recognition and customer relationships outside of security awareness, we believe that we compete favorably within our market with respect to these factors. We believe we are well positioned as a leading provider focused on the human layer.
Customer Case Studies
Coke One North America
“Social engineering has been the top way attackers get into an organization for years now. This is a platform that allows us to reduce our likelihood of being susceptible to these types of attacks.” Sean Campbell, Director of Risk, Compliance and CyberSecurity at Coke One NA
Overview: Coke One North America, or CONA, provides the IT platform for the North American Coca-Cola bottling business which encompasses over 30,000 users. CONA must provide 24/7 business application availability to their customers including access to suppliers, service providers and the customers. CONA needed a security awareness platform that allowed for administrative efficiency and flexibility including the ability to tailor awareness programs and content to a wide variety of users.
Benefits of the KnowBe4 platform: CONA currently uses our KMSAT and PhishER products. To set-up their wide array of users on the KMSAT product, CONA used our Active Directory integration coupled with a single-sign-on connection. This saved CONA a significant amount of upfront set-up time and continues to provide efficiencies in program management as the user-base changes over time. Using the KMSAT product, CONA was able to perform a simulated phishing campaign and accompanying training that targeted areas of weakness within their userbase. The machine learning capabilities of our PhishER product allowed CONA to set up systematic rules and actions to identify and classify messages reported by their users through a much faster process than their prior manual analysis. CONA has also employed our PhishRIP feature to further reduce CONA’ likelihood falling victim to social engineering attacks.
JAMF
“JAMFs are very technical… If you push out training that is compliance driven and check boxes and boring attestations about this or that piece of security, you’re not going to maximize the value. What we really needed was a way to push varying levels of technical information, of interesting information, to put their day-to-day lives in context with the security risk.” Aaron Kiemele, CISO at JAMF
Overview: JAMF provides products that connect, manage and protect Apple products, apps and users within the cloud. Security is central to what JAMF does and the products and solutions that they deliver to their customers. The organization was looking for a platform to help raise the security awareness of their employees which they believe has led to their ability to maximize the value they provide to their customers.
Benefits of the KnowBe4 platform: JAMF uses both the KMSAT and PhishER products to raise the security awareness of their 1300 employees and specifically employs the automated components of our products to increase the efficiency of program administration. These components correspond to JAMF’s belief that security awareness should be agile and allow for the targeting of specific risks or specific groups. The high quality and varied lengths and levels of content available contribute to JAMF’s ability to create more targeted programs for their users. PhishER allows the organization more control over the flow of potentially malicious emails through their users’ inboxes and has led to reduced effort and efficiencies within the organization.
Large US-based Insurance Provider
“There is a huge difference between ticking the boxes and actually generating a cybersecurity aware culture” – Officer within Information Security Services
Overview: The Information Security Services team at a large US-based insurance provider sought to implement a security awareness program for its 8500 users. Management felt that it was critical to have a versatile platform that could grow and evolve with the organization and provide the ability to rely more on the human assets of the organization for security. Additionally, management wanted to refocus effort and spending on the source of attacks.
Benefits of the KnowBe4 platform: After an initial comparison with four other vendors in 20XX, this insurance provider took out a subscription for our KMSAT product and later added on PhishER. The organization finds the KnowBe4 platform to be easy to use and administer with reported “fantastic scalability”. The insurance provider
uses the KMSAT Smart Groups feature to create a dynamic environment to test, train and move users among groups based on grouping characteristics. The organization considers our PhishER product an invaluable tool as it has allowed the organization to automate responses to reported threats and prioritize other reports for more in-depth responses drastically reducing the incident response team’s workload.
Sales and Marketing
Sales
We operate an inside sales model as well as a network of MSPs and channel partners, both domestically and internationally. Our inside sales representatives and partners are collectively responsible for our initial customer acquisition. Customers typically deploy our platform to their entire end user base upon initial subscription. We utilize our team of customer success managers to ensure onboarding to our platform and help drive adoption of additional features and products. Dedicated pricing specialists are tasked with negotiating customer renewals, along with upselling and cross-selling. Our cloud-based platform enables our inside sales team to seamlessly upgrade subscription tiers and activate additional products on behalf of customers. Additionally, we offer transparent and competitive pricing, which we believe translates into an efficient sales cycle.
Marketing
Our marketing strategy is highly focused on demand generation driving our opportunity pipeline. This strategy is intended to be applied broadly across all organization sizes and industries; however some verticals like finance, healthcare and manufacturing have been exceptionally receptive. We offer over a dozen free tools that add value to our customers and help generate leads for our sales teams. Many of these tools integrate directly into our platform to provide additional layers of intelligence and risk data to our customers. These tools increase our sales velocity and are a testing ground for future paid products on our platform. Additionally, we run hundreds of webcasts annually, participate in cybersecurity industry events and utilize our product evangelist team to drive market awareness. We anticipate further building our marketing team and are investing in channel relationships to further penetrate up-market accounts.
Research and Development
Our research and development team is responsible for the design, development, testing and quality of our cloud-based platform. In addition to improving on our features and functionality, this team works to ensure that our platform is available, reliable and stable. We invest substantial resources in research and development to enhance our platform features and functionalities and develop new products designed to expand our presence in the security awareness market. We believe the timely development of new features and the enhancement of our existing platform is essential to maintaining our competitive position. Our research and development team works closely with our customer success team to collect user feedback to enhance our development process as we continually incorporate suggestions and feedback from our customers into our platform. We also believe our research and development teams’ focus on developing new products that address the continuously evolving risks of social engineering and security awareness will help us maintain our market leading position. We utilize an agile development process to deliver numerous releases, fixes and feature updates each year and capitalize qualifying costs of developing larger scale projects. Our research and development team is primarily based in Clearwater, Florida, and we maintain additional research and development capabilities in certain international jurisdictions who supplement our core team.
Intellectual Property
We believe that our intellectual property rights are valuable and important to our business. We rely on trademarks, patents, copyrights, trade secrets and know-how, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements and employee non-disclosure and invention assignment agreements to establish and protect our proprietary rights. Though we rely in part upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees and the functionality and frequent enhancements to our solutions are larger contributors to our success in the marketplace.
As of December 31, 2020, we had 48 issued patents in the United States, 22 patent applications pending in the United States and 4 patent applications pending internationally. Our issued patents expire between August 2040 and December 2040, and three of our pending patent applications have been allowed. These patents and patent applications seek to protect our proprietary inventions relevant to our business. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights. We believe that competitors will try to develop products that are similar to ours and that may infringe our intellectual property rights. Our competitors or other third-parties may also claim that our security platform and other products infringe their intellectual property rights. In particular, some companies in our industry have extensive patent portfolios. From time to time, third parties have in the past and may in the future assert claims of infringement, misappropriation and other violations of intellectual property rights against us or our customers, with whom our agreements may obligate us to indemnify against these claims. Successful claims of infringement by a third party could prevent us from offering certain products or features, require us to develop alternate, non-infringing technology, which could require significant time and during which we could be unable to continue to offer our affected products or solutions, require us to obtain a license, which may not be available on reasonable terms or at all, or force us to pay substantial damages, royalties, or other fees. For additional information, see the section titled “Risk Factors—Risks Related to Our Intellectual Property.”
Human Capital Resources
KnowBe4’s corporate culture is built on the goal of creating an environment where employees feel safe, where they feel they belong, where they work together as a team, and where everyone can rise to their full potential and deliver their top performance in a sane, fun work environment. We strive to reach this goal by placing a focus on training, developing strong teams and creating an organized efficient workplace. We focus on the continuous education of our entire employee base by providing opportunities for real-time learning. We strive to develop strong teams through our recruiting efforts which focus on attracting team-oriented, hardworking individuals. We also believe that retaining the appropriate number of employees who consistently contribute to the organization’s success in measurable ways is key to sustaining strong teams. We drive employee retention through our market-based compensation philosophy and the adoption of unique employee benefits, such as career coaching and health initiatives. We achieve workplace organization through the implementation of consistent policies and procedures that are widely communicated and reinforced regularly through training and executive leadership. In addition, our strong commitment to promoting diversity and inclusion has fostered a highly collaborative and motivated workforce. We intend to continue to evaluate our human capital resources in managing our business, including the measures we employ to maintain diversity in our workforce.
As of December 31, 2019 and 2020, we had 840 and 1,014 full-time employees, respectively, of which 114 and 171, respectively, were located outside the United States. We also engage temporary employees and consultants as needed to support our operations. None of our employees in the United States are represented by a labor union or subject to a collective bargaining agreement. In certain countries in which we operate, we are subject to, and comply with, local labor law requirements which may automatically make our employees subject to industry-wide collective bargaining agreements. We may be required to comply with the terms of these collective bargaining agreements. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Facilities
Our corporate headquarters is located in the Tampa Bay, Florida area, where we currently lease approximately 130,203 square feet of space under lease agreements that expire between 2022 and 2024. We also maintain offices in multiple international locations, including Australia, Brazil, Germany, Japan, the Netherlands, Norway, Singapore, South Africa, the United Arab Emirates and the United Kingdom. We lease all of our facilities and do not own any real property. We expect to add facilities as we grow our employee base and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations.
Legal Proceedings
From time to time, we may be subject to legal proceedings arising in the ordinary course of business. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. As of the date of this prospectus, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations, prospects, cash flows, financial position, or brand.
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information concerning our current executive officers and directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
Executive Officers:
|
|
|
|
|
|
Stu Sjouwerman
|
|
64
|
|
Chief Executive Officer & Director
|
|
Krish Venkataraman
|
|
44
|
|
Co-President & Chief Financial Officer
|
|
Lars Letonoff
|
|
57
|
|
Co-President & Chief Revenue Officer
|
|
|
|
|
|
|
|
Non-Employee Directors:
|
|
|
|
|
|
Jeremiah Daly(1)(2)
|
|
39
|
|
Director
|
|
Joseph DiSabato
|
|
54
|
|
Director
|
|
Kevin Klausmeyer(3)
|
|
62
|
|
Director
|
|
Stephen Shanley(1)(3)
|
|
34
|
|
Director
|
|
Gerhard Watzinger(1)(2)(3)
|
|
60
|
|
Director
|
|
Kara Wilson(1)(2)
|
|
51
|
|
Director
|
________________
(1)Member of the nominating and governance committee.
(2)Member of the compensation committee.
(3)Member of the audit committee.
Executive Officers
Stu Sjouwerman founded our company in August 2010 and serves as our Chief Executive Officer and as a member of our board of directors since inception. In addition, Mr. Sjouwerman is Editor-in-Chief of Cyberheist News, an ezine tailored to deliver IT security news, technical updates and social engineering alerts. A serial entrepreneur and data security expert, Mr. Sjouwerman has more than 30 years of experience in the IT industry, is a five-time Inc. 500 award winner and the author of four books including “Cyberheist: The Biggest Financial Threat Facing American Businesses.” Mr. Sjouwerman attended Universiteit van Amsterdam where he studied Educational Sciences. We believe Mr. Sjouwerman is qualified to serve as a member of our board of directors due to the experience and operational insight he brings as our Chief Executive Officer and founder, and due to his extensive experience building and growing companies in the IT industry.
Krish Venkataraman is our Co-President and Chief Financial Officer since he joined KnowBe4 in September 2018. Prior to joining our company, Mr. Venkataraman was Chief Financial Officer of Dealogic, a global fintech company that serves financial firms, from March 2016 to September 2018, where he led the company through a successful and strategic sale. Prior to that, Mr. Venkataraman acted as Chief Financial Officer and Chief Operating Officer of Syncsort, a global software company specializing in Big Iron to Big Data software, from March 2014 to February 2016, where he also led the successful sale of that company. Mr. Venkataraman’s earlier roles include serving as Chief Financial Officer for information technology for NYSE Euronext, where he helped in the sale process to Intercontinental Exchange; as Chief Administrative Officer for U.S. equities for Lehman Brothers; and as a strategist for both American Express and Deloitte Consulting. Mr. Venkataraman’s education includes a B.S. from Carnegie Mellon University and an M.B.A. from Cornell University – Johnson School of Management.
Lars Letonoff is our Co-President and Chief Revenue Officer, and previously served as VP Sales. Mr. Letonoff joined our company in August 2011, early in the organization’s initial start-up phase and has developed our sales processes and sales team throughout the company’s many phases of growth. He is responsible for all areas of global sales, including direct sales, channel sales, customer success, business development and strategic accounts. Mr. Letonoff has a B.B.A. in Finance from University of South Florida – College of Business Administration and an M.B.A. from University of Tampa.
Non-Employee Directors
Jeremiah Daly has served as a member of our board of directors since January 2016. Mr. Daly is a co-founder and General Partner of Elephant, a venture capital firm, where he has served since May 2015. Prior to co-founding Elephant, Mr. Daly was an investor at Accel, Highland Capital Partners and Summit Partners. Mr. Daly holds an A.B. in Government from Dartmouth College. We believe Mr. Daly is qualified to serve on our board of directors because of his extensive experience working with the management teams of, and investing in, a number of privately and publicly held companies.
Joseph DiSabato has served as a member of our board of directors since October 2019. Mr. DiSabato worked for Goldman Sachs from 1988 to 1991, rejoined Goldman Sachs in 1994 and has served as managing director in its Merchant Banking Division since 2000. Within the last five years, Mr. DiSabato served on the board of directors of Benefitfocus, Inc., a benefits technology platform, and currently serves on the board of Endurance International, a global SMB web presence business. Mr. DiSabato holds an M.B.A. from UCLA Anderson School of Management and an undergraduate degree from Massachusetts Institute of Technology. We believe Mr. DiSabato is qualified to serve on our board of directors due to his extensive knowledge of financial and accounting matters and his familiarity with our company.
Kevin Klausmeyer has served as a member of our board of directors since August 2020. In addition, Mr. Klausmeyer is currently on the board of directors of two public companies, Cloudera, Inc., a provider of a multi-cloud and on-premise enterprise data platform, and Jamf, the leader in Apple enterprise management software, wherein he chairs their audit committees. In addition, he is currently on the board of directors of Ivalua Inc., a procurement software company, is a supervisory board member of Kaseya Limited, an IT management software company, and a consultant and chair of the audit committee of Gympass, a corporate fitness platform. Mr. Klausmeyer also previously served on the Hortonworks board from August 2014 until it merged with Cloudera, Inc., in January 2019. Mr. Klausmeyer served on the board of directors of Callidus Software Inc., a provider of SaaS sales and marketing automation solutions, from April 2013 until its acquisition by SAP SE in April 2018. From April 2013 to October 2013, Mr. Klausmeyer served on the board of directors of Sourcefire, Inc., a provider of intrusion detection security solutions (acquired by Cisco Systems, Inc.). From July 2003 to September 2012, Mr. Klausmeyer served on the board of directors of Quest Software, Inc., a software company that was ultimately acquired by Dell Inc. From July 2006 to February 2011, Mr. Klausmeyer served as the Chief Financial Officer of The Planet, Inc., a pioneer in the infrastructure‑as‑a‑service market, which was acquired by SoftLayer Technologies (a company later acquired by IBM as the core of its cloud platform). Mr. Klausmeyer began his career in public accounting, with Arthur Andersen, and subsequently held senior financial positions at several software companies, including BMC Software and PentaSafe Security Technologies. Mr. Klausmeyer holds a B.B.A. in Accounting from the University of Texas. We believe Mr. Klausmeyer’s experience on other public technology companies’ boards and his executive leadership roles at technology companies make him a valuable member of our board of directors.
Stephen Shanley has served as a member of our board of directors since March 2019. Mr. Shanley is a Managing Director at Kohlberg Kravis Roberts & Co. L.P. or, together with its affiliates, KKR, a leading global investment firm, and is head of KKR’s Technology Growth Equity business in Europe. Mr. Shanley has served on the board of directors of several technology companies including ReliaQuest, LLC, Zwift Inc., OutSystems Holdings S.A., Darktrace Limited, iValua S.A.S., GetYourGuide AG and Clicktale (UK) Limited. Prior to joining KKR, Mr. Shanley was an investor with Technology Crossover Ventures, a technology focused growth equity firm. Prior to that, Mr. Shanley was with the TMT investment banking group of Needham & Company, LLC and started his career in the transaction services group of KPMG US LLP. Mr. Shanley holds a B.S. and a B.Sc. from Santa Clara University. We believe that Mr. Shanley is qualified to serve on our board of directors because of his extensive business and investment experience, particularly in the technology industry.
Gerhard Watzinger has served as a member of our board of directors since October 2019. Mr. Watzinger has served as chairman of CrowdStrike Holdings, Inc.’s board of directors since April 2012. In addition, Mr. Watzinger served as the Executive Vice President for Corporate Strategy and Mergers & Acquisitions of the McAfee business unit of Intel Corporation, or Intel, a designer and manufacturer of advanced integrated digital technology platforms, until his resignation in March 2012. Mr. Watzinger joined Intel in February 2011 upon Intel’s acquisition of McAfee. Mr. Watzinger joined McAfee in November 2007 upon McAfee’s acquisition of SafeBoot Corp., a global
leader in data protection software, where he served as Chief Executive Officer from February 2004 to November 2007. From 2003 to 2004, Mr. Watzinger was the Chief Executive Officer of Mascot Systems, a subsidiary of iGATE focused on offshore IT operations. He currently also serves on the board of directors of Mastech Digital, Inc., a digital transformation and information technology services company, and Absolute Software, a persistent software company. He previously served as chairman of the board of directors of TeleSign Corporation. Mr. Watzinger holds an advanced degree in Computer Science from the Munich University of Applied Sciences. We believe Mr. Watzinger’s expertise within the IT industry, as well as his experience as an executive officer of three IT companies qualifies him to serve on our board of directors.
Kara Wilson has served as a member of our board of directors since January 2020. Ms. Wilson has served as a Senior Advisor to KKR since October 2019. In addition, she currently serves on the board of directors for Corel Corporation, a company with a wide portfolio of software solutions that deliver best-in-class capabilities to knowledge workers worldwide, and PayChex, Inc., a payroll services company, OneStream Software LLC, a provider of corporate performance management solutions, Calabrio, Inc., a provider of customer engagement and analytics software and Outsystems Holdings S.A., an enterprise software company. She was formerly Chief Marketing Officer at Rubrik, Inc., a cloud data management company, a role she held from June 2017 until May 2019. She has over 20 years of experience in driving go-to-market strategies for large, medium and hyper-growth start-ups. She has held marketing leadership roles with Cisco Systems, Inc., SuccessFactors, Inc. (as later acquired by SAP SE), PeopleSoft, Inc. (as later acquired by Oracle Corporation), Okta, Inc. and FireEye, Inc. Prior to Rubrik, Ms. Wilson worked for the cybersecurity company FireEye where she served as Chief Marketing Officer from August 2013 to June 2017 and Executive Vice President from October 2016 to June 2017, during which time she helped launch FireEye’s initial public offering and was responsible for the company’s global marketing initiatives including corporate, product and technical marketing, global communications and field enablement. Ms. Wilson holds a B.A. from the University of California, Berkeley. We believe Ms. Wilson is qualified to serve as a director due to her extensive experience in the technology industry and believe we will be able to leverage her marketing experience to help our company effectively differentiate itself in a highly competitive and constantly evolving industry.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Composition
Our directors are divided into three classes serving staggered three-year terms. Class I, Class II and Class III directors will serve until our annual meetings of stockholders in 2022, 2023 and 2024, respectively. Upon expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires. As a result of this classification of directors, it generally takes at least two annual meetings of stockholders for stockholders to effect a change in a majority of the members of our board of directors.
Our board of directors currently consists of seven members. Joseph DiSabato and Stephen Shanley are Class I directors and will serve until our annual meeting of stockholders in 2022. Jeremiah Daly and Kara Wilson are Class II directors and will serve until our annual meeting of stockholders in 2023. Kevin Klausmeyer, Gerhard Watzinger and Stu Sjouwerman are Class III directors and will serve until our annual meeting of stockholders in 2024.
Director Independence
Upon the completion of this offering, our Class A common stock will be listed on the Nasdaq Stock Market LLC, or Nasdaq. Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors within a specified period after completion of this offering. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of
directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Our board of directors has determined that each of Jeremiah Daly, Joseph DiSabato, Kevin Klausmeyer, Stephen Shanley, Gerhard Watzinger and Kara Wilson does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each is “independent” as that term is defined under the applicable rules and regulations of the Securities and Exchange Commission, or SEC, and Nasdaq. In making this determination, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
Board of Directors Leadership Structure
Mr. Sjouwerman serves as the chairman of our board of directors and as our Chief Executive Officer. Our board of directors does not have a policy regarding the separation of the roles of Chief Executive Officer and chairman of the board of directors, as our board of directors believes it is in our best interest to make that determination based on our position and direction and the membership of the board of directors. Our board of directors has determined that having Mr. Sjouwerman serve as chairman is in the best interest of our stockholders at this time because the detailed knowledge of our day-to-day operations and business that Mr. Sjouwerman possesses greatly enhances the decision-making processes of our board of directors as a whole. We have a governance structure in place, including independent directors, designed to ensure the powers and duties of the dual role are handled responsibly. We do not have a lead independent director.
Role of the Board in Risk Oversight
One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our audit committee also monitors compliance with legal and regulatory requirements.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee.
Audit Committee
Our audit committee consists of Kevin Klausmeyer, Stephen Shanley and Gerhard Watzinger with Mr. Klausmeyer serving as chairman. We believe that our audit committee members meet the requirements for financial literacy under the current requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, the Nasdaq listing standards and SEC rules and regulations. In addition, the board of directors has determined that Messrs. Klausmeyer and Watzinger are qualified as audit committee financial experts within the meaning of SEC regulations. We have made this determination based on information received by our board of
directors, including questionnaires provided by the members of our audit committee. Our audit committee will, among other things:
•appoint and oversee an independent auditor, and approve audit and non-audit services;
•evaluate the independence and qualifications of the independent auditor at least annually;
•review our annual audited financial statements and quarterly financial statements;
•review the responsibilities, functions, qualifications and performance of our internal audit function, including internal audit’s charter, plans, budget, objectivity and the scope and results of internal audits;
•approve the hiring, promotion, demotion or termination of the person in charge of our internal or outsourced internal audit function;
•review the results of the internal audit program, including significant issues in internal audit reports and responses by management;
•review the hiring of employees or former employees of our independent auditor;
•review, approve and monitor related party transactions involving directors or executive officers and review and monitor conflicts of interest situations involving such individuals where appropriate;
•periodically, meet separately with (a) management, (b) once we have established an internal audit function, our internal auditors (or other personnel responsible for the design and implementation of the internal audit function) and (c) our independent auditors (with and without management present), in each case to discuss any matters that the audit committee or the others believe should be discussed privately;
•address complaints received by us regarding accounting, internal accounting controls or auditing matters and procedures for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
•review with our management and/or General Counsel, on at least an annual basis: (i) our legal, regulatory and ethical compliance programs and (ii) any legal matters that could have a significant impact on our financial statements, our compliance with laws and regulations and any material inquiries received from regulators or governmental agencies;
•report regularly to our board of directors about issues including, but not limited to, any issues that arise with respect to the quality or integrity of our financial statements, our compliance with legal or regulatory requirements, the performance and independence of the independent auditors and, when the internal audit function is established, the performance of the internal audit function;
•review at least annually the adequacy of the audit committee’s charter and recommend any proposed changes to our board of directors for approval; and
•conduct and present to our board of directors an annual self-performance evaluation of the audit committee.
Our audit committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable rules of the SEC and the listing standards of Nasdaq.
Compensation Committee
Our compensation committee consists of Jeremiah Daly, Gerhard Watzinger and Kara Wilson with Mr. Watzinger serving as chairman. We believe that the composition of our compensation committee meets the requirements for independence under, and the functioning of our compensation committee complies with, any applicable requirements of the Sarbanes-Oxley Act, the Nasdaq listing standards and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us. The purpose of our
compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee will, among other things:
•establish, and periodically review, a general, compensation strategy for our organization, and oversee the development and implementation of our compensation plans to ensure that these plans are consistent with this general compensation strategy;
•administer all of our equity-based plans and such other plans as shall be designated from time to time by our board of directors;
•review, approve and determine, or make recommendations to our board of directors regarding, the compensation of our executive officers;
•review and recommend to our board of directors the form and amount of compensation (including perquisites and other benefits), and any additional compensation to be paid, for service on our board of directors and committees of our board of directors and for service as a chairperson of a committee at least annually;
•oversee regulatory compliance with respect to compensation matters affecting our organization;
•retain or obtain the advice of compensation consultants, independent legal counsel and other advisers;
•conduct and present to our board of directors an annual self-performance evaluation of the compensation committee; and
•review at least annually the adequacy of the compensation committee’s charter and recommend any proposed changes to our board of directors for approval.
Our compensation committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable rules of the SEC and the listing standards of Nasdaq.
Nominating and Governance Committee
Our nominating and governance committee consists of Jeremiah Daly, Stephen Shanley, Gerhard Watzinger and Kara Wilson with Ms. Wilson serving as chairman. We believe that the composition of our nominating and governance committee meets the requirements for independence under, and the functioning of our nominating and governance committee complies with, any applicable requirements of the Sarbanes-Oxley Act, the Nasdaq listing standards and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us. Our nominating and governance committee will, among other things:
•make recommendations to our board of directors regarding the size and structure of our board of directors, the composition of our board of directors, the criteria for membership and the process for filling vacancies on our board of directors;
•identify individuals qualified to become members of our board of directors (taking into consideration, if applicable, the criteria for board of directors’ membership) and recommend to our board of directors’ nominees to fill vacancies and newly created directorships on our board of directors and the nominees to stand for election as directors;
•review the duties and composition of committees of our board of directors;
•review and recommend to our board of directors the Corporate Governance Principles of our board of directors and any proposed changes to such Principles;
•conduct and present to our board of directors an annual self-performance evaluation of the nominating and governance committee;
•oversee the evaluation of our board of directors, its committees and management and report such evaluation to our board of directors; and
•shall review at least annually the adequacy of the nominating and governance committee’s charter and recommend any proposed changes to our board of directors for approval.
Our nominating and governance committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable listing requirements and rules of Nasdaq.
Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics, which establishes the standards of ethical conduct applicable to all directors, officers and employees of our company. The code addresses, among other things, conflicts of interest, compliance with disclosure controls and procedures and internal controls over financial reporting, corporate opportunities and confidentiality requirements. Following the closing of this offering, the code of business conduct and ethics will be available on our website at www.knowbe4.com. Information contained on our website is not part of this prospectus or the registration statement of which it forms a part and is not incorporated by reference in this prospectus or the registration statement of which it forms a part. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
Compensation Committee Interlocks and Insider Participation
During 2020, Jeremiah Daly, Gerhard Watzinger and Kara Wilson served as members of our compensation committee. None of the members of our compensation committee is a current or former executive officer or employee of our company. None of our executive officers serves as a member of the compensation committee of any entity that has one or more executive officers serving on our compensation committee.
Non-Employee Director Compensation
The following table sets forth certain information concerning cash and non-cash compensation earned by the non-employee members of our board of directors in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or Paid in Cash ($)
|
|
Option Awards
($)(1)
|
|
Total
($)
|
|
Jeremiah Daly
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Joseph DiSabato
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Alex Eckleberry(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Kevin Klausmeyer(3) (4)
|
|
12,309
|
|
|
1,390,479
|
|
|
1,402,788
|
|
|
Kevin Mitnick(5)
|
|
310,165
|
|
|
—
|
|
|
310,165
|
|
|
Stephen Shanley
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Gerhard Watzinger(3) (4)
|
|
30,000
|
|
|
—
|
|
|
30,000
|
|
|
Kara Wilson(3) (4)
|
|
30,000
|
|
|
1,261,044
|
|
|
1,291,044
|
|
________________
(1)Represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation, or FASB ASC Topic 718. Assumptions used in the calculation of these award amounts are included in Note 2 to our consolidated financial statements included elsewhere in this prospectus.
(2)Mr. Eckleberry resigned from our board of directors on August 3, 2020.
(3)Pursuant to the offer letters entered into between the Company and each of Kevin Klausmeyer, Gerhard Watzinger and Kara Wilson, in consideration for their services as non-employee directors, each is entitled to an annual cash fee of $30,000. Mr. Klausmeyer joined our board of directors in August 2020, and his annual cash fee reflects his partial year service.
(4)Pursuant to the offer letters, each of Kevin Klausmeyer, Gerhard Watzinger and Kara Wilson was granted a non-qualified stock option award to purchase 17,149 shares of common stock in connection with the commencement of their service on our board of directors, in 2020 in the case of Mr. Klausmeyer and Ms. Wilson, and in 2019 in the case of Mr. Watzinger. These stock option awards were outstanding in full as of December 31, 2020. 25% of the shares subject to each option
vested or is scheduled to vest on August 3, 2021 in the case of Mr. Klausmeyer, October 1, 2020 in the case of Mr. Watzinger, and January 1, 2021 in the case of Ms. Wilson, and, in each case, the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(5)Mr. Mitnick resigned from our board of directors on March 19, 2021.
Non-Employee Director Compensation Program
Effective as of the effective date of the registration statement of which this prospectus forms a part, we adopted a compensation program for our non-employee directors that consists of annual retainer fees and long-term equity awards, or the Director Compensation Policy. We intend to submit the Director Compensation Policy to stockholders prior to the consummation of this offering.
The Director Compensation Policy provides for the compensation of our non-employee directors for their service as director. The cash and equity components of our compensation policy for non-employee directors are set forth below:
|
|
|
|
|
|
|
|
|
|
|
Position
|
|
Annual Cash Retainer
|
|
Base Director Fee
|
|
$
|
30,000
|
|
|
Additional Chairperson Fee
|
|
|
|
Chair of the Board
|
|
$
|
20,000
|
|
|
Chair of the Audit Committee
|
|
$
|
20,000
|
|
|
Chair of the Compensation Committee
|
|
$
|
10,000
|
|
|
Chair of the Nominating and Corporate Governance Committee
|
|
$
|
7,500
|
|
|
Additional Committee Member Fee (excluding chairpersons)
|
|
|
|
Audit Committee
|
|
$
|
10,000
|
|
|
Compensation Committee
|
|
$
|
5,000
|
|
|
Nominating and Corporate Governance Committee
|
|
$
|
4,000
|
|
Under our Director Compensation Policy, each non-employee director upon first becoming a non-employee director after the date of this offering automatically receives an initial award of restricted stock units having a value of $360,000. The initial restricted stock unit award will vest annually over three years, subject to continued service through the vesting date. If a non-employee director first became a non-employee director at a time other than at an annual meeting, then the director will receive a pro-rata portion of the annual award described below, which will vest at the next following annual meeting of stockholders, subject to continued service through the vesting date. Additionally, each non-employee director automatically receives an annual restricted stock unit award having a value of $180,000, effective on the date of each annual meeting of stockholders. The annual restricted stock unit award will vest on the earlier of one year following the grant date or the next annual meeting of stockholders, subject to continued service through the vesting date. All awards under the Director Compensation Policy accelerate and vest upon a change in control.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth summary information concerning compensation for the following persons: (i) all persons serving as our principal executive officer during 2020 and (ii) the two most highly compensated of our other executive officers who received compensation during 2020 of at least $100,000 and who were executive officers on December 31, 2020. We refer to these persons as our “named executive officers” elsewhere in this prospectus. The following table includes all compensation earned by the named executive officers for the respective periods, regardless of whether such amounts were actually paid during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus ($)(2)
|
|
Option Awards ($)(1)
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
Non-Qualified Deferred Compensation Plan Earnings ($)
|
|
All Other Compensation ($)
|
|
Total ($)
|
|
Stu Sjouwerman
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer & Director
|
|
|
409,503
|
|
|
399,700
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,730
|
|
(3)
|
|
831,933
|
|
|
Krish Venkataraman
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-President & Chief Financial Officer
|
|
|
526,212
|
|
|
510,744
|
|
|
1,614,736
|
|
|
—
|
|
|
—
|
|
|
80,852
|
|
(4)
|
|
2,732,544
|
|
|
Lars Letonoff
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-President & Chief Revenue Officer
|
|
|
404,913
|
|
|
394,220
|
|
|
939,551
|
|
|
—
|
|
|
—
|
|
|
19,500
|
|
(5)
|
|
1,758,184
|
|
________________
(1)Amounts represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are described in Note 2 to our consolidated financial statements included elsewhere in this prospectus.
(2)Amounts represent annual performance incentive payments awarded by our board of directors, as further described in the narrative disclosure below.
(3)Amount represents $22,730 for car payments.
(4)Amount represents (i) $38,202 for housing and utility payments, (ii) $208 for 401(k) match payments, (iii) $7,179 for car payments, and (iv) $35,263 for gross-up payments related to housing and utility payments.
(5)Amount represents $19,500 for 401(k) contribution matching payments.
Outstanding Equity Awards at December 31, 2020
The following table shows outstanding equity awards held by the named executive officers as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of Securities Underlying Unexercised Options (#)
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
|
Krish Venkataraman
|
|
8,683
|
|
|
7,662
|
|
|
40.69
|
|
|
4/5/2028(1)
|
|
|
|
2,117
|
|
|
4,234
|
|
|
136.50
|
|
|
8/28/2029(2)
|
|
|
|
—
|
|
|
8,709
|
|
|
198.45
|
|
|
2/26/2030(3)
|
|
|
|
—
|
|
|
6,351
|
|
|
223.93
|
|
|
6/1/2030(4)
|
|
|
|
—
|
|
|
2,361
|
|
|
233.63
|
|
|
10/27/2030(5)
|
|
Lars Letonoff
|
|
10,061
|
|
|
1,391
|
|
|
26.49
|
|
|
5/1/2027(6)
|
|
|
|
8,161
|
|
|
2,426
|
|
|
51.89
|
|
|
11/3/2027(7)
|
|
|
|
—
|
|
|
8,709
|
|
|
198.45
|
|
|
2/26/2030(3)
|
|
|
|
—
|
|
|
2,361
|
|
|
233.63
|
|
|
10/27/2020(5)
|
________________
(1)25% of the shares subject to the option vested on April 5, 2019, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(2)25% of the shares subject to the option vested on August 28, 2020, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(3)25% of the shares subject to the option is scheduled to vest on February 26, 2021, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(4)25% of the shares subject to the option is scheduled to vest on June 1, 2021, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(5)25% of the shares subject to the option is scheduled to vest on October 27, 2021, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(6)25% of the shares subject to the option vested on May 1, 2018, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
(7)25% of the shares subject to the option vested on November 3, 2018, with the remaining number of shares subject to the option award vesting in equal monthly installments over the ensuing thirty-six (36) months.
Executive Employment Agreements
Stu Sjouwerman
We entered into a first amended and restated executive employment agreement with Mr. Sjouwerman dated February 26, 2020. Mr. Sjouwerman’s employment agreement has no specific term and provides that Mr. Sjouwerman is an at-will employee. Mr. Sjouwerman’s current annual base salary is $500,000, which may be adjusted upward but not downward, and he is eligible for an annual performance-based cash bonus targeted at 100% of his base salary. In connection with this offering, Mr. Sjouwerman will receive a grant of restricted stock units covering an intended value of $6.0 million. Two-thirds of Mr. Sjouwerman’s restricted stock units will vest solely based on time over a period of three years, and one-third of Mr. Sjouwerman’s restricted stock units will vest based on performance-based conditions.
If Mr. Sjouwerman is terminated by us without cause (as defined in his agreement) or by him for good reason (as defined in his agreement), he will be entitled to the 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 pro-rated portion of the target bonus amount; and
•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.
The severance benefits are conditioned on Mr. Sjouwerman executing and not revoking a general release of claims in favor of us. Mr. Sjouwerman is subject to certain non-compete and non-solicit obligations for a period of 24 months following the date of his termination of employment.
If any of the payments or benefits provided for under an agreement with Mr. Sjouwerman 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. We are not required to provide any tax gross-up payments to Mr. Sjouwerman.
Krish Venkataraman
We entered into a first amended and restated executive employment agreement with Mr. Venkataraman dated February 26, 2020. Mr. Venkataraman’s employment agreement has no specific term and provides that Mr. Venkataraman is an at-will employee. Mr. Venkataraman’s current annual base salary is $550,000, which may be adjusted upward but not downward, and he is eligible for an annual performance-based cash bonus targeted at 100% of his base salary and additional bonuses in the discretion of our board of directors. Additionally, in accordance with his employment agreement, Mr. Venkataraman receives reimbursement for travel between his home and the Company’s headquarters and for lodging while working out of the Company’s headquarters. In connection with this offering, Mr. Venkataraman will receive a grant of restricted stock units covering an intended value of $3.3 million. Two-thirds of Mr. Venkataraman’s restricted stock units will vest solely based on time over a period of three years, and one-third of Mr. Venkataraman’s restricted stock units will vest based on performance-based conditions. Pursuant to an addendum to his employment agreement, we intend to grant Mr. Venkataraman restricted stock units covering an intended $10.0 million granted fully-vested upon this offering, subject to his continued employment through such date. If this offering is not consummated, the $10.0 million would be payable in cash upon other types of liquidity events, such as a change in control.
If Mr. Venkataraman is terminated by us without cause (as defined in his agreement) or by him for good reason (as defined in his agreement), 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 pro-rated portion of the target bonus amount; and
•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.
•The severance benefits are conditioned on Mr. Venkataraman executing and not revoking a general release of claims in favor of us. Mr. Venkataraman is subject to certain non-compete and non-solicit obligations for a period of 12 months following the date of his termination of employment.
Upon a “change of control” (as defined in our 2016 Equity Incentive Plan) or the closing of an underwritten initial public offering of our common stock, whichever occurs first, all unvested stock options held by Mr. Venkataraman will become immediately vested.
If any of the payments or benefits provided for under an agreement with Mr. Venkataraman 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. We are not required to provide any tax gross-up payments to Mr. Venkataraman.
Lars Letonoff
We entered into an executive employment agreement with Mr. Letonoff dated February 26, 2020. Mr. Letonoff’s employment agreement has no specific term and provides that Mr. Letonoff is an at-will employee. Mr. Letonoff’s current annual base salary is $500,000, which may be adjusted upward but not downward, and he is eligible for an annual performance-based cash bonus targeted at 100% of his base salary and additional bonuses in the discretion of our board of directors. Under the terms of his executive employment agreement, Mr. Letonoff is also eligible for any commissions payable with respect to sales that were recorded by us on or prior to December 31, 2019. In connection with this offering, Mr. Letonoff will receive a grant of restricted stock units covering an intended value of $2.4 million. Two-thirds of Mr. Letonoff’s restricted stock units will vest solely based on time over a period of three years, and one-third of Mr. Letonoff’s restricted stock units will vest based on performance-based conditions. Pursuant to an addendum to his employment agreement, we intend to grant Mr. Letonoff restricted stock units covering an intended $5.0 million granted fully-vested upon this offering, subject to his continued employment through such date. If this offering is not consummated, the $5.0 million would be payable in cash upon other types of liquidity events, such as a change in control.
If Mr. Letonoff is terminated by us without cause (as defined in his agreement) or by him for good reason (as defined in his agreement), 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 pro-rated portion of the target bonus amount; and
•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.
The severance benefits are conditioned on Mr. Letonoff executing and not revoking a general release of claims in favor of us. Mr. Letonoff is subject to certain non-compete and non-solicit obligations for a period of 24 months following the date of his termination of employment.
Upon a “change of control” (as defined in our 2016 Equity Incentive Plan) or the closing of an underwritten initial public offering of our common stock, whichever occurs first, all unvested stock options held by Mr. Letonoff will become immediately vested.
If any of the payments or benefits provided for under an agreement with Mr. Letonoff 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. We are not required to provide any tax gross-up payments to Mr. Letonoff.
Non-Equity Incentive Plan Compensation
Each of our executive officers is eligible for an annual bonus under our non-equity incentive plan and has an established target bonus amount as set forth in the section titled “Executive Compensation—Employment Arrangements with Our Named Executive Officers.” For 2020, our board determined each eligible executive officer’s actual bonus based upon an assessment of achievement of corporate goals, which included certain revenue-based metrics.
Employee Incentive Compensation Plan
We adopted an Executive Incentive Compensation Plan, or the Incentive Compensation Plan. Our Incentive Compensation Plan will allow our compensation committee to provide cash incentive awards to employees selected by our compensation committee, including our named executive officers, based upon performance goals established by our compensation committee. Pursuant to the Incentive Compensation Plan, our compensation committee, in its sole discretion, establishes a target award for each participant and a bonus pool, with actual awards payable from such bonus pool, with respect to the applicable performance period.
Benefit and Stock Plans
2021 Equity Incentive Plan
We expect our board of directors to adopt, and our stockholders to approve, our 2021 Equity Incentive Plan, or 2021 Plan. The 2021 Plan will be effective on the business day immediately prior to the effective date of the registration statement of which this prospectus forms a part. Our 2021 Plan will provide for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and any of our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and any of our future subsidiary corporations’ employees and consultants.
Authorized Shares. A total of shares of our Class A common stock are reserved for issuance pursuant to our 2021 Plan. In addition, the shares reserved for issuance under our 2021 Plan will also include a number of shares of our Class A common stock equal to the number of shares of Class B common stock subject to awards granted under our 2016 Equity Incentive Plan that, after the effectiveness of this offering, expire or otherwise terminate without having been exercised in full or are forfeited to or repurchased by us (provided that the maximum number of shares that may be added to the 2021 Plan pursuant to this sentence is shares). The number of shares available for issuance under our 2021 Plan will also include an annual increase on the first day of each fiscal year beginning with our 2022 fiscal year, equal to the lesser of:
• shares;
• % of the outstanding shares of all classes of our common stock as of the last day of the immediately preceding fiscal year; or
•such other amount as our board of directors may determine.
If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased by us due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). With respect to stock appreciation rights, only the net shares actually issued will cease to be available under the 2021 Plan and all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). Shares that have actually been issued under the 2021 Plan will not be returned to the 2021 Plan except if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares, or performance units are repurchased by or forfeited to us, such shares will become available for future grant under the 2021 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding obligations related to an award will become available for future grant or sale under the 2021 Plan. To the extent an award is paid out in cash rather than shares, such cash payment will not result in a reduction in the number of shares available for issuance under the 2021 Plan.
Plan Administration. Our board of directors or one or more committees appointed by our board of directors will administer our 2021 Plan. The compensation committee of our board of directors will initially administer our 2021 Plan. In addition, if we determine it is desirable to qualify transactions under our 2021 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or Exchange Act, such transactions will be structured to
satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of our 2021 Plan, the administrator has the power to administer our 2021 Plan and make all determinations deemed necessary or advisable for administering the 2021 Plan, including but not limited to, the power to determine the fair market value of our Class A common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2021 Plan, determine the terms and conditions of awards (including, but not limited to, the exercise price, the time or times at which awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of our 2021 Plan and awards granted under it, prescribe, amend and rescind rules relating to our 2021 Plan, including creating sub-plans, modify or amend each award, including but not limited to the discretionary authority to extend the post-termination exercisability period of awards (except no option or stock appreciation right will be extended past its original maximum term), and allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type, which may have a higher or lower exercise price and/or different terms, awards of a different type, and/or cash or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.
Stock Options. Stock options may be granted under our 2021 Plan. The exercise price of options granted under our 2021 Plan must at least be equal to the fair market value of our Class A common stock on the date of grant. The term of an option may not exceed ten years. With respect to any participant who owns more than 10% of the voting power of all classes of our (or any parent or subsidiary of ours) outstanding stock, the term of an incentive stock option granted to such participant must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director, or consultant, he or she may exercise his or her option for the period of time stated in his or her option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for twelve months following the termination of service. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option, however, may not be exercised later than the expiration of its term. Subject to the provisions of our 2021 Plan, the administrator determines the other terms of options.
Stock Appreciation Rights. Stock appreciation rights may be granted under our 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our Class A common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding ten years. After the termination of service of an employee, director or consultant, he or she may exercise his or her stock appreciation right for the period of time stated in his or her stock appreciation rights agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for twelve months following the termination of service. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of our 2021 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our Class A common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock. Restricted stock may be granted under our 2021 Plan. Restricted stock awards are grants of shares of our Class A common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director, or consultant and, subject to the provisions of our 2021 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever vesting conditions it determines to be appropriate (for
example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us), except the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock Units. Restricted stock units may be granted under our 2021 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our Class A common stock. Subject to the provisions of our 2021 Plan, the administrator determines the terms and conditions of restricted stock units, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned restricted stock units in the form of cash, in shares or in some combination thereof. In addition, the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
Performance Units and Performance Shares. Performance units and performance shares may be granted under our 2021 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance objectives established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or performance shares. Performance units will have an initial value established by the administrator on or prior to the grant date. Performance shares will have an initial value equal to the fair market value of our Class A common stock on the grant date. The administrator, in its sole discretion, may pay out earned performance units or performance shares in cash, shares or in some combination thereof.
Outside Directors. All outside (non-employee) directors will be eligible to receive all types of awards (except for incentive stock options) under our 2021 Plan. To provide a maximum limit on the cash compensation and equity awards that can be made to our outside directors, our 2021 Plan provides that in any given fiscal year, an outside director will not be granted cash-settled awards with an aggregate fair value greater than $ or stock-settled awards with an aggregate fair value greater than $ (in each case increased to $ in the fiscal year of his or her initial service as an outside director), with the value of each award based on its grant date fair value as determined according to U.S. generally accepted accounting principles, or GAAP, for purposes of this limit.
Non-Transferability of Awards. Unless the administrator provides otherwise, our 2021 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.
Certain Adjustments. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under our 2021 Plan, the administrator will adjust the number and class of shares that may be delivered under our 2021 Plan and/or the number, class and price of shares covered by each outstanding award and the numerical share limits set forth in our 2021 Plan.
Dissolution or Liquidation. In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and, to the extent not exercised, all awards will terminate immediately prior to the consummation of such proposed transaction.
Merger or Change in Control. Our 2021 Plan provides that in the event of a merger or change in control, as defined under our 2021 Plan, each outstanding award will be treated as the administrator determines, without a
participant’s consent. The administrator is not required to treat all awards, all awards held by a participant or all awards of the same type similarly.
If a successor corporation does not assume or substitute for any outstanding award, then the participant will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, all restrictions on restricted stock and restricted stock units will lapse, and for awards with performance-based vesting, unless specifically provided for otherwise under the applicable award agreement or other agreement or policy applicable to the participant, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met. If an option or stock appreciation right is not assumed or substituted in the event of a change in control, the administrator will notify the participant in writing or electronically that such option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the option or stock appreciation right will terminate upon the expiration of such period.
For awards granted to an outside director, in the event of a change in control, the outside director will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, all restrictions on restricted stock and restricted stock units will lapse and, for awards with performance-based vesting, unless specifically provided for otherwise under the applicable award agreement or other agreement or policy applicable to the participant, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met.
Clawback. Awards will be subject to any clawback policy of ours, and the administrator also may specify in an award agreement that the participant’s rights, payments and/or benefits with respect to an award will be subject to reduction, cancellation, forfeiture and/or recoupment upon the occurrence of certain specified events. Our board of directors may require a participant to forfeit, return or reimburse us all or a portion of the award and/or shares issued under the award, any amounts paid under the award, and any payments or proceeds paid or provided upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.
Amendment; Termination. The administrator has the authority to amend, alter, suspend or terminate our 2021 Plan, provided such action does not materially impair the rights of any participant. Our 2021 Plan continues for a term of ten years from date of adoption by our board of directors unless we terminate it earlier.
2016 Equity Incentive Plan
Our 2016 Equity Incentive Plan, or 2016 Plan, was originally adopted by our board of directors in January 2016 and was most recently amended in May 2020. Our stockholders originally approved our 2016 Plan in January 2016 and approved the amendment increasing the share reserve of our 2016 Plan in June 2019.
Our 2016 Plan allows us to provide incentive stock options, within the meaning of Section 422 of the Code, nonstatutory stock options, stock appreciation rights, performance shares, restricted shares and restricted stock units (each, an “award” and the recipient of such award, a “participant”) to designated officers and employees of ours or our affiliates, or an individual that we or an affiliate has engaged to become an officer or employee, or a consultant or advisor who provides services to us or our affiliate, including a non-employee director of our board of directors. We expect that as of one business day prior to the effectiveness of the registration statement of which this prospectus forms a part, our 2016 Plan will be terminated, and we will not grant any additional awards under our 2016 Plan thereafter. However, our 2016 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under our 2016 Plan.
As of December 31, 2020, there were outstanding options to purchase an aggregate of 355,495 shares of our common stock with a weighted-average exercise price of $109.20 per share, under our 2016 Plan.
Authorized Shares. An aggregate of 943,200 shares of our Class B common stock have been authorized for issuance under the 2016 Plan. Each of these shares of Class B common stock may be issued as an incentive stock option. The shares of Class B common stock offered under the 2016 Plan may be authorized but unissued shares of our Class B common stock or treasury shares. If an award lapses, expires, terminates or is cancelled without the issuance of shares or payment of cash under the award, then the shares of Class B common stock subject to or
reserved for in respect of such award, or the shares to which such award relates, may again be used for new awards, including the issuance of incentive stock options, under the 2016 Plan. In the event that shares of our Class B common stock previously issued under the 2016 Plan are reacquired by us, such shares are currently added to the number of shares then available for issuance under the 2016 Plan. Additionally, if shares that otherwise would have been issuable under the 2016 Plan are withheld in payment of the purchase price, exercise price, or withholding taxes with respect to an award, such shares are currently added back to the available for issuance under the 2016 Plan. Following the effectiveness of the 2021 Plan, all such shares will be added to the share reserve under the 2021 Plan, subject to the limits set forth therein.
Plan Administration. Our board of directors or our compensation committee administers our 2016 Plan (the “administrator”). The administrator has full authority to administer the 2016 Plan, including the authority to (i) interpret the provisions of the 2016 Plan, (ii) prescribe, amend and rescind rules and regulations relating to the 2016 Plan, (iii) correct any defect, supply any omission, or reconcile any inconsistency in any award or agreement covering an award in the manner and to the extent it deems desirable to carry the 2016 Plan into effect, and (iv) make all other determinations necessary or advisable for the administration of the 2016 Plan. All actions or determinations of the administrator are made in its sole discretion and will be final and binding on any person with an interest therein. To the extent applicable law permits, our board of directors may delegate to another committee of our board of directors or to one or more of our officers, or our compensation committee may delegate to a sub-committee, any or all of the authority and responsibility of the administrator.
Subject to the terms of the 2016 Plan, the administrator has full power and authority to: (a) designate from time to time the participants to receive awards under the 2016 Plan; (b) determine the type or types of awards to be granted to each participant; (c) determine the number of shares with respect to which an award relates; and (d) determine any terms and conditions of any award. Awards may be granted either alone or in addition to, in tandem with, or in substitution for any other award (or any other award granted under another plan of ours or any affiliate).
Stock Options. Stock options may be granted under our 2016 Plan. The exercise price of options granted under our 2016 Plan may not be less than the fair market value of a share of our Class B common stock on the date of grant, provided that an incentive stock option granted to an employee who owns (directly or indirectly) more than 10% of the total combined voting power of all classes of stock of ours or of any of our subsidiaries, or a 10% Holder, must have an exercise price that is at least 110% of the fair market value of a share of our Class B common stock on the date of grant. The term of an option may not exceed ten years, except that an incentive stock option granted to a 10% Holder must terminate no later than the 5th anniversary of the date of grant. The administrator will determine the methods of payment of the exercise price of an option. After the termination of service, an option will remain exercisable for the period of time stated in the option agreement. An option, however, may not be exercised later than the expiration of its term. Subject to the provisions of our 2016 Plan, the administrator determines the other terms of options.
Restricted Shares and Restricted Stock Units. Restricted shares and restricted stock units may be granted under our 2016 Plan. Restricted shares are shares of our Class B common stock that vest in accordance with terms and conditions established by the administrator. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our Class B common stock. The administrator will determine all terms and conditions of each award of restricted shares or restricted stock units.
Non-Transferability of Awards. Awards granted under the 2016 Plan are not transferable other than by will or the laws of descent and distribution, or to a revocable trust, or as permitted by Rule 701 of the Securities Act of 1933, as amended. No stock option is transferable by the participant otherwise than by will or by the laws of descent and distribution and all stock options shall be exercisable, during the participant’s lifetime, only by the participant, or by the participant’s legal representative or guardian in the event of the participant’s incapacity. Notwithstanding the foregoing, the administrator, in its sole discretion, may provide in the award agreement regarding a given stock option that the participant may transfer, without consideration for the transfer, his or her nonstatutory stock options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with us to be bound by all of the terms and conditions of the 2016 Plan and the applicable option.
Certain Adjustments. In the event of certain changes in our capitalization, then the administrator will, in such manner as it may deem equitable, adjust any or all of: (i) the number and type of shares subject to the 2016 Plan (including the number and type of shares that may be issued pursuant to incentive stock options), (ii) the number and type of shares subject to outstanding awards, (iii) the grant, purchase, or exercise price with respect to any award, and (iv) the performance goals established under any award.
Merger or Change in Control. Upon a change of control, the administrator may, in its discretion, determine that any or all outstanding awards held by participants who are then in our employ or service will vest or be deemed to have been earned in full (assuming the maximum performance goals provided under such award were met, if applicable), and assumed, or replaced with the same type of award with similar terms and conditions, by the successor or surviving corporation (or parent thereof) in the change of control, or cancelled as of the date of the change of control in exchange for a payment in cash and/or shares determined in accordance with the 2016 Plan.
Amendment; Termination. As noted above, we expect that as of one business day prior to the effectiveness of the registration statement of which this prospectus forms a part, our 2016 Plan will be terminated, and we will not grant any additional awards under our 2016 Plan thereafter. Subject to the terms of the 2016 Plan, the administrator may amend, alter, suspend, discontinue or terminate the 2016 Plan at any time.
2021 Employee Stock Purchase Plan
Prior to the effectiveness of this offering, our board of directors intends to adopt, and we expect our stockholders will approve, our 2021 Employee Stock Purchase Plan, or the ESPP. Our ESPP will be effective on the effective date it is adopted by our board. We believe that allowing our employees to participate in our ESPP provides them with a further incentive towards ensuring our success and accomplishing our corporate goals.
Authorized Shares. A total of shares of our Class A common stock will be available for sale under our ESPP. The number of shares of our Class A common stock that will be available for sale under our ESPP also includes an annual increase on the first day of each fiscal year beginning in fiscal , equal to the least of:
• shares;
• % of the outstanding shares of all classes of our common stock as of the last day of the immediately preceding fiscal year; and
•such other amount as the administrator may determine.
Shares issuable under the ESPP will be authorized, but unissued, or reacquired shares of our Class A common stock.
Plan Administration. Our board of directors, or a committee appointed by our board of directors, will administer our ESPP and have full but non-exclusive authority to interpret the terms of our ESPP and determine eligibility to participate, subject to the conditions of our ESPP, as described below. We expect our compensation committee to administer our ESPP. The administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the ESPP, to delegate ministerial duties to any of our employees, to designate separate offerings under the ESPP, to designate our subsidiaries and affiliates as participating in the ESPP, to determine eligibility, to adjudicate all disputed claims filed under the ESPP and to establish procedures that it deems necessary or advisable for the administration of the ESPP, including, but not limited to, adopting such procedures, sub-plans and appendices to the enrollment agreement as are necessary or appropriate to permit participation in the ESPP by employees who are non-U.S. nationals or employed outside the United States. The administrator’s findings, decisions and determinations are final and binding on all participants to the maximum extent permitted by law.
Eligibility. Generally, all of our employees will be eligible to participate if they are employed by us, or any participating subsidiary, for at least 20 hours per week and more than five months in any calendar year. The administrator, in its discretion, may, prior to an enrollment date for all options granted on such enrollment date in an offering, determine that an employee who (i) has not completed at least two years of service since his or her last hire date (or a lesser period of time determined by the administrator), (ii) customarily works not more than 20 hours per
week (or a lesser period of time determined by the administrator), (iii) customarily works not more than five months per calendar year (or a lesser period of time determined by the administrator), (iv) is a highly compensated employee within the meaning of Section 414(v) of the Code or is an officer or subject to disclosure requirements under Section 16(a) of the Exchange Act, is or is not eligible to participate in such offering period.
However, an employee may not be granted rights to purchase shares of our Class A common stock under our ESPP if such employee:
•immediately after the grant would own capital stock and/or hold outstanding options to purchase such stock possessing 5% or more of the total combined voting power or value of all classes of our (or any parent’s or subsidiary’s) capital stock; or
•hold rights to purchase shares of our Class A common stock under all of our employee stock purchase plans that accrue at a rate that exceeds $25,000 worth of shares of our Class A common stock for each calendar year.
Offering Periods. The ESPP will include a component that allows us to make offerings intended to qualify under Section 423 of the Code, or the Section 423 Component, and a component that allows us to make offerings not intended to qualify under Section 423 of the Code to designated companies, as described in the ESPP. We expect that our ESPP will designate the dates that offering periods begin and the length of such offering periods, and that it will permit the administrator to change the duration of offering periods (including commencement dates) with respect to future offerings so long as such change is announced prior to the scheduled beginning of the first offering period affected. No offering period may last more than 27 months.
Contributions. Our ESPP will permit participants to purchase shares of our Class A common stock through payroll deductions of up to % of their ESPP eligible compensation. A participant may purchase a maximum of shares of our Class A common stock during a purchase period.
Exercise of Purchase Right. Amounts deducted and accumulated by the participant will be used to purchase shares of our Class A common stock at the end of each purchase period. The purchase price of the shares will be % of the lower of the fair market value of our Class A common stock on the first trading day of each offering period or on the exercise date. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of our Class A common stock. Participation ends automatically upon termination of employment with us.
Non-Transferability. A participant will not be permitted to transfer rights granted under our ESPP. If our compensation committee permits the transfer of rights, it may only be done by will, the laws of descent and distribution or as otherwise provided under our ESPP.
Certain Adjustments. Our ESPP will provide that if any dividend or other distribution (whether in the form of cash, our Class A common stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of our Class A common stock or other securities of ours, or other change in our corporate structure affecting our Class A common stock occurs (other than any ordinary dividends or other ordinary distributions), the administrator will make adjustments to the number and class of shares that may be delivered under our ESPP and/or the purchase price per share and number of shares covered by each option granted under our ESPP that has not yet been exercised, and the numerical share limits under our ESPP. In the event of our proposed dissolution or liquidation, any offering period in progress will be shortened by setting a new purchase date and will terminate immediately before the completion of such proposed transaction, unless determined otherwise by the administrator.
Merger or Change in Control. Our ESPP will provide that in the event of a merger or change in control, as defined under our ESPP, a successor corporation may assume or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute for the outstanding purchase right, the offering period then in progress will be shortened, and a new exercise date will be set that will be before the date of the proposed merger or change in control. The administrator will notify each participant that the exercise date has been changed and that the
participant’s option will be exercised automatically on the new exercise date unless prior to such date the participant has withdrawn from the offering period.
Amendment; Termination. The administrator will have the authority to amend, suspend or terminate our ESPP, except that, subject to certain exceptions described in our ESPP, no such action may adversely affect any outstanding rights to purchase shares of our Class A common stock under our ESPP. Our ESPP will automatically terminate 20 years after the later of the date of the ESPP’s adoption by our board of directors or the business day immediately prior to the effective date of our registration statement of which this prospectus forms a part, unless we terminate it earlier.
401(k) Plan
We maintain a tax-qualified retirement savings plan, or the 401(k) plan, for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements. Our 401(k) plan provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. Under our 401(k) plan, eligible employees may elect to defer a portion of their compensation, within the limits prescribed by the Code on a pre-tax or after-tax (Roth) basis through contributions to the 401(k) plan. Participants in our 401(k) plan are able to defer up to applicable annual Code limits. All participants’ interests in their deferrals are 100% vested when contributed. The 401(k) plan permits us to make matching contributions and profit sharing contributions to eligible participants. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, pre-tax contributions to the 401(k) plan and earnings on those pre-tax contributions are not taxable to the employees until distributed from the 401(k) plan, and earnings on Roth contributions are not taxable when distributed from the 401(k) plan.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Other than compensation arrangements, including employment, termination of employment and change in control arrangements, with our directors and executive officers, including those discussed in the sections titled “Management” and “Executive Compensation,” and the registration rights described in the section titled “Description of Capital Stock—Registration Rights,” the following is a description of each transaction since January 1, 2017 and each currently proposed transaction in which:
•we have been or are to be a participant,
•the amount involved exceeded or will exceed $120,000; and
•any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any affiliate or immediate family member of, or person sharing a household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Share Repurchases and Equity Financings
Share Repurchase
In November 2020, we repurchased 18,294 shares of our common stock, or the Repurchased Shares, from a former employee at a purchase price of $233.63 per share, or the Repurchase Price, for an aggregate purchase price of approximately $4.3 million. Pursuant to the amended and restated right of first refusal and co-sale agreement (as described below), holders of our preferred stock have the right to purchase, on a pro rata basis, a number of newly-issued shares of our common stock equal to the number of Repurchased Shares at a price per share equal to the Repurchase Price. Subsequently, in December 2020, we issued and sold an aggregate of 18,294 shares of our common stock to certain holders of our preferred stock at a purchase price of $233.63 per share, for an aggregate purchase price of approximately $4.3 million. The table below sets forth the number of shares of common stock sold to our directors, executive officers and holders of more than 5% of our capital stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Affiliated Director(s) or Officer(s)
|
|
Shares of Common Stock
|
|
Total Purchase Price
|
|
KKR Knowledge Investors L.P., or KKR KI
|
|
Stephen Shanley
|
|
7,058
|
|
$1,648,961
|
|
Funds affiliated with Elephant Partners
|
|
Jeremiah Daly
|
|
10,298
|
|
$2,405,922
|
Series C-1 Preferred Stock Financing
In June 2019, we issued and sold an aggregate of 1,310,184 shares of our Series C-1 Preferred Stock, at a purchase price of $236.15 per share for an aggregate purchase price of approximately $309.4 million. These shares of Series C-1 Preferred Stock will convert into an aggregate of 1,310,184 shares of Class B common stock immediately prior to the completion of this offering. The table below sets forth the number of shares of Series C-1 Preferred Stock sold to our directors, executive officers and holders of more than 5% of our capital stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Affiliated Director(s) or Officer(s)
|
|
Shares of Series C-1 Preferred Stock
|
|
Total Purchase Price
|
|
KKR KI
|
|
Stephen Shanley
|
|
817,277
|
|
$192,999,964
|
|
Funds affiliated with Elephant Partners
|
|
Jeremiah Daly
|
|
399,746
|
|
$94,400,018
|
We used approximately $308.8 million of the Series C-1 Preferred Stock financing proceeds to repurchase an aggregate of 1,307,538 shares of common stock from Stu Sjouwerman, Kevin Mitnick, Lars Letonoff and Krish Venkataraman, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sellers
|
|
Shares of Common Stock Sold to the Company
|
|
Shares Subject to Options Cancelled for Repayment
|
|
Total Purchase Price
|
|
Stu Sjouwerman
|
|
635,269
|
|
—
|
|
$150,018,774
|
|
Kevin Mitnick
|
|
635,269
|
|
—
|
|
$150,018,774
|
|
Krish Venkataraman
|
|
—
|
|
12,000
|
|
$2,833,800
|
|
Lars Letonoff
|
|
—
|
|
25,000
|
|
$5,903,750
|
Series C Preferred Stock Financing
In March 2019, we issued and sold an aggregate of 162,785 shares of our Series C Preferred Stock, at a purchase price of $193.88 per share for an aggregate purchase price of approximately $31.6 million. These shares of Series C Preferred Stock will convert into an aggregate of 162,785 shares of Class B common stock immediately prior to the completion of this offering. The table below sets forth the number of shares of Series C Preferred Stock sold to our directors, executive officers and holders of more than 5% of our capital stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Affiliated Director(s) or Officer(s)
|
|
Shares of Series C Preferred Stock
|
|
Total Purchase Price
|
|
KKR KI
|
|
Stephen Shanley
|
|
136,996
|
|
$26,560,784
|
We used approximately $10.9 million of the approximately $31.6 million from the Series C Preferred Stock financing proceeds to repurchase an aggregate of 56,246 shares of common stock from Krish Venkataraman and Lars Letonoff, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sellers
|
|
Shares of Common Stock Sold to the Company
|
|
Shares Subject to Options Cancelled for Repayment
|
|
Total Purchase Price
|
|
Krish Venkataraman
|
|
—
|
|
14,000
|
|
$2,714,320
|
|
Lars Letonoff
|
|
—
|
|
42,246
|
|
$8,190,654
|
Series B Preferred Stock Financing
In October 2017, we issued and sold an aggregate of 448,896 shares of our Series B Preferred Stock at a purchase price of $66.83 per share for an aggregate purchase price of approximately $30.0 million. These shares of Series B Preferred Stock will convert into an aggregate of 448,896 shares of Class B common stock immediately prior to the completion of this offering. The table below sets forth the number of shares of Series B Preferred Stock sold to our directors, executive officers and holders of more than 5% of our capital stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Affiliated Director(s) or Officer(s)
|
|
Shares of Series B Preferred Stock
|
|
Total Purchase Price
|
|
Elephant Partners I, L.P.
|
|
Jeremiah Daly
|
|
37,408
|
|
$2,499,999
|
|
Funds affiliated with Goldman Sachs
|
|
Joseph DiSabato
|
|
411,488
|
|
$27,499,990
|
We used approximately $2.0 million of the Series B Preferred Stock financing proceeds to repurchase an aggregate of 29,926 shares of common stock from Stu Sjouwerman and Kevin Mitnick, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sellers
|
|
Shares of Common Stock Sold to the Company
|
|
Shares Subject to Options Cancelled for Repayment
|
|
Total Purchase Price
|
|
Stu Sjouwerman
|
|
14,963
|
|
—
|
|
$999,986
|
|
Kevin Mitnick
|
|
14,963
|
|
—
|
|
$999,986
|
Series A-1 Preferred Stock Financing
In February and March 2017, we issued and sold an aggregate of 169,124 shares of our Series A-1 Preferred Stock, at a purchase price of $32.76 per share for an aggregate purchase price of approximately $5.5 million. These shares of Series A-1 Preferred Stock will convert into an aggregate of 169,124 shares of Class B common stock immediately prior to the completion of this offering. The table below sets forth the number of shares of Series A-1 Preferred Stock sold to our directors, executive officers and holders of more than 5% of our capital stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
|
|
Affiliated Director(s) or Officer(s)
|
|
Shares of Series A-1 Preferred Stock
|
|
Total Purchase Price
|
|
Funds affiliated with Elephant Partners
|
|
Jeremiah Daly
|
|
169,124
|
|
$5,540,519
|
We used approximately $3.7 million of the Series A-1 Preferred Stock financing proceeds to repurchase an aggregate of 114,468 shares of common stock from Stu Sjouwerman, Kevin Mitnick and Lars Letonoff, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sellers
|
|
Shares of Common Stock Sold to the Company
|
|
Shares Subject to Options Cancelled for Repayment
|
|
Total Purchase Price
|
|
Stu Sjouwerman
|
|
38,156
|
|
—
|
|
$1,249,994
|
|
Kevin Mitnick
|
|
38,156
|
|
—
|
|
$1,249,994
|
|
Lars Letonoff
|
|
38,156
|
|
—
|
|
$1,249,994
|
December 2020 Secondary Transactions
In a series of transactions in December 2020, each of (i) Sjouwerman Enterprises Limited Partnership, or SELP, an entity affiliated with Stu Sjouwerman, and (ii) The Kevin Mitnick Trust, an entity affiliated with Kevin Mitnick, our former director and a holder of more than 5% of our capital stock, sold 118,572 shares of our common stock, for an aggregate of 237,144 shares of our common stock, or the December 2020 Secondary Shares, to certain investors, including a fund affiliated with Tiger Global Management, LLC and March Capital and affiliated entities, or the December 2020 Secondary Purchasers, at a purchase price of $481.75 per share, for an aggregate purchase price of $114.2 million. In connection with such transactions, we entered into certain Common Stock Transfer and Purchase Agreements with SELP, The Kevin Mitnick Trust and each of the December 2020 Secondary Purchasers, pursuant to which, among other things, we waived our right of first refusal to purchase the December 2020 Secondary Shares.
March 2021 Secondary Transactions
On March 5, 2021, entities affiliated with each of KKR KI, Elephant Partners and Goldman Sachs sold an aggregate of (i) 152,428 shares of our Series A-1 preferred stock; (ii) 119,882 shares of our Series B preferred stock; (iii) 27,725 shares of our Series C preferred stock; and (iv) 245,889 shares of our Series C-1 preferred stock, or collectively, the March 2021 Secondary Shares, to an entity affiliated with Vista Equity Partners and a fund affiliated with Tiger Global Management, LLC, or the March 2021 Secondary Investors, at a purchase price of $824.29 per share, for an aggregate purchase price of $450.0 million. In connection with such transactions, we entered into certain Preferred Stock Transfer and Purchase Agreements with the entities affiliated with each of KKR
KI, Elephant Partners and Goldman Sachs and each of the March 2021 Secondary Investors, pursuant to which, among other things, we waived our right of first refusal to purchase the March 2021 Secondary Shares.
The table below sets forth the transactions with holders of more than 5% of our capital stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors
|
|
Shares of Series A-1 Preferred Stock
|
|
Shares of Series B Preferred Stock
|
|
Shares of Series C Preferred Stock
|
|
Shares of Series C-1 Preferred Stock
|
|
Total Purchase Price
|
|
Entity affiliated with Vista Equity Partners
|
|
101,619
|
|
79,922
|
|
18,483
|
|
163,925
|
|
$
|
299,999,521
|
|
|
Fund affiliated with Tiger Global Management, LLC
|
|
50,809
|
|
39,960
|
|
9,242
|
|
81,964
|
|
$
|
150,000,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sellers
|
|
Affiliated Director(s) or Officer(s)
|
|
Shares of Series A-1 Preferred Stock sold to Investors
|
|
Shares of Series B Preferred Stock sold to Investors
|
|
Shares of Series C Preferred Stock sold to Investors
|
|
Shares of Series C-1 Preferred Stock sold to Investors
|
|
Total Purchase Price
|
|
KKR KI
|
|
Stephen Shanley
|
|
—
|
|
—
|
|
26,201
|
|
156,308
|
|
$150,440,344
|
|
Funds affiliated with Elephant Partners I, L.P.
|
|
Jeremiah Daly
|
|
152,428
|
|
37,408
|
|
—
|
|
76,454
|
|
$219,500,184
|
|
Funds affiliated with Goldman Sachs
|
|
Joseph DiSabato
|
|
—
|
|
82,474
|
|
—
|
|
—
|
|
$67,982,493
|
Investors’ Rights Agreements
We are party to an amended and restated investors’ rights agreement with certain holders of our capital stock, including KKR KI and entities affiliated with Elephant Partners and Goldman Sachs, which provides, among other things, that certain holders of our capital stock have the right to demand that we file a registration statement or request that their shares of our capital stock be covered by a registration statement that we are otherwise filing. See the section titled “Description of Capital Stock—Registration Rights” for additional information regarding these registration rights.
Voting Agreement
We are party to an amended and restated voting agreement with certain holders of our capital stock, including KKR KI and entities affiliated with Elephant Partners and Goldman Sachs, which provides, among other things, that such holders shall vote their shares for the election of certain members of the board of directors. Upon the consummation of this offering, this agreement and the obligations of the parties therein to vote their shares so as to elect these nominees, as well as the other rights and obligations under this agreement, will terminate and none of our stockholders will have any special rights regarding the nomination, election or designation of members of our board of directors. Our existing certificate of incorporation contains provisions regarding election of members of the board of directors that correspond to the voting agreement; however, such provisions will be removed in the amended and restated certificate of incorporation that will be effective immediately prior to the completion of this offering.
Right of First Refusal Agreement
We are party to an amended and restated right of first refusal and co-sale agreement, as amended, with certain holders of our capital stock, including KKR KI and entities affiliated with Elephant Partners and Goldman Sachs, which provides, among other things, that such holders have certain rights of first refusal and co-sale rights for transfers of our capital stock. Upon the consummation of this offering, this agreement and the obligations of the parties therein will terminate and none of our stockholders will have any special rights regarding transfers of our capital stock.
Participation as Underwriter in our Initial Public Offering
KKR Capital Markets LLC, an affiliate of KKR KI who beneficially owns in excess of 10% of our common stock and is affiliated with a member of our board of directors, is an underwriter in this offering and will receive commissions as an underwriter for the shares sold in this offering.
Goldman Sachs & Co. LLC, an affiliate of certain stockholders who collectively beneficially own in excess of 10% of our common stock and are affiliated with a member of our board of directors, is an underwriter in this offering and will receive commissions as an underwriter for the shares sold in this offering.
Policies and Procedures for Transactions with Related Persons
Related person transactions, which we define as all transactions involving an executive officer, director or a holder of more than five percent of our common stock, including any of their immediate family members and any entity owned or controlled by such persons, are reviewed and approved by the audit committee of our board of directors and a majority of disinterested directors on our board.
In any transaction involving a related person, our audit committee and board of directors consider all of the available material facts and circumstances of the transaction, including: the direct and indirect interests of the related persons; in the event the related person is a director (or immediate family member of a director or an entity with which a director is affiliated), the impact that the transaction will have on a director’s independence; the risks, costs and benefits of the transaction to us; and whether any alternative transactions or sources for comparable services or products are available.
After considering all such facts and circumstances, our audit committee and board determine whether approval or ratification of the related person transaction is in our best interests. For example, if our audit committee determines that the proposed terms of a related person transaction are reasonable and at least as favorable as could have been obtained from unrelated third parties, it will recommend to our board of directors that such transaction be approved or ratified. In addition, once we become a public company, if a related person transaction will compromise the independence of one of our directors, our audit committee may recommend that our board of directors reject the transaction if it could affect our ability to comply with securities laws and regulations or the Nasdaq listing requirements.
Each transaction described below was entered into prior to the adoption of our audit committee charter. Accordingly, each was approved by disinterested members of our board of directors after making a determination that the transaction was executed on terms no less favorable than those we could have obtained from unrelated third parties.
The policies and procedures described above for reviewing and approving related person transactions are not in writing. However, the charter for our audit committee provides that one of the committee’s responsibilities is to review and approve in advance any proposed related person transactions.
Limitations on Director and Officer Liability and Indemnification
Our certificate of incorporation limits the liability of our directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:
•any breach of their duty of loyalty to the corporation or its stockholders;
•acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
•unlawful payments of dividends or unlawful stock repurchases or redemptions; or
•any transaction from which the director derived an improper personal benefit.
Our certificate of incorporation and our bylaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Any repeal of or modification to our certificate of incorporation and our bylaws may not adversely affect any right or protection of a director or officer for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. Our bylaws also provide that we shall advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our bylaws permit such indemnification.
We have entered into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, provide that we will indemnify our directors and executive officers for certain expenses (including attorney’s fees), judgments, fines, penalties and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of such person’s services as one of our directors or executive officers, or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
The limitation of liability and indemnification provisions contained in our certificate of incorporation and our bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. There is no pending litigation or proceeding involving one of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 10, 2021, referred to below as the “Beneficial Ownership Date,” and as adjusted to reflect the sale of shares of our Class A common stock by us and the selling stockholder in this offering, assuming no exercise of the underwriters’ option to purchase additional shares of Class A common stock offered by us in this prospectus, by:
•each person or group of affiliated persons known by us to beneficially own 5% or more of the outstanding shares of our Class A or Class B common stock;
•each of our directors;
•each of our named executive officers;
•all directors and executive officers as a group; and
•each of the selling stockholders.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of the Beneficial Ownership Date are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Percentage of beneficial ownership prior to the offering is based on 3,942,764 shares of common stock outstanding as of the Beneficial Ownership Date, after giving effect to the Capital Stock Conversion, the Class B Reclassification and the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering. Percentage of beneficial ownership after the offering assumes the sale of shares of Class A common stock in this offering (including the conversion of shares of our Class B common stock held by certain of our selling stockholders into an equivalent number of shares of our Class A common stock upon the sale by the selling stockholders in this offering, the issuance of the Liquidity RSU Shares and the Option Shares and sale of the Selling Stockholder Liquidity RSU Shares and the Selling Stockholder Option Shares in this offering), and assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock from us.
To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is c/o KnowBe4, Inc. 33 N. Garden Avenue, Clearwater, FL 33755.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership Prior to this Offering
|
|
Class A Common Stock to be Sold in the Offering
|
|
Beneficial Ownership After this Offering
|
|
|
Class A
|
|
Class B
|
|
% of Total Total Voting Power Before the Offering
|
|
% of Total Class A and Class B Common Stock Beneficially Owned
|
|
|
Class A
|
|
Class B
|
|
% of Total Voting Power After the Offering(1)
|
|
% of Class A and Class B Common Stock Beneficially Owned
|
|
Name of Beneficial Owner
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
|
|
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
|
|
Principal Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds affiliated with Elephant Partners(2)
|
—
|
|
|
—
|
|
|
1,136,337
|
|
28.82
|
%
|
|
28.82
|
%
|
|
28.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KKR KI(3)
|
—
|
|
|
—
|
|
|
778,822
|
|
19.75
|
%
|
|
19.75
|
%
|
|
19.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds affiliated with Goldman Sachs(4)
|
—
|
|
|
—
|
|
|
351,939
|
|
8.93
|
%
|
|
8.93
|
%
|
|
8.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund affiliated with Tiger Global Management, LLC(5)
|
—
|
|
|
—
|
|
|
285,763
|
|
7.25
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity affiliated with Vista Equity Partners(6)
|
—
|
|
|
—
|
|
|
363,949
|
|
9.23
|
%
|
|
9.23
|
%
|
|
9.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Mitnick(7)
|
—
|
|
|
—
|
|
|
309,954
|
|
7.86
|
%
|
|
7.86
|
%
|
|
7.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stu Sjouwerman(8)
|
—
|
|
|
—
|
|
|
309,954
|
|
7.86
|
%
|
|
7.86
|
%
|
|
7.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Krish Venkataraman(9)
|
—
|
|
|
—
|
|
|
40,117
|
|
1.01
|
%
|
|
1.01
|
%
|
|
1.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lars Letonoff(10)
|
—
|
|
|
—
|
|
|
33,109
|
|
*
|
|
*
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeremiah Daly(2)
|
—
|
|
|
—
|
|
|
—
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph DiSabato
|
—
|
|
|
—
|
|
|
—
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Klausmeyer(11)
|
—
|
|
|
—
|
|
|
17,419
|
|
*
|
|
*
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen Shanley
|
—
|
|
|
—
|
|
|
—
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerhard Watzinger(12)
|
—
|
|
|
—
|
|
|
17,419
|
|
*
|
|
*
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kara Wilson(13)
|
—
|
|
|
—
|
|
|
17,419
|
|
*
|
|
*
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (9 persons)
|
—
|
|
|
—
|
|
|
435,437
|
|
11.02
|
%
|
|
11.02
|
%
|
|
11.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Selling Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________
*Represents beneficial ownership of less than 1%.
(1)Percentage of total voting power represents voting power with respect to all shares of our Class A common stock and Class B common stock, as a single class. The holders of our Class B common stock are entitled to 10 votes per share, and holders of our Class A common stock are entitled to one vote per share. See the section titled “Description of Capital Stock—Common Stock—Voting Rights” for additional information about the voting rights of our Class A common stock and Class B common stock.
(2)Consists of (i) no shares held by Jeremiah Daly, (ii) 810,088 shares held by Elephant Partners I, L.P., a Delaware limited partnership, or Elephant I, (iii) 71,009 shares held by Elephant Partners II, L.P. for itself and as nominee for Elephant Partners II-B, L.P., each a Delaware limited partnership, or collectively Elephant II, and (iv) 255,240 shares held by Elephant Partners 2019 SPV-A, L.P., a Delaware limited partnership, or Elephant SPV and collectively with Elephant I and Elephant II, the Elephant Investing Entities. Elephant Partners GP I, LLC, a Delaware limited liability company, or GP I, is the general partner of Elephant I and Elephant SPV, and Elephant Partners GP II, LLC, a Delaware limited liability company, or GP II and collectively with GP I, the GP Entities, is the general partner of Elephant II. Jeremiah Daly and Andrew Hunt are the managing members of each of the GP Entities and may be deemed to shared voting and investment
power with respect to the shares held by the Elephant Investing Entities. Each of the GP Entities and Messrs. Daly and Hunt expressly disclaim beneficial ownership of the shares held by each of the Elephant Investing Entities, except to the extent of their respective pecuniary interests therein, if any. The address for the entities affiliated with Elephant Partners is 8 Newbury Street, 6th Floor, Boston, MA 02116.
(3)Consists of 778,822 shares held by KKR Knowledge Investors L.P. KKR Knowledge Investors GP LLC, as the general partner of KKR Knowledge Investors L.P.; KKR Next Generation Technology Growth Fund L.P., as the sole member of KKR Knowledge Investors GP LLC; KKR Associates NGT L.P., as the general partner of KKR Next Generation Technology Growth Fund L.P.; KKR Next Gen Tech Growth Limited, as the general partner of KKR Associates NGT L.P.; KKR Group Partnership L.P., as the sole shareholder of KKR Next Gen Tech Growth Limited; KKR Group Holdings Corp., as the general partner of KKR Group Partnership L.P.; KKR & Co. Inc., as the sole shareholder of KKR Group Holdings Corp.; KKR Management LLP, as the Series I preferred stockholder of KKR & Co. Inc.; and Messrs. Henry R. Kravis and George R. Roberts (as the founding partners of KKR Management LLP) may also be deemed to be the beneficial owners having shared voting power and shared investment power over the securities held by KKR Knowledge Investors L.P. The principal business address of each of the entities and persons identified in this footnote, except Mr. Roberts, is c/o Kohlberg Kravis Roberts & Co. L.P., 30 Hudson Yards, Suite 7500, New York, NY 10001. The principal business address for Mr. Roberts is c/o Kohlberg Kravis Roberts & Co. L.P., 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
(4)Consist of (i) 319,866 shares held by Broad Street Principal Investments, L.L.C., (ii) 21,935 shares held by StoneBridge 2017, L.P. and (iii) 10,138 shares held by StoneBridge 2017 Offshore, L.P., or collectively the GS Entities. Goldman Sachs & Co. LLC, or GS, is a wholly owned subsidiary of The Goldman Sachs Group, Inc., or GSG. Affiliates of GSG are the general partner, managing general partner or investment manager, as applicable, of the GS Entities. Each of GS and GSG disclaims beneficial ownership of the equity interests and the shares described above held directly or indirectly by the GS Entities, except to the extent of their pecuniary interest therein, if any. The address of each of GS and GSG is 200 West Street, New York, NY 10282.
(5)Consists of 285,763 shares of held directly by Tiger Global PIP 14 LLC. Tiger Global PIP 14 LLC is controlled by Chase Coleman and Scott Shleifer. The business address for this entity and individuals is c/o Tiger Global Management, LLC, 9 West 57th Street, 35th Floor, New York, NY 10019.
(6)Consists of 363,949 shares held by VEPF VII SPV I, L.P., or Vista SPV. Vista Equity Partners Fund VII GP, L.P., or Fund VII GP, is the sole general partner of Vista SPV. Fund VII GP’s sole general partner is VEPF VII GP, Ltd., or Fund VII UGP. Robert F. Smith is the sole director and one of the members of Fund VII UGP, Consequently, Mr. Smith, Fund VII GP and Fund VII UGP may be deemed the beneficial owners of the shares held by Vista SPV. The principal business address of each of Vista SPV, Fund VII GP and Fund VII UGP is c/o Vista Equity Partners, 4 Embarcadero Center, 20th Fl., San Francisco, CA 94111. The principal business address of Mr. Smith is c/o Vista Equity Partners, 401 Congress Drive, Suite 3100, Austin, TX 78701.
(7)Consists of shares held by the Kevin Mitnick Family Trust, for which Kevin Mitnick is the sole trustee.
(8)Consists of (i) 160,366 shares of Class B common stock held by the Sjouwerman Enterprises Limited Partnership, or SELP, and (ii) 149,588 shares of Class B common stock held by The Sjouwerman Foundation Inc. or SFI. The sole general manager of SELP is Sjouwerman Management, LLC, in which Stu Sjouwerman and Rebecca Weiss are managers. Accordingly, each of Mr. Sjouwerman and Ms. Weiss may be deemed to have beneficial ownership over the shares held by SELP. In addition, Mr. Sjouwerman shares voting and investment power over the shares held by, SFI. The principal address for each of SELP, SFI, Sjouwerman Management, LLC, Mr. Sjouwerman and Ms. Weiss is c/o Sjouwerman Enterprises Limited Partnership, 600 Pineland Ave, Belleair, FL 33756.
(9)Consists of (i) 40,117 shares of Class B common stock issuable upon exercise of outstanding options exercisable within 60 days of the Beneficial Ownership Date and (ii) shares of Class A common stock issued in connection with the vesting of RSUs, or Mr. Venkataraman’s Liquidity RSU Shares, (assuming an aggregate value of $10.0 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were fully vested upon grant under the 2021 Plan, in connection with this offering pursuant to Mr. Venkataraman’s employment agreement. Beneficial ownership after this offering reflects the subsequent sale of of Mr. Venkataraman’s Liquidity RSU Shares by Mr. Venkataraman in this offering.
(10)Consists of (i) 33,109 shares of Class B common stock issuable upon exercise of outstanding options, or Mr. Letonoff’s Option Shares, exercisable within 60 days of the Beneficial Ownership Date and (ii) shares of Class A common stock issued in connection with the vesting of RSUs, or Mr. Letonoff’s Liquidity RSU Shares, (assuming an aggregate value of $5.0 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were fully vested upon grant under the 2021 Plan, in connection with this offering pursuant to Mr. Letonoff’s employment agreement. Beneficial ownership after this offering reflects (i) the subsequent conversion into shares of Class A common stock and the sale of of Mr. Letonoff’s Option Shares by Mr. Letonoff in this offering and (ii) the subsequent sale of of Mr. Letonoff’s Liquidity RSU Shares by Mr. Letonoff in this offering.
(11)Consists of (ii) 17,419 shares of Class B common stock subject to options that are exercisable within 60 days of the Beneficial Ownership Date, of which 17,419 shares are unvested and subject to repurchase by us.
(12)Consists of (ii) 17,419 shares of Class B common stock subject to options that are exercisable within 60 days of the Beneficial Ownership Date, of which 5,806 shares are unvested and subject to repurchase by us.
(13)Consists of (ii) 17,419 shares of Class B common stock subject to options that are exercisable within 60 days of the Beneficial Ownership Date, of which 4,718 shares are unvested and subject to repurchase by us.
DESCRIPTION OF CAPITAL STOCK
The following information describes our Class A common stock and Class B common stock and preferred stock, as well as options to purchase our common stock and provisions of our amended and restated certificate of incorporation and bylaws. This description is only a summary and reflects the expected terms of our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering. You should also refer to our amended and restated certificate of incorporation and bylaws, which will be filed with the Securities and Exchange Commission as exhibits to our registration statement, of which this prospectus forms a part.
General
Upon the completion of this offering and the filing of our amended and restated certificate of incorporation in connection with this offering, our authorized capital stock will consist of shares of Class A common stock, par value $0.00001 per share, shares of Class B common stock, par value $0.00001 per share, and shares of preferred stock, par value $0.00001 per share.
Common Stock
We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion.
Outstanding Shares
Based on shares of common stock outstanding as of , 2021, and after giving effect to (i) the Capital Stock Conversion, (ii) the Class B Reclassification, (iii) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering, (iv) the conversion of shares of our Class B common stock held by certain of our selling stockholders into an equivalent number of our Class A common stock upon the sale by selling stockholders in this offering, (v) the issuance of the Liquidity RSU Shares and the sale of the Selling Stockholder Liquidity RSU Shares by the selling stockholders in this offering, and (vi) the issuance of the Option Shares and the sale of the Selling Stockholder Option Shares in this offering, there will be shares of Class A common stock and shares of Class B common stock outstanding upon the completion of this offering. As of , 2021, we had stockholders of record.
Voting Rights
Holders of our Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders, and holders of our Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders, in each case, including the election of directors. Following this offering, the holders of our outstanding Class B common stock will hold % of the combined voting power of our outstanding capital stock. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by Delaware law or our amended and restated certificate of incorporation.
Our stockholders will not have cumulative voting rights. Because of this, the holders of a majority of the combined voting power of our outstanding capital stock can elect all of the directors standing for election, if they should so choose. With respect to matters other than the election of directors, at any meeting of the stockholders at which a quorum is present or represented, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at such meeting and entitled to vote on the subject matter shall be the act of the stockholders, except as otherwise required by law. The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders.
Dividends
Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of our Class A common stock and Class B common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.
Rights and Preferences
Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate in the future.
Conversion of Class B Common Stock
Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. Future transfers by holders of shares of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, including but not limited to, certain transfers effected for estate planning purposes and transfers among affiliates, to the extent the transferor continues to remain an affiliate. Once converted or transferred and converted into Class A common stock, the Class B common stock may not be reissued.
All the outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the earlier of the fifth anniversary of the filing and effectiveness of our amended and restated certificate of incorporation in connection with this offering or the affirmative vote of the holders of 66 2/3% of the voting power of our outstanding Class B common stock. Following such conversion, each share of Class A common stock will have one vote per share and the rights of the holders of all outstanding common stock will be identical.
Fully Paid and Nonassessable
All of our outstanding shares of common stock are, and the shares of Class A common stock to be issued in this offering, upon payment and delivery in accordance with the underwriting agreement, will be fully paid and nonassessable.
Preferred Stock
Upon the completion of this offering, our board of directors will have the authority, without further action by the stockholders, to issue up to shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of Class A common stock. The issuance of preferred stock could adversely affect the voting power of holders of Class A common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in our control or other corporate action. Upon completion of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.
Options
As of December 31, 2020, there were outstanding options to purchase an aggregate of 355,495 shares of our Class B common stock, with a weighted-average exercise price of $109.20 per share, under our 2016 Equity Incentive Plan, or the 2016 Plan. After December 31, 2020, we issued options to purchase an aggregate of shares of our Class B common stock, with a weighted-average exercise price of $ per share, under our 2016 Plan. In connection with this offering, certain selling stockholders will receive Option Shares upon the exercise of certain outstanding options and will sell Selling Stockholder Option Shares in this offering.
Restricted Stock Units
In connection with this offering, we issued shares of our Class A common stock in connection with the vesting of RSUs (assuming an aggregate value of $15.0 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that were fully vested on grant under our 2021 Plan in connection with this offering pursuant to applicable employment agreements with Messrs. Venkataraman and Letonoff.
Additionally, we issued shares of our Class A common stock in connection with the vesting of RSUs (assuming an aggregate value of $11.7 million, calculated based on an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus). The RSUs that were granted in connection with this offering under our 2021 Plan to Messrs. Sjouwerman, Venkataraman and Letonoff, are subject to vesting upon satisfaction of a service condition and achievement of certain performance metrics. For more information regarding the Liquidity RSU Shares, please see the section titled “Executive Compensation.”
Registration Rights
After the completion of this offering, under our amended and restated investors’ rights agreement, holders of up to shares of our capital stock or their transferees, have the right to require us to register the offer and sale of their shares, or to include their shares in any registration statement we file, in each case as described below.
Demand Registration Rights
After the completion of this offering, holders of up to shares of our capital stock will be entitled to certain demand registration rights. At any time beginning after 180 days following the completion of this offering, the holders of at least 30% of the shares having registration rights then outstanding can request that we file a registration statement to register the offer and sale of their shares. Each such request for registration must cover securities the anticipated aggregate gross proceeds of which, after deducting underwriting discounts and expenses, is at least $10 million. These demand registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under certain circumstances. If we determine that it would be materially detrimental to us and our stockholders to effect such a demand registration, we have the right to defer such registration, not more than once in any twelve-month period, for a period of up to 120 days.
Form S-3 Registration Rights
After the completion of this offering and as soon as reasonably practicable after we are eligible to use Form S-3, we have agreed to use our commercially reasonable efforts to file and cause to be declared effective a registration statement on Form S-3, or Shelf Form S-3, registering up to shares of our capital stock. We are required to provide notice to the holders of the shares having these rights then outstanding and we have agreed to include any shares requested to be included in response to such notice on the Shelf Form S-3. We are obligated to maintain the effectiveness of the Shelf Form S-3 until the date on which all the shares having these rights have been sold or have otherwise ceased to be entitled to such rights.
From time to time after the Shelf Form S-3 has been declared effective, holders of these rights may request to sell their the shares they hold as long as the registration has anticipated aggregate proceeds, after deducing underwriting discounts and expenses, of at least $5 million and that such holder sells all of the shares held by such
holder in an underwritten shelf takedown offering that is registered pursuant to the Shelf Form S-3. We are not obligated to effect an underwritten shelf takedown within 90 days of another shelf takedown or, if longer, until the date on which the lock-up obligations from the previous underwritten takedown expire. Holders of these rights also have the right to request that we facilitate certain underwritten block trades as well.
Piggyback Registration Rights
After the completion of this offering, holders of up to shares of our Class A common stock and up to shares of our Class B common stock will be entitled to certain “piggyback” registration rights. If we propose to register the offer and sale of shares of our common stock under the Securities Act of 1933, as amended, or Securities Act, all holders of these shares then outstanding can request that we include their shares in such registration, subject to certain marketing and other limitations, including the right of the underwriters to limit the number of shares included in any such registration statement under certain circumstances. As a result, this right applies whenever we propose to file a registration statement under the Securities Act, other than with respect to (i) a registration related to any employee benefit plan, (ii) a registration relating to a corporate reorganization or other transaction covered by Rule 145 promulgated under the Securities Act, (iii) a registration on any registration form that does not permit secondary sales or (iv) a registration in which the only common stock registered is that issuable upon conversion of debt securities that are also being registered.
Expenses of Registration
We will pay all expenses relating to any demand registrations, Form S-3 registrations and piggyback registrations, subject to specified limitations.
Termination
The registration rights terminate upon the earliest of (i) the date that is five years after the completion of this offering, (ii) immediately prior to the completion of certain liquidation events and (iii) as to a given holder of registration rights, the date after the completion of this offering when such holder of registration rights can sell all of such holder’s registrable securities during any 90-day period pursuant to Rule 144 promulgated under the Securities Act.
Anti-Takeover Effects of Certain Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and Our Amended and Restated Bylaws
Certain provisions of Delaware law and certain provisions that will be included in our amended and restated certificate of incorporation and amended and restated bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.
Dual Class Common Stock
As described above in “—Common Stock—Voting Rights,” our amended and restated certificate of incorporation provides for a dual class common stock structure, which will provide holders of our Class B common stock with significant influence over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
Preferred Stock
Our amended and restated certificate of incorporation will contain provisions that permit our board of directors to issue, without any further vote or action by the stockholders, shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting rights (if any) of the shares of the series and the powers, preferences or relative, participation, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.
Classified Board
Our amended and restated certificate of incorporation will provide that our board of directors is divided into three classes, designated Class I, Class II and Class III. Each class will be an equal number of directors, as nearly as possible, consisting of one third of the total number of directors constituting the entire board of directors. The term of the initial Class I directors shall terminate on the date of the 2022 annual meeting of stockholders, the term of the initial Class II directors shall terminate on the date of the 2023 annual meeting of stockholders, and the term of the initial Class III directors shall terminate on the date of the 2024 annual meeting of stockholders. At each annual meeting of stockholders beginning in 2022, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term.
Removal of Directors
Our amended and restated certificate of incorporation will provide that stockholders may only remove a director for cause by a vote of no less than a majority of the shares present in person or by proxy at a meeting of stockholders and entitled to vote.
Director Vacancies
Our amended and restated certificate of incorporation will authorize only our board of directors to fill vacant directorships.
No Cumulative Voting
Our amended and restated certificate of incorporation will provide that stockholders do not have the right to cumulate votes in the election of directors.
Special Meetings of Stockholders
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that, except as otherwise required by law, special meetings of the stockholders may be called only by the chairperson of our board of directors, our Chief Executive Officer, a President or a co-President or our board of directors acting pursuant to a resolution adopted by a majority of our board of directors.
Advance Notice Procedures for Director Nominations
Our bylaws will provide that stockholders seeking to nominate candidates for election as directors at an annual or special meeting of stockholders or seeking to propose matters that can be acted upon by stockholders at annual stockholder meetings must provide timely notice thereof in writing. To be timely, a stockholder’s notice generally will have to be delivered to and received at our principal executive offices before notice of the meeting is issued by the secretary of the company, with such notice being served not less than 90 nor more than 120 days before the meeting. Although the amended and restated bylaws will not give the board of directors the power to approve or disapprove stockholder nominations of candidates to be elected at an annual meeting, the amended and restated bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the company.
Action by Written Consent
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that any action to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by written consent.
Amending our Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation may be amended or altered in any manner provided by the General Corporation Law of the State of Delaware, or DGCL, except that amendment of certain provisions would
require the approval of at least 66-2/3% of the combined voting power of the outstanding shares of our common stock entitled to vote generally in the election of directors. Our amended and restated bylaws may be adopted, amended, altered or repealed by stockholders only upon approval of at least majority of the voting power of all the then outstanding shares of common stock, voting together as a single class, except for any amendment of certain provisions, which would require the approval of at least 66-2/3% of the combined voting power of the outstanding shares of our common stock. Additionally, our amended and restated certificate of incorporation will provide that our bylaws may be amended, altered or repealed by the board of directors.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock will be available for future issuances without stockholder approval, except as required by the listing standards of the Nasdaq Stock Market LLC, and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of the company by means of a proxy contest, tender offer, merger or otherwise.
Exclusive Jurisdiction
Our amended and restated bylaws will provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim arising pursuant to the DGCL, any action regarding our amended and restated certificate of incorporation or amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to these provisions. Although we believe these provisions benefit us by providing increased consistency in the application of law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Please also see the section titled “Risk Factors—Our amended and restated bylaws will designate a state or federal court located within the State of Delaware and the federal district courts of the United States as the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers or employees.”
Business Combinations with Interested Stockholders
We have opted out of Section 203 of the DGCL; however, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three year period following the time that the stockholder became an interested stockholder, unless:
•prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
•upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the votes of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or
•at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at 66-2/3% of the votes of our outstanding voting stock that is not owned by the interested stockholder.
Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person
who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of the votes of our outstanding voting stock. For purposes of this provision, “voting stock” means any class or series of stock entitled to vote generally in the election of directors. Our amended and restated certificate of incorporation provides that any interested stockholder who became an interested stockholder prior to this offering and Mr. Sjouwerman and any of their respective direct or indirect designated transferees (other than in certain market transfers and gifts) and any group of which such persons are a party do not constitute “interested stockholders” for purposes of this provision.
Under certain circumstances, this provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with our company for a three year period. This provision may encourage companies interested in acquiring us to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Limitation on Liability and Indemnification
Our amended and restated certificate of incorporation and our amended and restated bylaws will provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL. We are expressly authorized to, and do, carry directors’ and officers’ insurance providing coverage for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive directors.
The limitation on liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. See the section titled “Certain Relationships and Related Person Transactions—Limitations on Director and Officer Liability and Indemnification” for additional information.
Listing on the Nasdaq Global Select Market
We have applied to list our Class A common stock on the Nasdaq Global Select Market under the symbol “KNBE.”
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock is Computershare Trust Company, N.A. The transfer agent’s address is 250 Royall Street, Canton, Massachusetts 02021.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, based on the number of shares of our capital stock outstanding as of December 31, 2020, after giving effect to (i) the Capital Stock Conversion, (ii) the Class B Reclassification, (iii) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering, (iv) the conversion of shares of our Class B common stock held by certain of our selling stockholders into an equivalent number of our Class A common stock upon the sale by selling stockholders in this offering, (v) the issuance of the Liquidity RSU Shares and the sale of the Selling Stockholder Liquidity RSU Shares in this offering, and (vi) the issuance of the Option Shares and the sale of the Selling Stockholder Option Shares in this offering. Of these outstanding shares, the shares of Class A common stock sold in this offering by us and the selling stockholders ( shares if the underwriters exercise their option to purchase additional shares of Class A common stock in full) will be freely transferable without restriction, unless purchased by persons deemed to be our “affiliates” as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 promulgated under the Securities Act. The remaining shares of Class A common stock and shares of Class B common stock to be outstanding immediately following the completion of this offering are “restricted,” which means they were originally sold in offerings that were not registered under the Securities Act. Restricted shares may be sold through registration under the Securities Act or under an available exemption from registration, such as provided through Rule 144, which rules are summarized below. Taking into account the lock up agreements described below as well as market-standoff provisions described in the respective purchase agreements for such shares, and assuming the underwriters do not release any stockholders from these agreements, the restricted shares of our Class A common stock and Class B common stock will be available for sale in the public market as follows:
•no shares will be eligible for sale immediately upon completion of this offering;
• shares will become eligible for sale, subject to the provisions of Rule 144 or Rule 701, upon the expiration of agreements not to sell such shares entered into between the underwriters and such stockholders beginning 180 days after the date of this prospectus, subject to extension in certain circumstances; and
• additional shares will be eligible for sale from time to time thereafter upon expiration of their respective one-year holding periods, but could be sold earlier if the holders exercise any available registration rights.
Rule 144
In general, under Rule 144 of the Securities Act, as in effect on the date of this prospectus, a person (or persons whose shares are aggregated) who has beneficially owned restricted stock for at least six months, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of:
•1% of the number of shares of our Class A common stock then outstanding, which will equal approximately shares of Class A common stock immediately after completion of this offering; or
•the average weekly trading volume of our Class A common stock on the Nasdaq Global Select Market during the four calendar weeks immediately preceding the filing with the Securities and Exchange Commission of a notice on Form 144 with respect to such a sale.
Sales pursuant to Rule 144 are subject to requirements relating to manner of sale, notice and availability of current public information about us. An “affiliate” is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, an issuer. A person (or persons whose shares are aggregated) who is not deemed to be an affiliate of ours for 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months (including the holding period of any prior owner other than an affiliate), would be entitled to sell those shares subject only to availability of current public information about us, and after beneficially owning such shares for at least one year is entitled to sell an unlimited
number of shares without restriction. Rule 144 will not be available to any stockholders until we have been subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, for 90 days.
Rule 701
Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resale of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers or directors who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under the section titled “Underwriting” included elsewhere in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.
Lock-Up Agreements
We and our directors, executive officers, the selling stockholders and holders of substantially all of our outstanding stock, stock options, and other securities convertible into or exchangeable or exercisable for our common stock have entered into lock-up agreements with the underwriters pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days (or earlier pursuant to the early release provision described below) after the date of this prospectus, may not, without the prior written consent of Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC and subject to certain exceptions, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; (ii) file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or (iii) enter into any swap, or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
With respect to employees and other stockholders (excluding directors and executive officers), 15% of the holder’s shares of common stock acquired more than 180 days prior to the date of this prospectus will be released from the lock-up agreements on the day that is two trading days after the date that the closing price of our Class A common stock exceeded 133% of the initial public offering price set forth on the cover page of this prospectus for at least 10 trading days in the 15 consecutive trading day period immediately following the 90th day after the date of this prospectus, or the Early Lock-Up Expiration; provided, that we have filed at least one quarterly report on Form 10-Q or annual report on Form 10-K; provided further that, if the Early Lock-Up Expiration would occur when we are in a blackout period or within five trading days prior to a blackout period, the Early Lock-Up Expiration shall be delayed until immediately prior to the opening of trading on the second trading day following the first date that we are no longer in a blackout period. Notwithstanding the foregoing, in the event that at least 120 days have elapsed since the date of this prospectus and the lock-up period is set to expire during a blackout period or five trading days prior to a blackout period, then the lock-up period shall end 10 trading days prior to the commencement of the blackout period; provided that we have publicly released our earnings for the quarterly period during which this offering occurred.
In addition, our executive officers, directors, and holders of substantially all of our capital stock and securities convertible into or exchangeable for our capital stock have entered into agreements with market standoff provisions with us under which they have agreed that, subject to certain exceptions, for a period of 180 days after the date of this prospectus, they will not, without our or Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC’s prior written consent, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our common stock. In the event that the restricted period under the lock-up agreements with the underwriters is subject to early termination in accordance with the terms of the lock-up agreements, as more fully described in the section titled “Underwriters,” we would not expect to enforce such market standoff provisions from and after the early termination of such restricted period.
Registration Rights
After the completion of this offering, holders of up to shares of our capital stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act. The registration of these shares of our common stock under the Securities Act would result in these shares becoming eligible for sale in the public market without restriction under the Securities Act immediately upon the effectiveness of such registration, subject to the Rule 144 limitations applicable to affiliates. See the section titled “Description of Capital Stock—Registration Rights” for a description of these registration rights.
Form S-8 Registration Statement
After the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of our common stock subject to equity awards outstanding or reserved for issuance under our equity compensation plans. The shares of our common stock covered by such registration statement will be eligible for sale in the public market without restriction under the Securities Act immediately upon the effectiveness of such registration statement, subject to vesting restrictions, the conditions of Rule 144 applicable to affiliates, and any applicable market stand-off agreements and lock-up agreements. See the section titled “Executive Compensation—Benefit Plans” for a description of our equity compensation plans.
MATERIAL UNITED STATES FEDERAL INCOME TAX AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the material U.S. federal income tax and estate tax consequences of the ownership and disposition of our Class A common stock to non-U.S. holders, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income or estate tax consequences different from those set forth below. We have not sought any ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.
This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction or under U.S. federal gift and estate tax laws, except to the limited extent below, or the effect, if any, of the Medicare contribution tax on net investment income. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
•banks, insurance companies or other financial institutions;
•persons subject to the alternative minimum tax;
•tax-exempt organizations;
•controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax;
•dealers in securities or currencies;
•traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
•persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below);
•certain former citizens or long-term residents of the United States;
•persons who hold our Class A common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction;
•persons who do not hold our Class A common stock as a capital asset (within the meaning of Section 1221 of the Internal Revenue Code);
•persons deemed to sell our Class A common stock under the constructive sale provisions of the Internal Revenue Code;
•persons who hold or receive our Class A common stock pursuant to the exercise of any option; or
•persons subject to special tax accounting rules as a result of any item of gross income with respect to our Class A common stock being taken into account in an “applicable financial statement” as defined in Section 451(b) of the Code.
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner generally will depend on the status of the partner, upon the activities of the partnership, and certain determinations made at the partner level. Accordingly, partnerships that hold our Class A common stock, and partners in such partnerships, should consult their tax advisors.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our Class A common stock arising under the U.S. federal income, estate or gift tax rules or under the laws of any state or local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, you are a non-U.S. holder if you are a beneficial owner of our Class A common stock that, for U.S. federal income tax purposes, is neither a partnership nor:
•an individual citizen or resident of the United States;
•a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof;
•an estate whose income is subject to U.S. federal income tax regardless of its source; or
•a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) which has made an election to be treated as a U.S. person.
Distributions
We do not plan to make any distributions for the foreseeable future. However, if we do make distributions on our Class A common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our Class A common stock, but not below zero, and then will be treated as gain from the sale of stock.
Any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of our Class A common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries.
Dividends received by you that are effectively connected with your conduct of a U.S. trade or business (and, if an income tax treaty applies, such dividend is attributable to a permanent establishment maintained by the non-U.S. holder in the U.S.) are exempt from such withholding tax. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits, subject to an applicable income tax treaty providing otherwise. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
Gain on Disposition of Class A Common Stock
Subject to the discussions below regarding backup withholding and Foreign Account Tax Compliance Act, or FATCA, withholding, you generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our Class A common stock unless:
•the gain is effectively connected with your conduct of a U.S. trade or business (and, if an income tax treaty applies, the gain is attributable to a permanent establishment maintained by you in the United States);
•you are an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
•our Class A common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation” for U.S. federal income tax purposes, or a USRPHC, at any time within the shorter of the five-year period preceding the disposition or your holding period for our Class A common stock.
We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our Class A common stock is regularly traded on an established securities market, such Class A common stock will be treated as United States real property interests only if you actually or constructively hold more than five percent of such regularly traded Class A common stock at any time during the applicable period that is specified in the Internal Revenue Code.
If you are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and corporate non-U.S. holders described in the first bullet above may be subject to the branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). You should consult any applicable income tax or other treaties that may provide for different rules.
Federal Estate Tax
Our Class A common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for United States federal estate tax purposes) at the time of death will generally be includable in the decedent’s gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if any. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
Payments of dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding at a current rate of 24% unless you establish an exemption, for example by properly certifying your non-U.S. status on a Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.
Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Additional Withholding Requirements under the Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code and the Treasury Regulations and other official IRS guidance issued thereunder, or collectively FATCA, generally impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our Class A common stock paid to a “foreign financial institution” (as 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 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). FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our Class A common stock paid to a “non-financial foreign entity” (as specifically defined under these rules) unless such entity provides the withholding agent with a certification identifying the substantial direct and indirect U.S. owners of the entity, certifies that it does not have any substantial U.S. owners, or otherwise establishes an exemption.
The withholding obligations under FATCA generally apply to dividends on our Class A common stock and to the payment of gross proceeds of a sale or other disposition of our Class A common stock. However, the U.S. Treasury Department has issued proposed regulations that, if finalized in their present form, would eliminate FATCA withholding on gross proceeds of the sale or other disposition of our Class A common stock (but not on payments of dividends). Taxpayers may rely on the proposed regulations until final regulations are issued or until such proposed regulations are rescinded. If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “—Distributions,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. An intergovernmental agreement between the United States and your country of residence may modify the requirements described in this section. You should consult with your tax advisors regarding the application of FATCA withholding to your investment in, and ownership and disposition of, our Class A common stock.
The preceding discussion of U.S. federal tax considerations is for general information only. It is not tax advice. Each prospective investor should consult its tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our Class A common stock, including the consequences of any proposed change in applicable laws.
UNDERWRITING
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, BofA Securities, Inc. and KKR Capital Markets LLC are acting as representatives, have severally agreed to purchase, and we and the selling stockholders have agreed to sell to them, the number of shares indicated below:
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number of Shares
|
|
Morgan Stanley & Co. LLC
|
|
|
|
Goldman Sachs & Co. LLC
|
|
|
|
BofA Securities, Inc.
|
|
|
|
KKR Capital Markets LLC
|
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
UBS Securities LLC
|
|
|
|
Robert W. Baird & Co. Incorporated
|
|
|
|
Canaccord Genuity LLC
|
|
|
|
Cowen and Company, LLC
|
|
|
|
Needham & Company, LLC
|
|
|
|
Piper Sandler & Co.
|
|
|
|
Truist Securities, Inc.
|
|
|
|
Total:
|
|
|
The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and the selling stockholders and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional shares described below.
The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. After the initial offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives. The offering of the shares of Class A common stock by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of Class A common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option only if the underwriters sell more shares than the total number set forth on the cover page of this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of Class A common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, underwriting discounts and commissions and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming
both no exercise and full exercise of the underwriters’ option to purchase up to an additional shares of Class A common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Per Share
|
|
No Exercise
|
|
Full Exercise
|
|
Public offering price
|
$
|
|
$
|
|
$
|
|
Underwriting discounts and commissions to be paid by us
|
$
|
|
$
|
|
$
|
|
Proceeds, before expenses, to us
|
$
|
|
$
|
|
$
|
|
Proceeds, before expenses, to the selling stockholders
|
$
|
|
$
|
|
$
|
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $ .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them.
We have applied to list our Class A common stock on the Nasdaq Global Select Market under the trading symbol “KNBE.”
We and our directors, executive officers, the selling stockholders and the holders of substantially all of our outstanding stock, stock options, and other securities convertible into or exchangeable or exercisable for our common stock have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC on behalf of the underwriters and subject to certain exceptions, we and they will not, and will not publicly disclose an intention to, during the period ending on and including the 180th day after the date of this prospectus, or the restricted period:
•offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock;
•file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or
•enter into any swap, or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock; whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash, or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
With respect to the lock-up agreements that have been entered into by our directors, executive officers, the selling stockholders and holders of substantially all of our outstanding stock, stock options, and other securities convertible into or exchangeable or exercisable for our common stock, the restrictions described in the immediately preceding paragraph do not apply to:
(a)transactions relating to shares of common stock or other securities acquired (1) in this offering or (2) in open market transactions after the completion of this offering; provided that no filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of common stock, is required or voluntarily made during the restricted period in connection with subsequent sales of common stock or other securities acquired in this offering or in such open market transactions;
(b)transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock by will or intestate succession upon the death of the lock-up signatory, including to the transferee’s nominee or custodian;
(c)transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock as a bona fide gift, charitable contribution or for bona fide estate planning purposes;
(d)(1) transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock to an immediate family member or any trust for the direct or indirect benefit of the of the lock-up signatory or the immediate family of the lock-up signatory or (2) transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock not involving a change in beneficial ownership;
(e)transfers or distributions of shares of common stock or any security convertible into or exercisable or exchangeable for common stock by a stockholder that is a trust to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust;
(f)if the lock-up signatory is a corporation, partnership, limited liability company, trust, or other business entity, (1) distributions of shares of common stock or any security convertible into or exercisable or exchangeable for common stock to partners (general or limited), members, managers, stockholders, or holders of similar equity interests in the lock-up signatory (or, in each case, its nominee or custodian) or (2) to transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock to another corporation, partnership, limited liability company, trust or other business entity (or, in each case, its nominee or custodian) that is an affiliate (as defined in Rule 405 promulgated under the Securities Act) of the lock-up signatory, or to any investment fund or other entity that, directly or indirectly, controls or manages, is controlled or managed by, or is under common control or management with the lock-up signatory or affiliates of the lock-up signatory;
(g)transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock by operation of law pursuant to a qualified domestic order or in connection with a divorce settlement; provided that any filing required by Section 16(a) of the Exchange Act will clearly indicate in the footnotes thereto that such transfer is being made pursuant to the circumstances described in this clause (g) and such shares remain subject to the term of the lock-up agreement; provided further that no other public announcement or filing will be required or voluntarily made during the restricted period;
(h)(1) the receipt by the lock-up signatory from us of shares of common stock upon the exercise, vesting or settlement of options, RSUs, or other equity awards granted under an equity incentive plan or other equity award arrangement, which plan or arrangement is described in this prospectus, or warrants, or (2) transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock for the purposes of exercising or settling (including any transfer for the payment of tax withholdings or remittance payments due as a result of such vesting, settlement, or exercise) on a “net exercise” or “cashless” basis options, RSUs, or other rights to purchase shares of common stock, including any transfer of shares of common stock necessary to generate such amount of cash needed for the payment of taxes, including estimated taxes, due as a result of the vesting, settlement, or exercise of such options, RSUs, or other rights, in all such cases, pursuant to equity awards granted under an equity incentive plan or other equity award arrangement, which plan or arrangement is described in this prospectus, or warrants, provided that in the case of either (1) or (2), (A) any shares of common stock received as a result of such exercise, vesting, or settlement will remain subject to the terms of the lock-up agreement and (B) no public announcement or filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be voluntarily made within 75 days after the date of this offering, and after such 75th day, if the lock-up signatory is required to file a report under Section 16(a) of the Exchange Act during the restricted period, the lock-up signatory shall include a statement in such report to the effect that (1) such transfer relates to the circumstances described in this clause (h), (2) no shares were sold by such reporting person, and (3) the
shares of common stock received upon such vesting, settlement or exercise are subject to the terms of the lock-up agreement;
(i)transfers to us of shares of common stock or any security convertible into or exercisable or exchangeable for common stock in connection with the repurchase by us from the lock-up signatory of shares of common stock or any security convertible into or exercisable or exchangeable for common stock pursuant to a repurchase right arising in connection with the termination of the lock-up signatory’s employment with or provision of services to us; provided that any public announcement or filing under Section 16(a) of the Exchange Act will clearly indicate in the footnotes thereto that such transfer is being made pursuant to the circumstances described in this clause (i);
(j)transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock in connection with a change of control of us after the completion of this offering that has been approved by our board of directors;
(k)(1) the conversion of outstanding redeemable convertible preferred stock into shares of common stock in connection with the consummation of this offering or (2) any conversion or reclassification of common stock as described in this prospectus or the registration statement of which this prospectus forms a part; provided that any filing required by Section 16(a) of the Exchange Act will clearly indicate in the footnotes thereto that such transfer is being made pursuant to the circumstances described in this clause (k);
(l)the establishment of a trading plan on behalf of a shareholder, officer or director pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock; provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the lock-up signatory or us regarding the establishment of such plan, such announcement or filing will include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period; or
(m)transfers to the underwriters pursuant to the underwriting agreement.
provided that (i) in the case of any transfer or distribution pursuant to clauses (b)-(g), each done or distributee shall sign and deliver a lock-up agreement; and (ii) in the case of any transfer or distribution pursuant to clauses (b)-(f), no public announcement or filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be voluntarily made during the restricted period.
Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC, in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.
With respect to employees and other stockholders (excluding directors and executive officers), 15% of the holder’s shares of common stock acquired more than 180 days prior to the date of this prospectus will be released from the lock-up agreements on the day that is two trading days after the date that the closing price of our common stock exceeds 133% of the initial public offering price set forth on the cover page of this prospectus for at least 10 trading days in the 15 consecutive trading day period immediately following the 90th day after the date of this prospectus, or the Lock-Up Termination; provided, that we have filed at least one quarterly report on Form 10-Q or annual report on Form 10-K; provided further that, if the Early Lock-Up Expiration would occur when we are in a blackout period or within five trading days prior to a blackout period, the Early Lock-Up Expiration shall be delayed until immediately prior to the opening of trading on the second trading day following the first date that we are no longer in a blackout period. Further, to the extent not released pursuant to the Early Lock-Up Expiration described above, if (i) at least 120 days have elapsed since the date of this prospectus, (ii) we have publicly released our earnings results for the quarterly period during which this offering occurred, and (iii) such restricted period is scheduled to end during or within five trading days prior to a blackout period, such restricted period will end 10 trading days prior to the commencement of such blackout period. For the avoidance of doubt, in the event of a conflict between these early termination provisions, the earliest release date for the maximum number of shares available under the lock-up agreements will apply.
In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under their option to purchase additional shares of Class A common stock. The underwriters can close out a covered short sale by exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under their option to purchase additional shares. The underwriters may also sell shares in excess of the option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of Class A common stock in the open market to stabilize the price of the Class A common stock. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or retard a decline in the market price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
Conflicts of Interest
Certain entities affiliated with Goldman Sachs & Co. LLC and KKR Capital Markets LLC, underwriters for this offering, each collectively beneficially own in excess of 10% of our issued and outstanding Class A common stock. As a result, each of Goldman Sachs & Co. LLC and KKR Capital Markets LLC is deemed to have a “conflict of interest” within the meaning of FINRA Rule 5121. Accordingly, this offering is being made in compliance with the applicable provisions of FINRA Rule 5121. FINRA Rule 5121 prohibits Goldman Sachs & Co. LLC and KKR Capital Markets LLC from making sales to discretionary accounts without the prior written approval of the account holder and requires that a “qualified independent underwriter,” as defined in FINRA Rule 5121, participate in the preparation of the registration statement, of which this prospectus supplement forms a part, and exercise its usual standards of due diligence with respect thereto. Morgan Stanley & Co. LLC is acting as “qualified independent underwriter” for this offering. Morgan Stanley & Co. LLC will not receive any additional fees for serving as
“qualified independent underwriter” in connection with this offering. We have agreed to indemnify Morgan Stanley & Co. LLC against certain liabilities incurred in connection with acting as “qualified independent underwriter,” including liabilities under the Securities Act and to contribute to payments that Morgan Stanley & Co. LLC may be required to make in that respect.
Pricing of the Offering
Prior to this offering, there has been no public market for our Class A common stock. Neither we nor the underwriters can assure investors that an active trading market for our Class A common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired, or the prices that you may obtain for your shares. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area and the United Kingdom, each, a Relevant State, no securities have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the securities which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of securities may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
(a)to any legal entity which is a qualified investor as defined under the Prospectus Regulation;
(b)to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives; or
(c)in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of shares shall require us or any of our representatives to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to any shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).
United Kingdom
Each underwriter has represented and agreed that:
(a)it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or FSMA, received by it in connection with the issue or sale of the shares of our Class A common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and
(b)it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our Class A common stock in, from or otherwise involving the United Kingdom.
Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, or FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Hong Kong
The securities have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the securities has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the securities were not offered or sold or caused to be made the subject of an invitation for subscription or purchase and will not be offered or sold or caused to be made the subject of an invitation for subscription or purchase, and this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities, has not been circulated or distributed, nor will it be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
•a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
•a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the securities pursuant to an offer made under Section 275 of the SFA except:
•to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
•where no consideration is or will be given for the transfer;
•where the transfer is by operation of law; or
•as specified in Section 276(7) of the SFA.
Canada
The securities may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby has been passed upon for KnowBe4, Inc. by Wilson Sonsini Goodrich & Rosati, Professional Corporation, New York, New York. The underwriters have been represented in connection with this offering by Goodwin Procter LLP, Boston, Massachusetts. Whalen LLP, Newport Beach, California, is acting as counsel for the selling stockholders in connection with this offering.
EXPERTS
The consolidated financial statements of KnowBe4, Inc. and subsidiaries as of December 31, 2019 and 2020, and for each of the years in the three-year period ended December 31, 2020, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The audit report on the consolidated financial statements refers to a change in the Company’s method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and Exchange Commission, or SEC, for the Class A common stock we are offering pursuant to this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are summaries and are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.
You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the public reference facilities and website of the SEC referred to above. We also maintain a website at www.knowbe4.com where, upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information on or that can be accessed through our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
Page
|
|
KnowBe4, Inc. Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
KnowBe4, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of KnowBe4, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Tampa, Florida
March 3, 2021
KNOWBE4, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
48,864
|
|
|
$
|
85,582
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
32,003
|
|
|
38,664
|
|
|
Current portion of deferred commissions
|
10,684
|
|
|
13,177
|
|
|
Prepaid and other current assets
|
6,925
|
|
|
6,124
|
|
|
Total current assets
|
98,476
|
|
|
143,547
|
|
|
|
|
|
|
|
Deferred commissions, net of current portion
|
18,492
|
|
|
24,022
|
|
|
Capitalized software and content, net
|
16,023
|
|
|
15,523
|
|
|
Property and equipment, net
|
8,740
|
|
|
10,284
|
|
|
Operating lease right of use assets, net
|
7,076
|
|
|
12,067
|
|
|
Intangible assets, net
|
2,493
|
|
|
2,985
|
|
|
Goodwill
|
8,873
|
|
|
8,605
|
|
|
Other assets
|
855
|
|
|
1,177
|
|
|
|
|
|
|
|
Total assets
|
$
|
161,028
|
|
|
$
|
218,210
|
|
|
|
|
|
|
|
Liabilities and stockholders’ deficit
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
18,093
|
|
|
$
|
19,265
|
|
|
Current portion of deferred revenue
|
83,035
|
|
|
112,469
|
|
|
Current portion of operating lease liabilities
|
2,044
|
|
|
2,651
|
|
|
Total current liabilities
|
103,172
|
|
|
134,385
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
Deferred revenue, net of current portion
|
55,955
|
|
|
73,227
|
|
|
Operating lease liabilities, net of current portion
|
5,368
|
|
|
9,766
|
|
|
Other non-current liabilities
|
1,548
|
|
|
3,991
|
|
|
Total liabilities
|
166,043
|
|
|
221,369
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
Preferred stock, $0.00001 par value, Series A 763,126 shares authorized, issued and outstanding (Liquidation value $8,000,002)
|
—
|
|
|
—
|
|
|
Preferred stock, $0.00001 par value, Series A‐1 169,124 shares authorized, issued and outstanding (Liquidation value $5,540,519)
|
—
|
|
|
—
|
|
|
Preferred stock, $0.00001 par value, Series B 448,896 shares authorized, issued and outstanding (Liquidation value $29,999,989)
|
—
|
|
|
—
|
|
|
Preferred stock, $0.00001 par value, Series C 162,785 shares authorized, issued and outstanding (Liquidation value $31,560,756)
|
—
|
|
|
—
|
|
|
Preferred stock, $0.00001 par value, Series C-1 1,310,184 shares authorized, issued and outstanding (Liquidation value $309,399,952)
|
—
|
|
|
—
|
|
|
Common stock, $0.00001 par value, 4,400,000 shares authorized; and 1,052,182 and 1,056,975 shares issued and outstanding at December 31, 2019 and 2020, respectively
|
—
|
|
|
—
|
|
|
Additional paid-in capital
|
154,287
|
|
|
158,483
|
|
|
Accumulated deficit
|
(158,873)
|
|
|
(161,303)
|
|
|
Accumulated other comprehensive loss
|
(429)
|
|
|
(339)
|
|
|
Total stockholders’ deficit
|
(5,015)
|
|
|
(3,159)
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
$
|
161,028
|
|
|
$
|
218,210
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
KNOWBE4, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Revenues, net
|
$
|
71,287
|
|
|
$
|
120,575
|
|
|
$
|
174,886
|
|
|
Cost of revenues
|
12,062
|
|
|
20,579
|
|
|
26,730
|
|
|
Gross profit
|
59,225
|
|
|
99,996
|
|
|
148,156
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Sales and marketing
|
45,101
|
|
|
69,090
|
|
|
82,188
|
|
|
Technology and development
|
3,299
|
|
|
10,662
|
|
|
19,804
|
|
|
General and administrative
|
20,525
|
|
|
145,776
|
|
|
47,706
|
|
|
Total operating expenses
|
68,925
|
|
|
225,528
|
|
|
149,698
|
|
|
Operating loss
|
(9,700)
|
|
|
(125,532)
|
|
|
(1,542)
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest income
|
505
|
|
|
799
|
|
|
197
|
|
|
Interest expense
|
(29)
|
|
|
(47)
|
|
|
(60)
|
|
|
Other income
|
76
|
|
|
90
|
|
|
807
|
|
|
Loss before income tax (expense) benefit
|
(9,148)
|
|
|
(124,690)
|
|
|
(598)
|
|
|
Income tax (expense) benefit
|
(98)
|
|
|
367
|
|
|
(1,832)
|
|
|
Net loss
|
$
|
(9,246)
|
|
|
$
|
(124,323)
|
|
|
$
|
(2,430)
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
$
|
(4.18)
|
|
|
$
|
(76.51)
|
|
|
$
|
(2.31)
|
|
|
Weighted-average shares used in calculating basic and diluted net loss per share
|
2,212,964
|
|
|
1,673,960
|
|
|
1,051,246
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
KNOWBE4, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Net loss
|
$
|
(9,246)
|
|
|
$
|
(124,323)
|
|
|
$
|
(2,430)
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
Net change in foreign currency translation adjustments
|
(452)
|
|
|
23
|
|
|
90
|
|
|
Other comprehensive (loss) income:
|
(452)
|
|
|
23
|
|
|
90
|
|
|
Total comprehensive loss
|
$
|
(9,698)
|
|
|
$
|
(124,300)
|
|
|
$
|
(2,340)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
KNOWBE4, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional Paid In Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Total
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance as of December 31, 2017
|
1,381
|
|
|
$
|
—
|
|
|
2,184
|
|
|
$
|
—
|
|
|
$
|
44,455
|
|
|
$
|
—
|
|
|
$
|
(25,304)
|
|
|
$
|
19,151
|
|
|
Issuance of common stock for exercise of stock options
|
—
|
|
|
—
|
|
|
119
|
|
—
|
|
132
|
|
|
—
|
|
|
—
|
|
|
132
|
|
|
Stock compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
936
|
|
|
—
|
|
|
—
|
|
|
936
|
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(452)
|
|
|
—
|
|
|
(452)
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,246)
|
|
|
(9,246)
|
|
|
Balance as of December 31, 2018
|
1,381
|
|
|
—
|
|
|
2,303
|
|
|
—
|
|
|
45,523
|
|
|
(452)
|
|
|
(34,550)
|
|
|
10,521
|
|
|
Issuance of common stock for exercise of stock options
|
—
|
|
|
—
|
|
|
235
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
—
|
|
|
353
|
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
(1,485)
|
|
|
—
|
|
|
(339,880)
|
|
|
—
|
|
|
—
|
|
|
(339,880)
|
|
|
Dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,000)
|
|
|
—
|
|
|
—
|
|
|
(10,000)
|
|
|
Issuance of Preferred Stock, Series C
|
163
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,378
|
|
|
—
|
|
|
—
|
|
|
31,378
|
|
|
Issuance of Preferred Stock, Series C-1
|
1,310
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309,015
|
|
|
—
|
|
|
—
|
|
|
309,015
|
|
|
Stock compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
117,898
|
|
|
—
|
|
|
—
|
|
|
117,898
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(124,323)
|
|
|
(124,323)
|
|
|
Balance as of December 31, 2019
|
2,854
|
|
|
$
|
—
|
|
|
1,053
|
|
|
$
|
—
|
|
|
$
|
154,287
|
|
|
$
|
(429)
|
|
|
$
|
(158,873)
|
|
|
$
|
(5,015)
|
|
|
Issuance of common stock for exercise of stock options
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
220
|
|
|
—
|
|
|
—
|
|
|
220
|
|
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
4,274
|
|
|
—
|
|
|
—
|
|
|
4,274
|
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
(22)
|
|
|
—
|
|
|
(5,579)
|
|
|
—
|
|
|
—
|
|
|
(5,579)
|
|
|
Stock compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,281
|
|
|
—
|
|
|
—
|
|
|
5,281
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90
|
|
|
—
|
|
|
90
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,430)
|
|
|
(2,430)
|
|
|
Balance, December 31, 2020
|
2,854
|
|
|
$
|
—
|
|
|
1,057
|
|
|
$
|
—
|
|
|
$
|
158,483
|
|
|
$
|
(339)
|
|
|
$
|
(161,303)
|
|
|
$
|
(3,159)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
KNOWBE4, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
$
|
(9,246)
|
|
|
$
|
(124,323)
|
|
|
$
|
(2,430)
|
|
|
Adjustments to reconcile net loss to net cash from operating activities:
|
|
|
|
|
|
|
Additions to capitalized content
|
(4,108)
|
|
|
(6,368)
|
|
|
(5,215)
|
|
|
Depreciation and amortization expense
|
4,338
|
|
|
7,898
|
|
|
11,762
|
|
|
Deferred commissions amortization
|
7,066
|
|
|
12,279
|
|
|
14,238
|
|
|
Equity-based compensation expense
|
936
|
|
|
118,147
|
|
|
5,281
|
|
|
Other, net
|
68
|
|
|
(664)
|
|
|
848
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
(7,484)
|
|
|
(11,403)
|
|
|
(6,978)
|
|
|
Deferred commissions
|
(15,969)
|
|
|
(22,375)
|
|
|
(22,161)
|
|
|
Prepaid and other assets
|
(984)
|
|
|
(3,645)
|
|
|
679
|
|
|
Accounts payable and other liabilities
|
3,584
|
|
|
4,938
|
|
|
2,328
|
|
|
Deferred revenue
|
39,515
|
|
|
55,234
|
|
|
46,512
|
|
|
Net cash provided by operating activities
|
17,716
|
|
|
29,718
|
|
|
44,864
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Business combinations, net of cash acquired
|
(3,272)
|
|
|
(4,970)
|
|
|
—
|
|
|
Purchases of property and equipment
|
(3,957)
|
|
|
(5,573)
|
|
|
(5,426)
|
|
|
Capitalized internal-use software costs
|
(5,514)
|
|
|
(5,223)
|
|
|
(2,682)
|
|
|
Net cash used in investing activities
|
(12,743)
|
|
|
(15,766)
|
|
|
(8,108)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Dividends paid
|
—
|
|
|
(10,000)
|
|
|
—
|
|
|
Proceeds from the exercise of stock options
|
132
|
|
|
353
|
|
|
220
|
|
|
Repurchase of common stock and options
|
—
|
|
|
(339,880)
|
|
|
(4,857)
|
|
|
Proceeds from the issuance of preferred stock, net of issuance costs
|
—
|
|
|
340,393
|
|
|
—
|
|
|
Proceeds from the issuance of common stock
|
—
|
|
|
—
|
|
|
4,274
|
|
|
Acquisition-related contingent liability payments
|
(300)
|
|
|
(478)
|
|
|
(252)
|
|
|
Proceeds from finance lease obligations
|
—
|
|
|
—
|
|
|
214
|
|
|
Payments for finance lease obligations
|
—
|
|
|
—
|
|
|
(35)
|
|
|
Net cash used in financing activities
|
(168)
|
|
|
(9,612)
|
|
|
(436)
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(107)
|
|
|
(49)
|
|
|
398
|
|
|
Net change in cash and cash equivalents
|
$
|
4,698
|
|
|
$
|
4,291
|
|
|
$
|
36,718
|
|
|
Cash and cash equivalents, beginning of period
|
$
|
39,875
|
|
|
$
|
44,573
|
|
|
$
|
48,864
|
|
|
Cash and cash equivalents, end of period
|
$
|
44,573
|
|
|
$
|
48,864
|
|
|
$
|
85,582
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
KNOWBE4, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL CASH FLOW DISCLOSURES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
Cash paid for taxes
|
$
|
16
|
|
|
$
|
101
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
|
Imputed interest on acquisition payables
|
$
|
44
|
|
|
$
|
50
|
|
|
Capital expenditures and other assets included in accounts payable and accrued expenses
|
$
|
1,723
|
|
|
$
|
875
|
|
|
Stock compensation recorded as liability
|
$
|
249
|
|
|
$
|
991
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
KNOWBE4, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Description of Business
KnowBe4, Inc. together with its subsidiaries (“KnowBe4” or the “Company”), was incorporated in January 2016 and is the successor to operations which began in August 2010.
The Company provides a comprehensive platform incorporating security awareness training and simulated phishing with advanced analytics and reporting that helps organizations manage the ongoing problem of social engineering. Additional offerings on the Company’s platform include a security orchestration, automation and response or “SOAR” tool and a governance, risk and compliance or “GRC” product, both of which further the Company’s goal of providing products focused on meeting the needs of information security professionals. KnowBe4 conducts business globally and its platform is available as a software as a service (“SaaS”) subscription.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s consolidated financial statements and accompanying notes. Estimates and assumptions used by management primarily affect revenue recognition, deferred commissions, business combinations, common stock valuations and stock-based compensation expense.
These estimates are based on information available as of the date of the consolidated financial statements. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ materially from these estimates.
Operating Segments
The Company operates in a single operating segment, which engages in the development, marketing, and sale of the Company’s SaaS-based security awareness platform. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer, who is responsible for evaluating the Company’s financial results, evaluating the Company’s resources and assessing the performance of the operations on a consolidated basis.
Cash and Cash Equivalents
The Company considers all investments purchased with an original maturity of 90 days or less to be cash equivalents. Cash and cash equivalents include $29.9 million and $22.5 million of overnight money market mutual funds at December 31, 2019 and 2020, respectively. The carrying amount of such cash equivalents approximates their fair value due to the short-term and highly liquid nature of these instruments.
Accounts Receivable
Accounts receivable represents amounts owed to the Company for subscriptions to the Company’s platform and unbilled receivables representing the Company’s unconditional right to consideration for subscription contracts for which revenue has been earned in excess of the amount invoiced. Accounts receivable balances are recorded at the invoiced amount and are non-interest bearing.
The Company maintains an allowance for doubtful accounts based on future expected credit losses measured over the contractual term of the receivable. Management regularly reviews the adequacy of the allowance for doubtful accounts by considering various factors including the age of each outstanding invoice, each customer’s expected ability to pay, historical loss rates and expectations of forward-looking loss estimates to determine whether the allowance is appropriate. The Company writes off accounts receivable balances to the allowance for doubtful accounts when the Company has exhausted all collection efforts. As of December 31, 2019 and 2020 the allowance for doubtful accounts was $0.2 million and $0.4 million respectively, and allowance activity for the periods was not material to the consolidated financial statements.
Deferred Commissions
The Company capitalizes sales commissions and associated payroll taxes paid to internal sales personnel that are considered incremental costs to acquire a customer contract. These costs are classified as deferred commissions on the consolidated balance sheets. Sales commissions related to an initial subscription contract are considered incremental to the acquisition of the customer contract to the extent that they exceed commissions earned on renewal sales. Sales commissions related to the renewal of a subscription contract are not considered commensurate with the commissions paid for the acquisition of the initial subscription contract given the substantive difference in commission rate between new and renewal contracts. The portion of commissions paid upon the initial acquisition of a contract that are incremental to acquisition of the customer contract are amortized over an estimated period of benefit of six years. The portion of commissions paid upon initial acquisition that are commensurate with those paid on a renewal contract and commissions paid related to renewal contracts are amortized over the average length of the related revenue contract. An estimate of the portion of commissions related to the downloadable content performance obligation is made, which is recognized at contract inception consistent with the pattern of revenue recognition. The estimated period of benefit for commissions paid for the acquisition of the initial subscription contract is determined based on qualitative and quantitative factors including the initial estimated customer life, the technological life of the Company’s platform and related significant features, customer attrition and industry practices. Amortization of deferred sales commissions is included in sales and marketing expense in the accompanying consolidated statements of operations.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:
|
|
|
|
|
|
|
|
Computers and equipment
|
3 years
|
|
Furniture and fixtures
|
5-7 years
|
|
Leasehold improvements
|
shorter of lease term or 5 years
|
Expenditures which significantly add to productive capacity or extend the useful life of an asset are capitalized. Maintenance and repairs to property and equipment are expensed as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation is removed from the accounts and gains or losses, if any, are recorded in other expenses.
Capitalized Software and Content, Net
The Company capitalizes costs incurred related to the development of internal use software during the application development stage. These capitalized costs are primarily related to the development of the Company’s security awareness platform. Costs are capitalized to develop new internal use software or to significantly increase the functionality of existing software. Capitalized software costs are amortized on a straight-line basis over the software’s estimated useful life of two to five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairments of capitalized internal use software during the years ended December 31, 2019 and 2020.
The Company also capitalizes costs related to the production of its training content, which includes interactive modules, movie series, videos, games and other content. Costs associated with the production of content, including
development costs, direct costs and production overhead, are capitalized. Capitalized content is amortized over the estimated period of use, which generally ranges from two to three years. The Company’s business model is subscription based, therefore, capitalized content is reviewed in the aggregate when an event or change in circumstances indicates a change in the expected usefulness of the content. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, capitalized content will be stated at the lower of unamortized cost, net realizable value or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price in a business combination over the estimated fair value of identifiable net assets acquired. The Company evaluates and tests the recoverability of goodwill for impairment at least annually, on October 1, or more frequently if circumstances indicate that goodwill may not be recoverable. The Company performs the impairment testing by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of its single reporting unit is less than its carrying amount. In assessing the qualitative factors, the Company considers the impact of certain key factors including macroeconomic conditions, industry and market considerations, changes in management, litigation or regulatory matters, changes in enterprise value, and overall financial performance. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company calculates the estimated fair value of the reporting unit and any excess of the carrying amount over fair value is recognized as a goodwill impairment loss. Based on the results of the qualitative goodwill impairment analyses, the Company has determined there was no impairment of goodwill during the years ended December 31, 2019 and 2020.
Intangible assets consist of both definite-lived intangible assets, primarily acquired training content, patents, trademarks and domain names, and indefinite-lived trade name intangible assets. Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, as follows:
|
|
|
|
|
|
|
|
Acquired content
|
3 years
|
|
Patents
|
20 years
|
|
Other Intangibles
|
between 3-10 years
|
Impairment of Intangible and Other Long-Lived Assets
The Company performs an impairment review of long-lived assets, including property and equipment and both definite and indefinite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the Company determines that the carrying value of an asset group may not be recoverable, the Company measures recoverability by comparing the carrying amount of the asset group to the future undiscounted cash flows it expects the asset group to generate. If the Company considers any of these assets to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair value. In addition, the Company periodically evaluates the estimated remaining useful lives of long-lived assets to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation or amortization. No impairment indicators were identified and no impairment charges were recorded during the years ended December 31, 2019 and 2020.
Leases
The Company determines whether an arrangement is or contains a lease at inception and classifies its leases at commencement. Operating leases with initial terms of twelve months or greater are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying assets over the term of the lease and lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. Operating lease ROU assets also include any unamortized initial direct costs and
any prepayments less any unamortized lease incentives received. As the Company’s leases do not provide an implicit rate for use in determining the present value of future payments, the Company uses its incremental borrowing rate. Options to extend or terminate a lease are included in the ROU asset and lease liability when it is reasonably certain that the Company will exercise the option.
Lease expense for minimum lease payments for operating leases is recognized on a straight-line basis over the lease term and is included in operating expenses within the consolidated statement of operations. Variable lease costs represent non-lease components, namely common area maintenance and taxes, that are not fixed and are expensed as incurred. Effective January 1, 2019, the Company adopted ASC Topic 842 - Leases, using the modified retrospective method.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The Company’s tax positions are subject to income tax audits by certain tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position will be sustainable upon examination by the taxing authority. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income tax (benefit) provision.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. The Company regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.
Foreign Currency Transactions
The functional currency of the Company’s subsidiaries is determined based on the primary economic environment in which the subsidiary operates. Assets and liabilities of its non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars using exchange rates in effect at the end of each period and revenues and expenses are translated at the average exchange rate for the period. Gains and losses from these translations are recognized as cumulative translation adjustments and included in accumulated other comprehensive loss.
The Company remeasures monetary assets and liabilities that are not denominated in the functional currency at average exchange rates in effect during each period. Gains and losses from these remeasurement adjustments are recognized within other income.
Revenue Recognition
The Company derives substantially all of its revenue from subscription services fees paid by customers for access to the Company’s cloud-based platform and content. The Company applies the following five-step approach for considering contracts:
•identification of the contract, or contracts, with the customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, the Company satisfies a performance obligation.
The Company recognizes revenue at the time the related performance obligation is satisfied by transferring the service to a customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services, net of any sales or other tax. The Company’s subscription contracts typically vary from one year to three years and are generally noncancellable and nonrefundable.
Subscription service revenue consists of subscription fees earned from providing access to the Company’s cloud-based platform, including support services and feature upgrades, if and when available. The Company’s cloud-based platform also includes training content which can be downloaded by the customer during their subscription term. The subscription service contracts do not provide customers with the right to take possession of the software operating on the cloud platform and, as a result, are accounted for as service arrangements. Access to the platform represents a series of distinct services that the Company continually provides access to, which fulfills its obligation to the end customer over the subscription term. This series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the amounts invoiced related to the ratable portion of subscription revenue are recorded as deferred revenue and recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer. Amounts expected to be recognized within one year of the balance sheet date are classified within current assets and the remaining portion is classified in long-term assets.
The customers’ ability to access and download content throughout their subscription term is considered distinct and accounted for as a separate performance obligation. The portion of the transaction price allocated to the downloadable content performance obligation is recognized as revenue at contract inception when the customer gains access to downloadable content.
The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price (“SSP”) basis, which requires significant judgment. The Company determines SSP using an adjusted market assessment approach based on the prices at which we sell subscription services, including adjustments for standard discounting practices. As it relates to the content available for download, the calculation of SSP primarily considers pricing differences among varying subscription tiers, which provide customers with differing levels of content.
Cost of Revenue
Cost of revenue consists of certain direct costs associated with delivering the Company’s platform and includes hosting fees as well as amortization of capitalized internal-use software and content and allocated overhead. Cost of revenue also includes personnel costs, including salaries, benefits, bonuses, and stock-based compensation, for employees who provide support services to customers.
Stock-Based Compensation
The Company accounts for stock-based awards based on the awards’ estimated grant date fair value. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model. The determination of the grant date fair value using an option-pricing model is affected by the estimated fair value of the Company’s common stock as well as assumptions regarding a number of other complex and subjective variables. These variables include expected stock price volatility over the expected term of the award, the expected term which represents actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award and expected dividends. The resulting fair value is recognized on a straight-line basis, net of forfeitures, which are recorded as incurred, over the requisite service period.
Because the Company’s common stock is not publicly traded, our board of directors exercises judgment and considers numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including (i) valuations performed at or near the time of grant; (ii) rights, preferences, and privileges of our
redeemable convertible preferred stock relative to those of our common stock; (iii) our actual operating and financial performance at the time of the option grant; (iv) likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business; (v) the value of comparable companies with respect to industry, business model, stage of growth, financial risk or other factors; (vi) our stage of development and future financial projections; (vii) market transactions at or near the time of grant; and (viii) the lack of marketability of our common stock.
401(k) Plan
The Company maintains a tax-qualified retirement plan, or the 401(k) plan, that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees are able to participate in the 401(k) plan as of the first day of the month following the date they meet the 401(k) plan’s eligibility requirements, and participants are able to defer up to 100% of their eligible compensation subject to applicable annual Internal Revenue Code limits. All participants’ interests in their deferrals are 100% vested when contributed and the Company’s matching contributions are 100% vested following one year of service. The Company contracted with a third-party provider to act as a custodian and trustee, and to process and maintain the records of participant data. For the years ended December 31, 2018, 2019 and 2020, the Company made contributions to the 401(k) Plan of $0.6 million, $1.2 million, and $2.4 million, respectively.
Advertising
Advertising costs are expensed as incurred. Advertising expenses were $11.2 million, $12.2 million and $13.3 million for the years ended December 31, 2018, 2019 and 2020, respectively, and are included within sales and marketing expenses in the accompanying consolidated statements of operations.
Research and Development Costs
Research and development costs are expensed when incurred, except for certain internal-use software development costs, which may be capitalized as noted above. Research and development expenses consist primarily of personnel and related headcount costs, costs of professional services associated with the ongoing development of the Company’s technology, and allocated overhead and are recorded within technology and development expense in the accompanying consolidated statements of operations.
Net Loss per Share
Basic and diluted net loss per share is presented in conformity with the two-class method required for participating securities. The Company considers all series of its convertible preferred stock to be participating securities. Net income is attributed to common stockholders and participating securities based on their participation rights. Net loss is not allocated to the convertible preferred stock as the holders of the convertible preferred stock do not have a contractual obligation to share in any losses.
Under the two-class method, basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options and convertible preferred stock. As the Company has reported losses for all periods presented, all potentially dilutive securities including convertible preferred stock, stock options, and warrants, are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
Business Combinations
The Company includes the results of operations of the businesses that it acquires as of the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows
from acquired users, acquired technology, the value of trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed. Upon conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of operations.
Concentrations of Credit Risk and Significant Customers
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company’s cash deposits typically exceed the federally insured limits. Collateral is not required for accounts receivable.
No single customer accounted for more than ten percent of total revenue during the years ended December 31, 2018, 2019 and 2020. Additionally, no single customer accounted for more than ten percent of accounts receivable at December 31, 2018, 2019 and 2020.
Fair Value Measurement
Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The lowest level of significant input determines the placement of the fair value measurement within the following hierarchical levels:
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Other inputs that are directly or indirectly observable in the marketplace.
•Level 3: Unobservable inputs which are supported by little or no market activity.
The following tables present information about the Company’s financial assets and liabilities that are measured at fair value and indicate the fair value hierarchy of the valuation inputs used (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
$
|
29,944
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,944
|
|
|
Total assets
|
$
|
29,944
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,944
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses:
|
|
|
|
|
|
|
|
|
Business acquisition contingent liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
907
|
|
|
$
|
907
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
907
|
|
|
$
|
907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
$
|
22,479
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,479
|
|
|
Total assets
|
$
|
22,479
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,479
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses:
|
|
|
|
|
|
|
|
|
Business acquisition contingent liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350
|
|
|
$
|
350
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350
|
|
|
$
|
350
|
|
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
There were no transfers between levels during the years ended December 31, 2018, 2019 and 2020.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”), which changes the impairment model for most financial assets, and requires the use of an expected loss model in place of the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The update to the standard is effective for interim and annual periods beginning after December 15, 2019. The Company adopted ASU 2016-13 on January 1, 2020 and the impact of adoption was not material to the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment, (“ASU 2017-04”), which eliminates the requirement to calculate the implied fair value of an entity to measure a goodwill impairment charge. Instead, an entity will record an impairment charge based on the excess of the entity’s qualitative assessment when the results indicate that it is more likely than not that the fair value is greater than its carrying amount and the quantitative impairment test will not be performed. The accounting standard is effective for the Company beginning January 1, 2022, with early adoption permitted. The Company adopted ASU 2017-04 on January 1, 2020 with no impact to the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements in ASC Topic 820. After the adoption of ASU 2018-13, an entity will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation processes for Level 3 fair value measurements; and, for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 on January 1, 2020 and the impact of adoption was not material to the Company's consolidated financial statements.
In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, (“ASU 2019-02”), in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements. ASU 2019-02 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company adopted ASU 2019-02 on January 1, 2020 and the impact of adoption was not material to the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“ASU 2019-12”), which removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of US GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.
Note 3 - Revenue, Deferred Revenue and Remaining Performance Obligations
The following table summarizes revenue recognized from performance obligations delivered to customers which relate to (i) subscription services which is recognized ratably over the term of the contract and (ii) initial subscription revenue representing content available for download which is recognized at a point in time, for the years ended December 31, 2018, 2019 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Ratable portion of subscription revenue
|
$
|
55,436
|
|
|
$
|
100,084
|
|
|
$
|
148,977
|
|
|
Subscription revenue allocated to downloadable content
|
15,851
|
|
|
20,491
|
|
|
25,909
|
|
|
Total
|
$
|
71,287
|
|
|
$
|
120,575
|
|
|
$
|
174,886
|
|
The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use the Company’s platform (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
North America
|
$
|
67,014
|
|
|
$
|
108,835
|
|
|
$
|
154,131
|
|
|
International
|
4,273
|
|
|
11,740
|
|
|
20,755
|
|
|
Total
|
$
|
71,287
|
|
|
$
|
120,575
|
|
$
|
120,575
|
|
$
|
174,886
|
|
Contract Balances
The Company records unbilled receivables when revenue recognized on a contract exceeds amounts invoiced. Unbilled receivables were not material for the years ended December 31, 2018, 2019 and 2020.
Contract liabilities consist of deferred revenue which represents payments received in advance of performance under the contract. Changes in deferred revenue for the years ended December 31, 2018, 2019 and 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Beginning balance
|
$
|
44,073
|
|
|
$
|
83,676
|
|
|
$
|
138,990
|
|
|
Plus: Additions to deferred revenue
|
110,890
|
|
|
175,636
|
|
|
221,671
|
|
|
Less: Recognition of revenue deferred in the prior year
|
(29,918)
|
|
|
(59,682)
|
|
|
(98,657)
|
|
|
Less: Recognition of revenue deferred in the current year
|
(41,369)
|
|
|
(60,640)
|
|
|
(76,308)
|
|
|
Ending balance
|
$
|
83,676
|
|
|
$
|
138,990
|
|
|
$
|
185,696
|
|
Remaining Performance Obligations
The transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. The transaction price allocated to the remaining performance obligation is influenced by several factors, including the timing of delivery of software and average contract terms. Unbilled portions of the remaining performance obligation are subject to future economic risks including bankruptcies, regulatory changes and other market factors. The Company excludes from the remaining performance obligation amounts related to performance obligations that are billed and recognized as they are delivered. The majority of the Company’s noncurrent remaining performance obligation is expected to be recognized in the next 13 to 36 months.
Remaining performance obligations consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Current
|
$
|
59,687
|
|
|
$
|
98,777
|
|
|
$
|
136,382
|
|
|
Noncurrent
|
37,569
|
|
|
64,058
|
|
|
87,395
|
|
|
Total
|
$
|
97,256
|
|
|
$
|
162,835
|
|
|
$
|
223,777
|
|
Deferred Commissions
Changes in deferred commissions for the years ended December 31, 2018, 2019 and 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Beginning balance
|
$
|
10,177
|
|
|
$
|
19,080
|
|
|
$
|
29,176
|
|
|
Plus: Additions to deferred commissions
|
15,969
|
|
|
22,375
|
|
|
22,161
|
|
|
Less: Recognition of deferred commissions
|
(7,066)
|
|
|
(12,279)
|
|
|
(14,238)
|
|
|
Plus: Foreign currency impacts on deferred commissions
|
—
|
|
|
—
|
|
|
100
|
|
|
Ending balance
|
$
|
19,080
|
|
|
$
|
29,176
|
|
|
$
|
37,199
|
|
Note 4 – Business Combinations
2018
During the year ended December 31, 2018, the Company completed two business combinations that provided the Company with additional security awareness content offerings, the ability to continue developing high-quality audiovisual training content, and expansion into additional geographic areas including South Africa and Europe. The Company has accounted for these acquisitions as business combinations in accordance with ASC 805 - Business Combinations and has included the financial results of the acquired businesses in the consolidated financial statements from the date of each respective acquisition. The total purchase price was $4.2 million, net of cash acquired of $0.2 million and contingent consideration of $0.7 million. The resulting goodwill primarily relates to expected synergies, acquired workforce and opportunities for growth through geographic expansion and is not expected to be deductible for income tax purposes. Revenues of $1.5 million, earnings of $0.5 million and acquisition related costs of $0.3 million are included in the accompanying consolidated statement of operations for the year ended December 31 ,2018.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of each acquisition (in thousands):
|
|
|
|
|
|
|
|
Tangible net assets
|
$
|
504
|
|
|
Developed technology and content
|
200
|
|
|
Trade name
|
130
|
|
|
Customer relationships
|
390
|
|
|
Goodwill
|
2,950
|
|
|
Total net asset value
|
$
|
4,174
|
|
2019
During the year ended December 31, 2019, the Company completed three business combinations that collectively increased the Company’s presence in certain international jurisdictions, including Brazil and Europe. The acquisition of these businesses provided the Company with access to additional security awareness training content and video production and content development capabilities, customer lists and developed technology. The Company has accounted for these acquisitions as business combinations in accordance with ASC 805 - Business Combinations and has included the financial results of the acquired businesses in the consolidated financial statements from the date of each respective acquisition. The total purchase price was $6.6 million, net of cash acquired of $0.8 million and contingent consideration of $1.1 million and amounts held in escrow of $0.3 million. The resulting goodwill primarily relates to the acquired workforce, synergies and opportunities for growth through geographic expansion and customer diversity and is not expected to be deductible for tax purposes. Revenues of $1.3 million, losses of $0.7 million and acquisition related costs of $0.3 million are included in the accompanying consolidated statement of operations for the year ended December 31, 2019.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of each acquisition (in thousands):
|
|
|
|
|
|
|
|
Tangible net assets
|
$
|
895
|
|
|
Developed technology and content
|
620
|
|
|
Trade name
|
190
|
|
|
Customer relationships
|
60
|
|
|
Goodwill
|
4,852
|
|
|
Total net asset value
|
$
|
6,617
|
|
Note 5 - Capitalized Software and Content, Net
Internally developed capitalized software and content, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Capitalized software
|
$
|
12,628
|
|
|
$
|
15,081
|
|
|
Capitalized content
|
11,834
|
|
|
16,899
|
|
|
|
24,462
|
|
|
31,980
|
|
|
Less: Accumulated amortization
|
(8,439)
|
|
|
(16,457)
|
|
|
Total capitalized software and content, net
|
$
|
16,023
|
|
|
$
|
15,523
|
|
Capitalized software and content amortization expense for the years ended December 31, 2018, 2019 and 2020, totaled $2.5 million, $5.6 million and $8.0 million, respectively. These costs are primarily included in cost of revenues in the accompanying consolidated statements of operations. As of December 31, 2020, estimated future capitalized software and content amortization expense is as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
7,033
|
|
|
2022
|
3,941
|
|
|
2023
|
1,033
|
|
|
2024
|
153
|
|
|
2025
|
153
|
|
|
Thereafter
|
196
|
|
|
Total
|
$
|
12,509
|
|
Note 6 - Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Leasehold improvements
|
$
|
6,945
|
|
|
$
|
9,143
|
|
|
Computer and other equipment
|
4,111
|
|
|
5,630
|
|
|
Furniture and fixtures
|
1,411
|
|
|
2,107
|
|
|
|
12,467
|
|
|
16,880
|
|
|
Less: Accumulated depreciation
|
(3,727)
|
|
|
(6,596)
|
|
|
Total property and equipment, net
|
$
|
8,740
|
|
|
$
|
10,284
|
|
Property and equipment depreciation expense for the years ended December 31, 2018, 2019 and 2020, totaled $1.0 million, $2.1 million and $3.5 million, respectively. Additionally, 97.9%, 97.2% and 92.7% of the Company’s property and equipment were located in the United States and 2.1%, 2.8% and 7.3% were located in various international jurisdictions, as of December 31, 2018, 2019 and 2020, respectively.
Note 7 - Intangible Assets and Goodwill
Intangible assets
Intangible assets, net consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Amortization Period
|
|
December 31, 2019
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
(in years)
|
|
|
|
|
Acquired content and customer relationships
|
4.8
|
|
$
|
2,284
|
|
|
$
|
(1,673)
|
|
|
$
|
611
|
|
|
Domain names
|
1.7
|
|
204
|
|
|
(97)
|
|
|
107
|
|
|
Patents
|
18.9
|
|
337
|
|
|
(18)
|
|
|
319
|
|
|
Trade names and other indefinite-lived intangibles
|
Indefinite
|
|
455
|
|
|
—
|
|
|
455
|
|
|
In-process patents and trademarks
|
Not applicable
|
|
1,001
|
|
|
—
|
|
|
1,001
|
|
|
Total intangible assets
|
|
$
|
4,281
|
|
|
$
|
(1,788)
|
|
|
$
|
2,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Amortization Period
|
|
December 31, 2020
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
(in years)
|
|
|
|
|
Acquired content and customer relationships (1)
|
3.7
|
|
$
|
2,268
|
|
|
$
|
(1,859)
|
|
|
$
|
409
|
|
|
Domain names
|
1.3
|
|
245
|
|
|
(156)
|
|
|
89
|
|
|
Patents
|
19.1
|
|
1,235
|
|
|
(46)
|
|
|
1,189
|
|
|
Trade names and other indefinite-lived intangibles(1)
|
Indefinite
|
|
425
|
|
|
—
|
|
|
425
|
|
|
In-process patents and trademarks
|
Not applicable
|
|
873
|
|
|
—
|
|
|
873
|
|
|
Total intangible assets
|
|
$
|
5,046
|
|
|
$
|
(2,061)
|
|
|
$
|
2,985
|
|
_______________
(1) - Gross carrying amount includes impact of translation of foreign denominated intangible assets
Intangible asset amortization for the years ended December 31, 2018, 2019 and 2020 was $0.8 million, $0.2 million and $0.3 million, respectively. These expenses are presented in cost of revenue within the accompanying consolidated statements of operations.
As of December 31, 2020, estimated future amortization expense is as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
262
|
|
|
2022
|
186
|
|
|
2023
|
129
|
|
|
2024
|
97
|
|
|
2025
|
97
|
|
|
Thereafter
|
916
|
|
|
Total
|
$
|
1,687
|
|
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually.
The changes in carrying amounts of goodwill were as follows (in thousands):
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
$
|
3,817
|
|
|
Acquisitions
|
4,852
|
|
|
Other adjustments(1)
|
204
|
|
|
Balance at December 31, 2019
|
$
|
8,873
|
|
|
Other adjustments(1)
|
$
|
(268)
|
|
|
Balance at December 31, 2020
|
$
|
8,605
|
|
________________
(1)Other adjustments represents the impact of translation of our foreign currency denominated goodwill balances.
Note 8 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2020
|
|
Accrued commissions
|
$
|
6,298
|
|
|
$
|
6,662
|
|
|
Accrued payroll
|
5,847
|
|
|
4,839
|
|
|
Accounts payable
|
3,071
|
|
|
2,530
|
|
|
Other accrued expenses
|
2,877
|
|
|
5,234
|
|
|
Total accounts payable and accrued expenses
|
$
|
18,093
|
|
|
$
|
19,265
|
|
Note 9 - Leases
The Company primarily enters into operating lease agreements for office space and other property and equipment, some of which include options to renew or terminate the lease. The options to renew, which extend for up to 5 years, are considered reasonably certain to be recognized and are included in the determination of lease payments. Additionally, during 2020, the Company entered into a finance lease agreement with total future lease payments of $0.2 million, which is not considered material to the business.
The components of lease costs were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Operating lease cost
|
$
|
2,133
|
|
|
$
|
2,932
|
|
|
Short-term lease cost
|
562
|
|
|
656
|
|
|
Variable lease cost
|
484
|
|
|
501
|
|
|
Total lease cost
|
$
|
3,179
|
|
|
$
|
4,089
|
|
Lease costs are primarily included in general and administrative expenses in the accompanying consolidated statements of operations. The Company reports the amortization of ROU assets and the change in operating lease liabilities on a net basis in accounts payable and other liabilities in the accompanying consolidated statements of cash flows.
Other information related to operating and finance leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Weighted-average remaining lease term (in years)
|
3.5
|
|
|
5.2
|
|
|
Weighted-average discount rate
|
7.8
|
%
|
|
5.6
|
%
|
Future lease payments under non-cancellable leases recorded as of December 31, 2020, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2020
|
$
|
3,255
|
|
|
2021
|
3,077
|
|
|
2022
|
2,450
|
|
|
2023
|
2,150
|
|
|
2024
|
1,610
|
|
|
Thereafter
|
1,584
|
|
|
Total lease payments
|
14,126
|
|
|
Less: imputed interest
|
(1,709)
|
|
|
Total future lease payments under non-cancellable leases
|
$
|
12,417
|
|
Supplemental cash flow information related to leases is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash outflows from operating leases
|
$
|
2,152
|
|
|
$
|
2,920
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
$
|
2,287
|
|
|
$
|
3,503
|
|
Note 10 - Stockholder’s Equity
Common Stock
The Company has one class of common stock where each share of common stock entitles the holder to one vote, together with the holders of preferred stock, on all matters submitted to the stockholders for a vote. The voting, dividend and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers and preference of the holders of the preferred stock set forth below.
Preferred Stock
The Company is authorized to issue 2,854,115 shares of preferred stock, par value $0.00001 per share. As of December 31, 2019 and 2020, the Company had outstanding Series A, A-1, B, C and C-1 Preferred Stock (individually referred to as “Series A, A-1, B, C or C-1” or collectively “Preferred Stock”) as follows (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 ,2018
|
|
|
Issue Price per Share
|
|
Shares Authorized
|
|
Issued and Outstanding
|
|
Net Carrying Value
|
|
Liquidation Preference
|
|
Series A
|
$
|
10.48
|
|
|
763,126
|
|
|
763,126
|
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
Series A-1
|
$
|
32.76
|
|
|
169,124
|
|
|
169,124
|
|
|
5,541
|
|
|
5,541
|
|
|
Series B
|
$
|
66.83
|
|
|
448,896
|
|
|
448,896
|
|
|
30,000
|
|
|
30,000
|
|
|
Total
|
|
|
1,381,146
|
|
|
1,381,146
|
|
|
$
|
43,541
|
|
|
$
|
43,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019 and 2020
|
|
|
Issue Price per Share
|
|
Shares Authorized
|
|
Issued and Outstanding
|
|
Net Carrying Value
|
|
Liquidation Preference
|
|
Series A
|
$
|
10.48
|
|
|
763,126
|
|
|
763,126
|
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
Series A-1
|
$
|
32.76
|
|
|
169,124
|
|
|
169,124
|
|
|
5,541
|
|
|
5,541
|
|
|
Series B
|
$
|
66.83
|
|
|
448,896
|
|
|
448,896
|
|
|
30,000
|
|
|
30,000
|
|
|
Series C
|
$
|
193.88
|
|
|
162,785
|
|
|
162,785
|
|
|
31,377
|
|
|
31,561
|
|
|
Series C-1
|
$
|
236.15
|
|
|
1,310,184
|
|
|
1,310,184
|
|
|
309,015
|
|
|
309,400
|
|
|
Total
|
|
|
2,854,115
|
|
|
2,854,115
|
|
|
$
|
383,933
|
|
|
$
|
384,502
|
|
The rights, preferences, and privileges of the Preferred Stock are as follows:
Voting Rights
Each holder of preferred stock shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of preferred stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.
Dividend Rights
The holder of each share of preferred stock is entitled to receive, when and if declared by the board of directors, a dividend in the amount per share declared on the common stock, based on the number of shares of common stock into which each such preferred share is then convertible, simultaneously with the payment of such dividend on the shares of common stock. No dividends were declared during the year ended December 31, 2018. Dividends in the amount of $2.71 per share were declared and paid in 2019. No dividends were declared during the year ended December 31, 2020.
Liquidation
In the event of any liquidation or Deemed Liquidation Event as defined in the Certificate of Incorporation, the holders of Preferred Stock are entitled to the greater of (i) the original issue price of the Preferred Stock plus any dividends declared and unpaid thereon, or ii) the amount payable had all classes of shares been converted to Common Stock. If the assets of the Company available for distribution are insufficient to pay the holders of
Preferred Stock in the full amount to which they are entitled, the holders shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them.
Conversion
Each share of preferred stock is convertible, at the option of the holder at any time, into the number of shares of common stock determined by dividing the original issue price for such series of preferred stock by the conversion price for such series of preferred share that is in effect at the time of conversion. The applicable conversion price of each is subject to adjustment upon any future stock splits or combinations, recapitalizations, or upon the issuance of any new securities as a price per share lower than the applicable conversion price of such series of Preferred Stock in effect immediately prior to such issuance. The initial conversion price for the series of Preferred Stock is the original issue price for such series of Preferred Stock.
Each share of preferred stock, other than the shares of Series C-1 preferred stock, automatically converts into common stock at the then-applicable conversion rate in the event of the closing of a sale of shares to the public in a firm-commitment underwritten public offering at a price per share of $193.88 (the “IPO Value”), subject to adjustments for stock dividends, splits, combinations and similar events, that results in net proceeds to the Company of not less than $100 million (a “Qualifying Public Offering” or “QPO”), or (ii) upon the consent of the holders of a majority of the shares of each of the other outstanding preferred stock classes, voting together as a single class and on as-converted to Common Stock basis. Upon conversion of any preferred shares, such shares may not be reissued by the Company.
All shares of Series C-1 Preferred Stock automatically convert into shares of Common Stock at the then-applicable conversion rate upon the closing of a QPO with an IPO Value equal to or greater than $354.23 per share, subject to adjustments for stock dividends, splits, combinations and similar events (the “Target Price”); provided, however, that if a majority of disinterested directors (the “disinterested directors” consist of (i) the one director elected the holders of Series B Preferred Stock, (ii) the two directors elected the holders of Common Stock, and (iii) the two directors elected by the holders of Common Stock and Preferred Stock, voting together as a single class on as-converted to Common Stock basis) approve a sale of shares to the public in a QPO at an IPO Value that is less than the Target Price, but equal to or more $295.19 per share, subject to adjustments for stock dividends, splits, combinations and similar events, then upon such sale, the shares of Series C-1 Preferred Stock shall automatically convert to (A) that number of shares of Common Stock equal to issuable upon an optional conversion of the Series C-1 Preferred Stock, plus (B) an additional number of shares of Common Stock equal to (x) the difference between the Target Price and the IPO Value, divided by (y) the IPO Value.
Note 11 - Stock-Based Compensation
2016 Equity Incentive Plan
Effective January 19, 2016, the Company established the KnowBe4, Inc. 2016 Equity Incentive Plan (the “2016 Incentive Plan”). The 2016 Incentive Plan initially authorized the issuance of up to an aggregate of 818,662 shares of common stock in the form of stock options and other types of equity awards that may be granted to officers, employees, directors, consultants and advisors of the Company and its subsidiaries and affiliates. Effective July 2, 2019, the Company amended the 2016 Incentive Plan to increase the maximum number of shares issuable under the plan to 943,200 shares of common stock. As of December 31, 2020, the Company has granted only stock options under the 2016 Incentive Plan. These options generally become vested within four years from the date of grant and expire ten years from the date of grant, with typical vesting of 25% on the first anniversary and monthly thereafter.
The Company has reserved shares of common stock for future issuance as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Conversion of Series A Preferred Stock
|
763,126
|
|
|
763,126
|
|
|
763,126
|
|
|
Conversion of Series A-1 Preferred Stock
|
169,124
|
|
|
169,124
|
|
|
169,124
|
|
|
Conversion of Series B Preferred Stock
|
448,896
|
|
|
448,896
|
|
|
448,896
|
|
|
Conversion of Series C Preferred Stock
|
—
|
|
|
162,785
|
|
|
162,785
|
|
|
Conversion of Series C-1 Preferred Stock
|
—
|
|
|
1,310,184
|
|
|
1,310,184
|
|
|
Stock options issued and outstanding
|
427,525
|
|
|
259,113
|
|
|
355,495
|
|
|
Shares available for future issuance
|
123,481
|
|
|
189,325
|
|
|
92,539
|
|
|
Total shares of common stock reserved
|
1,932,152
|
|
|
3,302,553
|
|
|
3,302,149
|
|
Stock Options
The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Expected term (years)
|
6.3
|
|
6.3
|
|
4.0 - 6.3
|
|
Expected stock price volatility
|
45.0
|
%
|
|
40.0% - 45.0%
|
|
45.0% - 50.0%
|
|
Risk-free interest rate
|
2.4% - 3.0%
|
|
1.4% - 2.5%
|
|
0.2% - 1.7%
|
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Fair value of common stock
|
$39.27 - $41.44
|
|
$42.77 - $162.88
|
|
$165.43 - $233.63
|
The below table shows a summary of common stock option activity for the years ended December 31, 2018, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Grant Date Fair Value
|
|
Weighted-Average Remaining Contractual Term
(years)
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Options outstanding at December 31, 2017
|
473,228
|
|
|
$
|
15.44
|
|
|
$
|
5.33
|
|
|
8.2
|
|
|
$
|
4,937
|
|
|
Granted
|
108,583
|
|
|
49.46
|
|
|
17.01
|
|
|
|
|
|
Exercised
|
(118,844)
|
|
|
7.19
|
|
|
|
|
|
|
4,920
|
|
|
Repurchased
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Canceled, forfeited or expired
|
(35,442)
|
|
|
48.65
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2018
|
427,525
|
|
|
$
|
20.79
|
|
|
$
|
7.94
|
|
|
7.5
|
|
|
$
|
9,247
|
|
|
Granted
|
77,856
|
|
|
115.95
|
|
|
64.09
|
|
|
|
|
|
|
Exercised
|
(48,694)
|
|
|
7.25
|
|
|
|
|
|
|
6,049
|
|
|
Repurchased
|
(178,412)
|
|
|
9.39
|
|
|
|
|
|
|
|
|
Canceled, forfeited or expired
|
(19,162)
|
|
|
39.08
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2019
|
259,113
|
|
|
58.43
|
|
|
28.21
|
|
|
8.1
|
|
|
$
|
18,976
|
|
|
Granted
|
126,518
|
|
|
$
|
197.06
|
|
|
88.90
|
|
|
|
|
|
|
Exercised
|
(8,215)
|
|
|
$
|
26.73
|
|
|
|
|
|
|
3,725
|
|
|
Repurchased
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Canceled, forfeited or expired
|
(21,921)
|
|
|
$
|
76.70
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2020
|
355,495
|
|
|
$
|
109.20
|
|
|
$
|
50.15
|
|
|
7.9
|
|
$
|
131,878
|
|
|
Options vested and exercisable at December 31, 2020
|
155,002
|
|
|
$
|
45.95
|
|
|
$
|
21.06
|
|
|
6.7
|
|
$
|
67,351
|
|
The aggregate intrinsic value of the options exercised represents the difference between the estimated fair value of our common stock on the date of exercise and the exercise price of the options.
Stock-based Compensation Expense
The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Cost of revenues
|
$
|
28
|
|
|
$
|
83
|
|
|
$
|
188
|
|
|
Sales and marketing
|
223
|
|
|
5,750
|
|
|
1,579
|
|
|
Technology and development
|
43
|
|
|
162
|
|
|
896
|
|
|
General and administrative
|
589
|
|
|
112,110
|
|
|
2,571
|
|
|
Total stock-based compensation expense
|
$
|
883
|
|
|
$
|
118,105
|
|
|
$
|
5,234
|
|
As of December 31, 2020, the Company had $12.6 million of unrecognized stock compensation, which is expected to be recognized over a weighted-average period of 1.9 years.
Share Repurchases
In connection with the issuance of Series C Preferred Stock and Series C-1 Preferred Stock in 2019, the Company paid $339.3 million to repurchase Common Stock and options, the latter of which were repurchased under a modification of the original option terms. The repurchase price paid at each issuance was in excess of the fair value of the Common Stock and options on the repurchased date, which resulted in compensation expense of $115.7 million.
During the years ended December 31, 2019 and 2020, the Company repurchased or promised to repurchase unvested shares of Common Stock from former employees under pre-existing contingent call options triggered upon termination. The repurchase price paid or promised was in excess of the fair value of the Common Stock on the repurchase date, which resulted in additional compensation expense of $0.8 million and $1.9 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2019 and 2020, the Company recorded a liability representing the fair value of shares committed to be repurchased of $0.2 million and $1.0 million, respectively, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
Note 12 - Net Loss per Share
The computation of net loss per share is as follows (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
$
|
(9,246)
|
|
|
$
|
(124,323)
|
|
|
$
|
(2,430)
|
|
|
Less: dividend distribution allocated to preferred stockholders
|
—
|
|
|
(3,749)
|
|
|
—
|
|
|
Net loss attributable to common stockholders
|
$
|
(9,246)
|
|
|
$
|
(128,072)
|
|
|
$
|
(2,430)
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
2,212,964
|
|
|
1,673,960
|
|
|
1,051,246
|
|
|
Net loss per share, basic and diluted
|
$
|
(4.18)
|
|
|
$
|
(76.51)
|
|
|
$
|
(2.31)
|
|
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Stock options
|
506,526
|
|
|
304,341
|
|
|
324,360
|
|
|
Preferred shares, Series A
|
763,126
|
|
|
763,126
|
|
|
763,126
|
|
|
Preferred shares, Series A-1
|
169,124
|
|
|
169,124
|
|
|
169,124
|
|
|
Preferred shares, Series B
|
448,896
|
|
|
448,896
|
|
|
448,896
|
|
|
Preferred shares, Series C
|
—
|
|
|
127,552
|
|
|
162,785
|
|
|
Preferred shares, Series C-1
|
—
|
|
|
653,297
|
|
|
1,310,184
|
|
Note 13 - Income Taxes
The domestic and foreign components of income before provision for (benefit from) income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Domestic
|
$
|
(10,297)
|
|
|
$
|
(125,014)
|
|
|
$
|
(5,274)
|
|
|
International
|
1,149
|
|
|
324
|
|
|
4,676
|
|
|
Loss before income taxes
|
$
|
(9,148)
|
|
|
$
|
(124,690)
|
|
|
$
|
(598)
|
|
The provision for (benefit from) income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Current:
|
|
|
|
|
|
|
Federal and Foreign
|
$
|
64
|
|
|
$
|
270
|
|
|
$
|
1,113
|
|
|
State
|
46
|
|
|
34
|
|
|
90
|
|
|
Total current tax expense
|
110
|
|
|
304
|
|
|
1,203
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal and Foreign
|
(9)
|
|
|
(691)
|
|
|
628
|
|
|
State
|
(3)
|
|
|
2
|
|
|
1
|
|
|
Total deferred tax expense
|
(12)
|
|
|
(689)
|
|
|
629
|
|
|
Provision for (benefit from) income taxes
|
$
|
98
|
|
|
$
|
(385)
|
|
|
$
|
1,832
|
|
The following table presents the reconciliation of the statutory federal income tax rate to our effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Tax at federal statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
Foreign and state income taxes
|
6.2
|
%
|
|
1.9
|
%
|
|
110.3
|
%
|
|
Permanent differences
|
8.6
|
%
|
|
(11.5)
|
%
|
|
(186.3)
|
%
|
|
Change in valuation allowance
|
(29.3)
|
%
|
|
(9.3)
|
%
|
|
(447.8)
|
%
|
|
Research and development tax credit
|
—
|
%
|
|
—
|
%
|
|
192.7
|
%
|
|
Return to provision adjustments
|
(8.5)
|
%
|
|
(0.1)
|
%
|
|
(18.5)
|
%
|
|
Other, net
|
0.8
|
%
|
|
(1.8)
|
%
|
|
22.6
|
%
|
|
Effective tax rate
|
(1.1)
|
%
|
|
0.3
|
%
|
|
(306.2)
|
%
|
Deferred Tax Assets and Liabilities
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2019
|
|
2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforward
|
$
|
8,306
|
|
|
$
|
16,234
|
|
|
$
|
12,156
|
|
|
Deferred revenue
|
4,373
|
|
|
9,639
|
|
|
16,007
|
|
|
Stock-based compensation
|
150
|
|
|
2,843
|
|
|
2,838
|
|
|
Operating lease liabilities
|
—
|
|
|
1,729
|
|
|
2,521
|
|
|
Research and development tax credit
|
—
|
|
|
—
|
|
|
1,151
|
|
|
Other
|
376
|
|
|
514
|
|
|
429
|
|
|
Gross deferred tax assets
|
13,205
|
|
|
30,959
|
|
|
35,102
|
|
|
Less: Valuation allowances
|
(7,312)
|
|
|
(19,169)
|
|
|
(21,862)
|
|
|
Total deferred tax assets
|
$
|
5,893
|
|
|
$
|
11,790
|
|
|
$
|
13,240
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Deferred commissions
|
$
|
(3,462)
|
|
|
$
|
(5,642)
|
|
|
$
|
(7,398)
|
|
|
Property, equipment and intangible assets
|
(2,402)
|
|
|
(3,598)
|
|
|
(2,918)
|
|
|
Operating lease right of use assets, net
|
—
|
|
|
(1,853)
|
|
|
(2,440)
|
|
|
Other
|
(36)
|
|
|
(61)
|
|
|
(361)
|
|
|
Total deferred tax liabilities
|
(5,900)
|
|
|
(11,154)
|
|
|
(13,117)
|
|
|
Net deferred tax (liabilities) assets
|
$
|
(7)
|
|
|
$
|
636
|
|
|
$
|
123
|
|
At each reporting date, the Company has established a valuation allowance against its U.S. net deferred tax assets due to the uncertainty surrounding the realization of those assets. The Company periodically evaluates the recoverability of the deferred tax assets by assessing the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. When it is determined to be more-likely-than-not that the deferred tax assets are realizable, the valuation allowance is reduced. As of December 31, 2020, the Company’s German subsidiary entered into a three-year cumulative loss position, which is considered to be a significant piece of objective negative evidence. Based on this evaluation, the Company recorded a full valuation allowance equal to its German deferred tax assets. During the years ended December 31, 2018, 2019 and 2020 the valuation allowance increased by $2.7 million, $11.9 million and $2.7 million, respectively. These increases in the valuation allowance during the years ended December 31, 2018 and 2019 were primarily driven by losses generated in the United States, which the increase in the valuation allowance during the year ended December 31, 2020 resulted from losses generated in the United States and Germany.
As of December 31, 2018, 2019 and 2020, the Company had indefinite-lived federal net operating loss carryforwards of $35.8 million, $64.9 million and $41.3 million, respectively, which may be available to offset future taxable income for federal income tax purposes. As of December 31, 2018, 2019 and 2020, net operating loss carryforwards for state income tax purposes of $18.1 million, $50.3 million and $33.8 million, respectively, that will begin to expire in 2022 if not utilized. As of December 31, 2020 the Company’s research and development tax credit carryforward was $1.2 million. This tax credit was established in 2020 and if not used will expire in 2037.
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company did not have any unrecognized tax benefits as of December 31, 2018, 2019 and 2020, respectively.
Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. Tax years 2018 and forward generally remain open for examination for federal and state tax purposes. Tax years 2016 and forward generally remain open for examination for foreign tax purposes. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2018, 2019 and 2020 will remain subject to examination until the respective tax year is closed.
Note 14 - Commitments and Contingencies
The Company is subject to various legal proceedings and claims arising in the ordinary course of business. The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Accruals for loss contingencies are reviewed periodically and adjusted as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, the Company assesses whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloses the estimate of the possible loss or range of loss, or states that such an estimate cannot be made. The evaluation as to whether a loss is reasonably possible or probable is based on the Company’s assessment, in conjunction with legal counsel, regarding the ultimate outcome of the matter.
The Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company does not believe that the ultimate resolution of any matters to which the Company is presently a party will have a material adverse effect on its consolidated results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows. Legal costs are expensed as incurred.
Note 15 - Subsequent Events
The Company has evaluated subsequent events from the consolidated balance sheet date through March 2, 2021, the date on which these consolidated financial statements were available to be issued.
On February 12, 2021, the Company entered into a definitive agreement to acquire MediaPro Holdings, LLC a SaaS company that specializes in security and privacy solutions including production of digital content and custom software. The acquisition closed on March 1, 2021 and was funded using $13.3 million cash on hand with the remainder of the purchase price paid through issuance of 31,136 shares of Company’s common stock. The preliminary purchase price is expected to be between $30 million and $40 million, subject to certain working capital adjustments and the finalization of the Company’s common stock valuation.
On February 15, 2021, the Company’s board of directors approved the issuance of restricted stock units to certain executive officers. Certain restricted stock units, with an anticipated value of $15.0 million, are expected to become fully vested upon an initial public offering and will be recognized as stock-based compensation expense at that time. Additional restricted stock units, with an anticipated value of $11.7 million, will be granted upon an initial public offering and are subject to both service and performance-based vesting conditions over the three-year period following the date of grant. Stock-based compensation expense for these awards will be recognized over the vesting period.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses to be paid by the registrant, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee and the exchange listing fee:
|
|
|
|
|
|
|
|
|
|
|
|
Amount
to be Paid
|
|
Securities and Exchange Commission registration fee
|
|
$
|
10,910.00
|
|
|
FINRA filing fee
|
|
$
|
14,850.00
|
|
|
Nasdaq listing fee
|
|
*
|
|
Printing and engraving expenses
|
|
*
|
|
Legal fees and expenses
|
|
*
|
|
Accounting fees and expenses
|
|
*
|
|
Transfer agent and registrar fees
|
|
*
|
|
Miscellaneous
|
|
*
|
|
Total
|
$
|
*
|
________________
*To be filed by amendment.
ITEM 14. Indemnification of Directors and Officers
Section 145(a) of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper.
Section 145 of the Delaware General Corporation Law further provides that: (i) to the extent that a former or present director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith; (ii) indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and (iii) the corporation may purchase and maintain insurance
on behalf of any present or former director, officer, employee or agent of the corporation or any person who at the request of the corporation was serving in such capacity for another entity against any liability asserted against such person and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liabilities under Section 145.
In addition, the proposed form of Underwriting Agreement (to be filed by amendment) is expected to provide for indemnification of our directors and officers by the underwriters against certain liabilities.
Our certificate of incorporation authorizes us to provide for the indemnification of directors to the fullest extent permissible under Delaware law.
Our bylaws provides for the indemnification of officers, directors and third parties acting on our behalf if such person acted in good faith and in a manner reasonably believed to be in and not opposed to our best interest and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our directors, executive officers and others, in addition to indemnification provided for in our bylaws, and intend to enter into indemnification agreements with any new directors and executive officers in the future.
We have purchased and intend to maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.
See also the undertakings set out in response to Item 17 herein.
ITEM 15. Recent Sales of Unregistered Securities
In the past three years, we have issued and sold the following unregistered securities:
1.In February and March 2017, we issued and sold an aggregate of 169,124 shares of our Series A-1 Preferred Stock, at a purchase price of $32.7601 per share for an aggregate purchase price of approximately $5.5 million to a total of one (1) accredited investor.
2.In October 2017, we issued and sold an aggregate of 448,896 shares of our Series B Preferred Stock, at a purchase price of $66.8306 per share for an aggregate purchase price of approximately $30.0 million to a total of four (4) accredited investors.
3.In March 2019, we issued and sold an aggregate of 162,785 shares of our Series C Preferred Stock, at a purchase price of $193.88 per share for an aggregate purchase price of approximately $31.6 million to a total of two (2) accredited investors.
4.In June 2019, we issued and sold an aggregate of 1,310,184 shares of our Series C-1 Preferred Stock, at a purchase price of $236.15 per share for an aggregate purchase price of approximately $309.4 million to a total of seven (7) accredited investors.
5.In December 2020, we issued and sold an aggregate of 18,294 shares of our common stock, at a purchase price of $233.63 per share for an aggregate purchase price of approximately $4.3 million to a total of six (6) accredited investors.
6.From January 2017 through the date of this prospectus, we issued and sold to certain of our employees, directors, consultants and other service providers an aggregate of 504,208 shares of common stock upon the exercise of options under our 2016 Equity Incentive Plan, as amended, or 2016 Plan, at exercise prices per share ranging from $0.10 to $112.50, for a weighted-average exercise price of approximately $4.90.
7.From January 2017 through the date of this prospectus, we granted to our employees, directors, consultants and other service providers stock options to purchase an aggregate of 465,580 shares of common stock
upon the exercise of options under our 2016 Plan at exercise prices per share ranging from $8.90 to $792.49, for a weighted-average exercise price of approximately $98.27.
We claimed exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, for the sale and issuance of securities in the transactions described in paragraphs 1 through 5 above by virtue of Section 4(a)(2) and/or Regulation D promulgated thereunder as transactions not involving any public offering. All of the purchasers of unregistered securities for which we relied on Section 4(a)(2) and/or Regulation D represented that they were accredited investors as defined under the Securities Act. We claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions.
We claimed exemption from registration under the Securities Act for the sales and issuances of securities in the transactions described in paragraphs 6 and 7 above under Section 4(a)(2) of the Securities Act in that such sales and issuances did not involve a public offering or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701.
ITEM 16. Exhibits and Financial Statement Schedules
(a)Exhibits
A list of exhibits filed herewith is contained in the exhibit index that immediately precedes such exhibits and is incorporated herein by reference.
(b)Financial Statement Schedule
All financial statement schedules are omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or the notes thereto.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
1.1*
|
|
Form of Underwriting Agreement
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
4.1*
|
|
Form of Common Stock Certificate
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
5.1*
|
|
Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
|
|
|
|
|
|
10.1*†
|
|
2021 Equity Incentive Plan
|
|
|
|
|
|
10.2*†
|
|
2021 Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3†
|
|
|
|
|
|
|
|
10.4†
|
|
|
|
|
|
|
|
10.5†
|
|
|
|
|
|
|
|
10.6†
|
|
|
|
|
|
|
|
10.7†
|
|
|
|
10.8†
|
|
|
|
|
|
|
|
10.9†
|
|
|
|
|
|
|
|
10.10
|
|
Lease Agreement, dated as of May 4, 2015, by and between Clearwater Tower, LLC (formerly known as Wilder Corporation of Delaware) and KnowBe4, Inc., as amended May 27, 2015, March 10, 2016, January 9, 2017, May 17, 2017, August 30, 2017, November 2, 2017, December 4, 2018, July 28, 2020 and November 6, 2020
|
|
|
|
|
|
21.1
|
|
|
|
|
|
|
|
23.1
|
|
|
|
|
|
|
|
23.2*
|
|
Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1)
|
|
|
|
|
|
24.1
|
|
|
________________
*To be filed by amendment.
†Indicates a management contract or compensatory plan or arrangement.
Signatures
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in City of Clearwater, State of Florida, on the 19th day of March, 2021.
|
|
|
|
|
|
|
|
KnowBe4, Inc.
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman
|
|
|
Sjoerd Sjouwerman
|
|
|
Chief Executive Officer
|
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Sjoerd Sjouwerman and Shrikrishna Venkataraman, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Sjoerd Sjouwerman
|
|
Chief Executive Officer & Director
(Principal Executive Officer)
|
|
March 19, 2021
|
|
Sjoerd Sjouwerman
|
|
|
|
|
|
|
|
|
|
/s/ Shrikrishna Venkataraman
|
|
Co-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 19, 2021
|
|
Shrikrishna Venkataraman
|
|
|
|
|
|
|
|
|
|
/s/ Jeremiah Daly
|
|
Director
|
|
March 19, 2021
|
|
Jeremiah Daly
|
|
|
|
|
|
|
|
|
|
/s/ Joseph DiSabato
|
|
Director
|
|
March 19, 2021
|
|
Joseph DiSabato
|
|
|
|
|
|
|
|
|
|
/s/ Kevin Klausmeyer
|
|
Director
|
|
March 19, 2021
|
|
Kevin Klausmeyer
|
|
|
|
|
|
|
|
|
|
/s/ Stephen Shanley
|
|
Director
|
|
March 19, 2021
|
|
Stephen Shanley
|
|
|
|
|
|
|
|
|
|
/s/ Gerhard Watzinger
|
|
Director
|
|
March 19, 2021
|
|
Gerhard Watzinger
|
|
|
|
|
|
|
|
|
|
/s/ Kara Wilson
|
|
Director
|
|
March 19, 2021
|
|
Kara Wilson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware
|
|
Page 1
|
|
|
The First State
|
|
|
|
|
|
|
|
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF “KNOWBE4, INC.”, FILED IN THIS OFFICE ON THE FIRST DAY OF JULY, A.D. 2019, AT 12:35 O`CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Jeffrey W. Bullock
|
|
|
Jeffrey W. Bullock, Secretary of State
|
|
|
|
|
4858473 8100
|
Authentication: 203136509
|
|
SR# 20195753748
|
Date: 07-01-19
|
|
You may verify this certificate online at corp.delaware.gov/authver.shtml
|
|
|
|
|
|
|
|
|
|
State of Delaware
Secretary of State
Division of Corporations
Delivered 12:35 PM 07/01/2019
FILED 12:35PM 07/01/2019
SR 20195753748• File Number 4858473
|
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KNOWBE4, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
KnowBe4, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
1.That the name of this corporation is KnowBe4, Inc. and that this corporation was originally formed as a limited liability company pursuant to the Delaware Limited Liability Company Act on August 10, 2010 under the name SEQRIT, LLC, and was then converted into a corporation under the name KnowBe4, Inc. pursuant to the Delaware General Corporation Law and the Delaware Limited Liability Company Act on January 19, 2016.
2.That the Board of Directors of this Corporation duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Fourth Amended and Restated Certificate of Incorporation of this corporation, as heretofore amended, be amended and restated in its entirety to read as follows:
FIRST: The name of this corporation is KnowBe4, Inc. (the "Corporation").
SECOND: The address of the registered office of the Corporation in the State of Delaware 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.
THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law'').
FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 4,400,000 shares of Common Stock, $0.00001 par value per share ("Common Stock"), and (ii) 2,854,115 shares of Preferred Stock, $0.00001 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A.COMMON STOCK
1.General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2.Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B.PREFERRED STOCK
763,126 shares of the authorized Preferred Stock of the Corporation are hereby designated "Series A Preferred Stock", 169,124 shares of the authorized Preferred Stock of the Corporation are hereby designated "Series A-1 Preferred Stock", 448,896 shares of the authorized Preferred Stock of the Corporation are hereby designated "Series B Preferred Stock", 162,785 shares of the authorized Preferred Stock of the Corporation are hereby designated "Series C Preferred Stock" and 1,310,184 shares of the authorized Preferred Stock of the Corporation are hereby designated "Series C-1 Preferred Stock", each with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to "sections" or "subsections" in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth. As used herein, "Preferred Stock" shall mean collectively the Series A Preferred Stock, the Series A-1 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series C-1 Preferred Stock.
1.Dividends.
The Corporation shall not declare, pay or set aside any dividends (including, for the avoidance of doubt, any distributions) on shares of any other class or series of capital stock of the Corporation or securities convertible into or exercisable or exchangeable for capital stock (other than dividends on shares of Common Stock payable solely in the form of additional shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of Preferred Stock then outstanding shall, on a pari passu basis, first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series of capital stock that is convertible into Common Stock, that dividend per share of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series of capital stock had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of the applicable series of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series of
capital stock that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series of capital stock) and (B) multiplying such fraction by an amount equal to the applicable Original Issue Price (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Preferred Stock dividend. The "Original Issue Price" shall mean (A) with respect to the Series A Preferred Stock, $10.4832 per share, (B) with respect to the Series A-1 Preferred Stock, $32.7601 per share, (C) with respect to the Series B Preferred Stock, $66.8306 per share, (D) with respect to the Series C Preferred Stock, $193.88 per share and (E) with respect to the Series C-1 Preferred Stock, $236.15 per share, subject in each case to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such series of Preferred Stock.
2.Liquidation. Dissolution or Winding Up: Certain Mergers, Consolidations and Asset Sales.
2.1Preferential Payments to Holders of Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of each series of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, on a pari passu basis and before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) one times (1x) the Original Issue Price applicable to such series of Preferred Stock, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of such series of Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the "Preferred Liquidation Amount"). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
2.2Payments to Holders of Common Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.
2.3Deemed Liquidation Events.
2.3.1Definition. Each of the following events shall be considered a "Deemed Liquidation Event" unless the holders of the Preferred Stock elect otherwise by written notice sent to the Corporation at least ten (10) days prior to the effective date of any such event, which such election shall require the written consent of each of the following groups of stockholders (each, a "Preferred Voting Group"): (x) the holders of a majority of the outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock, voting together as a single class and on an as-converted basis, (y) the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class and on an as-converted basis, and (z) the holders of a majority of the outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock, voting together as a single class and on an as-converted basis (clauses (x), (y) and (z) together, a "Unanimous Class Consent"):
(a)a merger or consolidation in which
(i)the Corporation is a constituent party or
(ii)a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock or securities convertible into or exercisable or exchangeable for shares of the Corporation's capital stock pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly-owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation (provided that, for the purpose of this Subsection, all shares of Common Stock issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged);
(b)(x) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries or(y) an exclusive license by the Corporation or any subsidiary or subsidiaries of the Corporation that constitutes the effective disposition of all or substantially all of the Company Intellectual Property of the Corporation and its subsidiaries taken as a whole, in each case except where such sale, lease, transfer, exclusive license or other disposition is to a direct or indirect wholly owned subsidiary of the Corporation; or
(c)the sale, exchange or transfer by the Corporation's stockholders of shares of capital stock that represent at least a majority, by voting power, of the capital stock of the Corporation, in a single transaction or series of related transactions.
(d)For the purposes of this Subsection, "Company Intellectual Property" means all Intellectual Property owned by the Corporation or used (pursuant to perpetual and irrevocable licenses) by the Corporation in the conduct of the Corporation's business as now or hereafter conducted, where "Intellectual Property" means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, and tangible embodiments of any of the foregoing.
2.3.2Effecting a Deemed Liquidation Event.
(a)The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.3. 1(a)(i) unless the definitive agreement in connection therewith or plan of merger or consolidation for such transaction (the "Merger Agreement") provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2.
(b)In the event of a Deemed Liquidation Event referred to in Subsection 2.3.l(a)(ii) or 2.3.l(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the ninetieth (90th) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (ii) to require the redemption of such shares of Preferred Stock, and (ii) if the holders of the Preferred Stock, acting by means of a Requisite Preferred Holder Consent (as defined below), so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation (including the approval of at least two-thirds of the Preferred Directors)), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the "Available Proceeds"), on the one hundred fiftieth (150th) day after such Deemed Liquidation Event (such date, the "Redemption Date"), to redeem all outstanding shares of Preferred Stock at a price per share equal to the Preferred Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall ratably redeem each holder's shares of Preferred Stock (based on the relative amount payable to such holders in respect of such shares) to the fullest extent of such Available Proceeds, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders (with the date of the redemption being the Redemption Date in such instance). Prior to the distribution provided for in this Subsection 2.3.2(b), the Corporation shall not expend or dissipate the consideration received for such
Deemed Liquidation Event, except to discharge reasonable and documented expenses incurred by unaffiliated third party advisers in connection with such Deemed Liquidation Event.
(c)The Corporation shall send written notice of a redemption pursuant to Subsection 2.3.2(b) (the "Redemption Notice") to each holder of record of Preferred Stock not less than twenty (20) days prior to the Redemption Date. The Redemption Notice shall state:
(i)the number of shares of Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;
(ii)the Redemption Date and the price payable per share in such redemption (the "Redemption Price");
(iii)the date upon which the holder's right to convert such shares terminates (as determined in accordance with Subsection 4.1); and
(iv)for holders of shares in certificated form, that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Preferred Stock to be redeemed.
If the Corporation receives, on or prior to the twentieth (20th) day after the date of delivery of the Redemption Notice to a holder of Preferred Stock, written notice from such holder that such holder elects to be excluded from the redemption provided in this Section 2.3.2, then the shares of Preferred Stock registered on the books of the Corporation in the name of such holder at the time of the Corporation's receipt of such notice shall thereafter be "Excluded Shares." Excluded Shares shall not be redeemed or redeemable pursuant to this Section 2.3.2, whether on the Redemption Date or thereafter.
(d)On or before the Redemption Date, each holder of shares of Preferred Stock to be redeemed on the Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4, shall, if a holder of shares in certificated form, surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Preferred Stock represented by a certificate are redeemed, a new certificate, instrument, or book entry representing the unredeemed shares of Preferred Stock shall promptly be issued to such holder.
(e)If the Redemption Notice has been duly given, and if on the Redemption Date the Redemption Price payable upon redemption of the shares of Preferred Stock to be redeemed on the Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that any certificates evidencing any of the shares of Preferred Stock so called for redemption shall not
have been surrendered, dividends with respect to such shares of Preferred Stock (if applicable) shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of any such certificate or certificates therefor.
2.3.3Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation, including the affirmative vote or consent of at least two-thirds of the Preferred Directors.
2.3.4Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Subsection 2.3.l(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the "Additional Consideration"), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the "Initial Consideration") shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.3.4, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
3.Voting.
3.1General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of this Fifth Amended and Restated Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.
3.2Election of Directors. (i) The holders of record of the shares of Series A Preferred Stock and Series A-1 Preferred Stock, exclusively and voting together as a separate class (voting as a single class and not as separate series, and on an as-converted to Common Stock basis), shall be entitled to elect one (1) director of the Corporation (the "Series A Preferred Director"), (ii) the holders of record of the shares of Series B Preferred Stock, exclusively and as a separate class (voting as a single class and not as separate series, and on an as-converted to Common Stock basis), shall be entitled to elect one (1) director of the Corporation (the "Series B Preferred Director"), (iii) the holders of record of the shares of Series C Preferred Stock and Series C-1 Preferred Stock,
exclusively and as a separate class (voting as a single class and not as separate series, and on an as-converted to Common Stock basis), shall be entitled to elect one (1) director of the Corporation (the "Series C Preferred Director," and together with the Series A Preferred Director and Series B Preferred Director, the "Preferred Directors"), (iv) the holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation (the "Common Directors"), (v) the holders of record of the shares of Common Stock and shares of Preferred Stock (voting together as a single class and not as separate series, and on an as-converted to Common Stock basis), shall be entitled to elect two (2) directors of the Corporation (the "General Independent Directors"), and (vi) the holders of record of the Corporation's Series C-1 Preferred Stock, exclusively and voting together as a separate class (voting as a single class and not as a separate series, and on an as-converted to Common Stock basis), shall be entitled to elect one (1) director of the Corporation. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of (i) Series A Preferred Stock and Series A-1 Preferred Stock or (ii) Series B Preferred Stock or (iii) Series C Preferred Stock and/or Series C-1 Preferred Stock, or (iv) Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3.2, then any directorship not so filled shall remain vacant until such time as the holders of the (i) Series A Preferred Stock and Series A-1 Preferred Stock or (ii) Series B Preferred Stock or (iii) Series C Preferred Stock and/or Series C-1 Preferred Stock, or (iv) Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled other than by the stockholders and/or the directors of the Corporation that are entitled to elect a person to fill such directorship, voting as agreed between the stockholders. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series of capital stock entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2, a vacancy in any directorship filled by the holders of any class or series of capital stock shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series of capital stock or by any remaining director or directors elected by the holders of such class or series of capital stock pursuant to this Subsection 3.2. The rights of the holders of the Series A Preferred Stock and Series A-1 Preferred Stock under the first sentence of this Subsection 3.2 shall terminate on the first date following the Series C-1 Original Issue Date (as defined below) on which there are issued and outstanding less than 93,225 shares of Series A Preferred Stock and Series A-1 Preferred Stock collectively (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof). The rights of the holders of the Series B Preferred Stock under the first sentence of this Subsection 3.2 shall terminate on the first date following the Series C-1 Original Issue Date (as defined below) on which there are issued and outstanding less than 41,148 shares of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof). The rights of the holders of the Series C Preferred Stock and Series C-1 Preferred Stock under the first sentence of this Subsection 3.2 shall terminate on the first date following the Series C-1 Original Issue Date on which there are issued and outstanding less than 13,000 shares of Series C Preferred Stock and Series C-1 Preferred Stock collectively (subject to appropriate adjustment in the event of any stock dividend, stock split,
combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof). The rights of the Common Stock holders under the first sentence of this Subsection 3.2 shall terminate on the first date following the Series C-1 Original Issue Date on which Sjoerd Sjouwerman or, regarding the rights of the Common Stock holders related to the election of Common Directors only, Kevin Mitnick, as the case may be, (x) individually, and together with their respective Affiliates and Donees (each term as defined below), hold less than 423,459 shares of Common Stock of the Corporation (which number is subject to appropriate adjustment for all stock splits, dividends, combinations, recapitalizations and the like) or (y) cease to provide services to the Corporation as an employee, officer, or consultant.
For purposes of this Section 3.2, "Donees" shall mean the Sjouwerman Family Foundation to which Sjoerd Sjouwerman transfers for no consideration his shares of Common Stock, provided such transfer is in compliance with the terms of the legal requirements underlying any agreement entered into by the Corporation and Sjoerd Sjouwerman.
For purposes of this Section 3.2, an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity (collectively, a "Person") shall be deemed an "Affiliate" of another Person who, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation, any general partner, managing member, officer or director of such Person or any venture capital or private equity fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
3.3Preferred Stock Protective Provisions. Subject to the last two sentences of this Section 3.3, at any time when any shares of Preferred Stock are outstanding, the Corporation shall not take, and shall not cause or permit any subsidiary of the Corporation (the Corporation and its subsidiaries, each a "Company Party") to take, or commit to take, either directly or indirectly, by amendment, merger, consolidation or otherwise, any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) first receiving the Requisite Preferred Holder Consent (as defined below, and subject to the last sentence of this Subsection 3.3), and any such act or transaction entered into without such Requisite Preferred Holder Consent shall be null and void ab initio, and of no force or effect:
3.3.1except to the extent waived pursuant to Section 2.3.1, (i) effect any merger or consolidation or (ii) cause, permit or engage in any transaction that results in, or is reasonably expected to result in a Deemed Liquidation Event, or consent to any of the foregoing; provided that, in the case of either of foregoing clause (i) or (ii), a transaction in which the holders of the Preferred Stock receive less net cash proceeds per share than they would receive in a Qualified Sale (as defined below), shall require Unanimous Class Consent (a transaction, in which the holders of the Preferred Stock receive net cash proceeds per share equal to at least $236.15 (which amount shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof) at the first closing of such transaction shall be considered a "Qualified Sale");
3.3.2amend, alter, waive, terminate or repeal any provision of the Certificate of Incorporation, Bylaws of the Corporation, any other organizational or constituent document of any Company Party, including for the purpose of authorizing or issuing additional
shares of capital stock, in a manner that adversely affects the Preferred Stock (including any of its powers, preferences or rights of any series of);
3.3.3create, or authorize the creation of (in each case, by reclassification or otherwise), or issue or obligate itself to issue shares of, any additional class or series of capital stock or convertible debt (other than shares of capital stock issued in accordance with the terms of the Corporation's stock option plan (as approved by the Board of Directors of the Corporation, including the approval of at least two-thirds of the Preferred Directors));
3.3.4(i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Preferred Stock in respect of any such right, preference or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Preferred Stock in respect of any such right, preference or privilege;
3.3.5purchase or redeem or otherwise acquire (or pay into or set aside a sinking fund for such purpose) any shares of capital stock of any Company Party or securities convertible into or exercisable or exchangeable for capital stock or pay or declare any dividend or make any distribution on, any shares of capital stock or securities convertible into or exercisable or exchangeable for capital stock of any Company Party other than (i) redemptions of or dividends or distributions on the Preferred Stock as expressly authorized herein, (ii) redemptions or repurchases of shares of capital stock of a wholly-owned subsidiary of the Corporation held by the Corporation or held by another Company Party, and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for any Company Party in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;
3.3.6create, or hold capital stock or securities convertible into or exercisable or exchangeable for capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or sell, transfer or otherwise dispose of any capital stock or securities convertible into or exercisable or exchangeable for capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;
3.3.7create, or authorize the creation of, or issue, or authorize the issuance of any debt security or otherwise incur or authorize the incurrence of any indebtedness, or permit any subsidiary to take any such action with respect to any debt security or incurrence of indebtedness, if the aggregate indebtedness of the Corporation Parties for borrowed money following such action would exceed $20,000,000;
3.3.8increase or decrease the authorized number of directors constituting the Board of Directors (or similar governing body) of any Company Party (including modifying the authorized number of directors constituting the Board of Directors of the Corporation
from eight (8) directors) or make any change, amendment, modification or alteration to the method or means of selection or election of members of the Board of Directors (or similar governing body) of any Company Party;
3.3.9increase or decrease the total number of authorized shares of Common Stock or Preferred Stock or designated shares of any series of Preferred Stock;
3.3.10enter into, or materially amend or modify any agreement, transaction, commitment, or arrangement with any of its shareholders (excluding shareholders who own less than one percent of the Corporation's outstanding shares of Common Stock) or any affiliate, spouse or descendant of any such individual (an "Affiliate Transaction"), except as approved by the Board of Directors of the Corporation (including the approval of at least two thirds of the Preferred Directors), provided that if a holder of Preferred Stock is a party to, or directly and materially benefits in a manner different than the other Preferred Voting Groups, from any such Affiliate Transaction (an "Interested Stockholder"), then consent of each of the other Preferred Voting Groups, of which the Interested Stockholder does not form part of, to the Affiliate Transaction shall be required unless the Affiliate Transaction is an equity financing to which Section 4 of the Amended and Restated Investors' Rights Agreement among Corporation and the holders of Preferred Stock applies (as such agreement is in effect on the date of the original issuance of the Series C-1 Preferred Stock).
3.3.11purchase, acquire, invest in or obtain (whether by a purchase of assets, purchase of equity, merger, joint venture arrangement or otherwise) any assets or equity, capital stock or other ownership interest in any entity or business other than a pre-existing wholly owned subsidiary of the Corporation or enter into any joint venture arrangement or similar transactions, in each case for amounts or consideration (including the assumption or repayment of indebtedness) in excess of ten million dollars ($10,000,000) in any individual transaction or series of related transactions;
3.3.12effect any transfer, sale, lease, exclusive license or disposal by the Corporation or a subsidiary of any material assets (including any exclusive license of any material intellectual property rights of the Corporation) or equity, capital stock or other ownership interest in any Company Party, in each case, in any individual transaction or series of related transactions, having a book value or fair market value in excess of ten million dollars ($10,000,000);
3.3.13hire, terminate, establish or modify the compensation of (or pay amounts in excess of existing arrangements to) any executive officer of any Company Party, or materially amend any existing compensation plan or policy for executive officers of any Company Party, excluding any ordinary course annual increases in compensation or other changes in compensation or benefits that are approved by the Board of Directors of the Corporation (including the approval of at least two-thirds of the Preferred Directors);
3.3.14adopt, enter into, amend, or modify any employee equity plan, phantom equity plan, or other equity-based bonus plan; or
3.3.15enter into any agreement to do any of the foregoing actions.
The term "Requisite Preferred Holder Consent" shall mean the written consent or affirmative vote of any two of the three Preferred Voting Groups. Notwithstanding the foregoing provisions of this
Subsection 3.3, if at any time after the Series C-1 Original Issue Date the Minimum Ownership Condition is not satisfied with respect to a Preferred Voting Group, then a Requisite Preferred Holder Consent shall require the written consent of each of the Preferred Group Voting Group(s) for which the Minimum Ownership Condition continues to be satisfied. The "Minimum Ownership Condition" shall be (i) with respect to the holders of the Series A Preferred Stock and Series A-1 Preferred Stock, there are issued and outstanding less than 93,225 shares of Series A Preferred Stock and Series A-1 Preferred Stock collectively (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof), (ii) with respect to the holders of the Series B Preferred Stock, there are issued and outstanding less than 41,148 shares of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof) or (iii) with respect to the holders of the Series C Preferred Stock and Series C-1 Preferred Stock, there are issued and outstanding less than 13,000 shares of Series C Preferred Stock and Series C-1 Preferred Stock collectively (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock or any series thereof). If at any time the Minimum Ownership Condition is satisfied with respect to none of the Preferred Voting Groups, then the consent requirements of this Section 3.3 shall be of no further force and effect.
3.4Series A Preferred Protective Provisions. At any time when any shares of Series A Preferred Stock or Series A-1 Preferred Stock issued by the Corporation are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) voting together as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:
3.4.1amend, restate, alter, repeal, or otherwise modify any provision of this Fifth Amended and Restated Certificate of Incorporation or Bylaws of the Corporation or any other organizational or constituent document of the Corporation in a manner adverse to the Series A Preferred Stock and Series A-1 Preferred Stock; provided, however, that the creation and issuance of a new class of preferred stock of the Corporation with rights and preferences that are senior or pari passu to the Series A Preferred Stock and Series A-1 Preferred Stock (including without limitation rights that are senior or pari passu upon distributions or liquidation or with respect to voting or redemption) shall not be deemed adverse to the Series A Preferred Stock or Series A-1 Preferred Stock for this purpose so long as the rights, terms, and preferences of the new class of preferred stock (and any amendment to this Fifth Amended and Restated Certificate of Incorporation implementing the same) do not change or affect the rights, preferences, and limitations of the Series A Preferred Stock or Series A-1 Preferred Stock in a manner different to the Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock;
3.4.2increase the number of authorized or designated shares of Series A Preferred Stock or Series A-1 Preferred Stock; or
3.4.3liquidate, dissolve or wind-up the business and affairs of any Company Party, or consent to any of the foregoing (other than in connection with a Qualified Sale);
3.4.4authorize or implement a "pay-to-play" provision (or any other similar provision that requires participation in a financing (whether equity or debt) to (i) avoid mandatory conversion or any other adverse consequence (other than dilution and provided that the issuance of a security on terms different to the terms of a certain class of existing stock in such financing is not to be considered an adverse consequence) (ii) receive special treatment through a pull-through mechanism to the detriment of non-participants) (a "Pay-to-Play Provision"), if such Pay-to-Play Provision would apply to any series or class of capital stock of the Corporation; or
3.4.5except to the extent approved by all of the Preferred Directors, (i) effect any material change in the nature or scope of the business of the Corporation and its subsidiaries (taken as a whole), (ii) effect any material change in the line of business conducted by the Corporation and its subsidiaries (taken as a whole), or (iii) enter into any new lines of business (whether through organic growth or through acquisitions) that would have any of the effects described in foregoing clauses (i) or (ii), or consent to do any of the foregoing.
3.5Series B Preferred Protective Provisions. At any time when any shares of Series B Preferred Stock issued by the Corporation are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:
3.5.1amend, restate, alter, repeal, or otherwise modify any provision of this Fifth Amended and Restated Certificate of Incorporation or Bylaws of the Corporation or any other organizational or constituent document of the Corporation in a manner adverse to the Series B Preferred Stock: provided, however, that the creation and issuance of a new class of preferred stock of the Corporation with rights and preferences that are senior or pari passu to the Series B Preferred Stock (including without limitation rights that are senior or pari passu upon distributions or liquidation or with respect to voting or redemption) shall not be deemed adverse to the Series B Preferred Stock for this purpose so long as the rights, terms, and preferences of the new class of preferred stock (and any amendment to this Fifth Amended and Restated Certificate of Incorporation implementing the same) do not change or affect the rights, preferences, and limitations of the Series B Preferred Stock in a manner different to the Series A Preferred Stock, Series A-1 Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock;
3.5.2increase the number of authorized or designated shares of Series B Preferred Stock; or
3.5.3liquidate, dissolve or wind-up the business and affairs of any Company Party, or consent to any of the foregoing (other than in connection with a Qualified Sale);
3.5.4authorize or implement a Pay-to-Play Provision, if such Pay to-Play Provision would apply to any series or class of capital stock of the Corporation; or
3.5.5except to the extent approved by all of the Preferred Directors, (i) effect any material change in the nature or scope of the business of the Corporation and its subsidiaries (taken as a whole), (ii) effect any material change in the line of business conducted by the Corporation and its subsidiaries (taken as a whole), or (iii) enter into any new lines of business (whether through organic growth or through acquisitions) that would have any of the effects described in foregoing clauses (i) or (ii), or consent to do any of the foregoing.
3.6Series C Preferred Protective Provisions. At any time when any shares of Series C Preferred Stock or Series C-1 Preferred Stock issued by the Corporation are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect;
3.6.1amend, restate, alter, repeal, or otherwise modify any provision of this Fifth Amended and Restated Certificate of Incorporation or Bylaws of the Corporation or any other organizational or constituent document of the Corporation in a manner adverse to the Series C Preferred Stock or Series C-1 Preferred Stock: provided, however, that the creation and issuance of a new class of preferred stock of the Corporation with rights and preferences that are senior or pari passu to the Series C Preferred Stock and Series C-1 Preferred Stock (including without limitation rights that are senior or pari passu upon distributions or liquidation or with respect to voting or redemption) shall not be deemed adverse to the Series C Preferred Stock or Series C-1 Preferred Stock for this purpose so long as the rights, terms, and preferences of the new class of preferred stock (and any amendment to this Fifth Amended and Restated Certificate of Incorporation implementing the same) do not change or affect the rights, preferences, and limitations of the Series C Preferred Stock or Series C-1 Preferred Stock in a manner different to the Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock;
3.6.2 increase the number of authorized or designated shares of Series C Preferred Stock or Series C-1 Preferred Stock; or
3.6.3liquidate, dissolve or wind-up the business and affairs of any Company Party, or consent to any of the foregoing (other than in connection with a Qualified Sale);
3.6.4authorize or implement a Pay-to-Play Provision, if such Pay to-Play Provision would apply to any series or class of capital stock of the Corporation; or
3.6.5except to the extent approved by all of the Preferred Directors, (i) effect any material change in the nature or scope of the business of the Corporation and its subsidiaries (taken as a whole), (ii) effect any material change in the line of business conducted by the Corporation and its subsidiaries (taken as a whole), or (iii) enter into any new lines of business (whether through organic growth or through acquisitions) that would have any of the effects described in foregoing clauses (i) or (ii), or consent to do any of the foregoing.
4.Optional Conversion.
The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
4.1Right to Convert.
4.1.1Conversion Ratio. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non assessable shares of Common Stock as is determined by dividing the Original Issue Price applicable to such series of Preferred Stock by the applicable Conversion Price (as defined below) in effect at the time of conversion. The "Conversion Price" shall initially be equal to (A) with respect to the Series A Preferred Stock, $10.4832, (B) with respect to the Series A-1 Preferred Stock, $32.7601, (C) with respect to the Series B Preferred Stock, $66.8306, (D) with respect to the Series C Preferred Stock, $193.88, and (E) with respect to the Series C-1 Preferred Stock, $236.15. Such initial Conversion Price, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
4.1.2Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.
4.2Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3Mechanics of Conversion.
4.3.1Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation's transfer agent at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder's shares of Preferred Stock and, if applicable, any event on which such conversion is contingent and (b), if such holder's shares are certificated, surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder's name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the "Conversion Time"), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.
4.3.2Reservation of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing an applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the applicable series of Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.
4.3.3Effect of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
4.3.4No Further Adjustment. Upon any such conversion, no adjustment to an applicable Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock
upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4Adjustments to Preferred Stock Conversion Price for Diluting Issues.
4.4.1Special Definitions. For purposes of this Article Four, the following definitions shall apply:
(a)"Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Series C-1 Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, "Exempted Securities"):
(i)shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;
(ii)shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4.5, 4.6, 4.7 or 4.8;
(iii)shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation, including the affirmative vote or consent of at least two-thirds of the Preferred Directors;
(iv)shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;
(v)shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction that is not primarily for equity financing purposes and is approved by the Board of Directors of the Corporation, including the affirmative vote or consent of at least two-thirds of the Preferred Directors;
(vi)shares of Common Stock, Options or Convertible Securities issued to suppliers, third party service providers or to individuals or entities with which the Corporation has a business relationship in connection with the provision of goods or services pursuant to transactions that are not primarily for equity financing purposes and are approved by the Board of Directors of the Corporation, including the affirmative vote or consent of at least two-thirds of the Preferred Directors;
(vii)shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided, that such issuances are approved by the Board of Directors of the Corporation, including the affirmative vote or consent of at least two-thirds of the Preferred Directors; or
(viii)shares of Common Stock issued m connection with a Qualified IPO (as defined below).
(b)"Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(c)"Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(d)"Series C-1 Original Issue Date" shall mean the date on which the first share of Series C-1 Preferred Stock was issued.
4.4.2No Adjustment of Conversion Price. No adjustment in the Conversion Price applicable to a series of Preferred Stock shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from holders representing a majority of the outstanding shares of such series of Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3Deemed Issue of Additional Shares of Common Stock.
(a)If the Corporation at any time or from time to time after the Series C-1 Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b)If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing a Conversion Price to an amount which exceeds the lower of (i) the applicable Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(c)If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series C-1 Original Issue Date), are revised after the Series C-1 Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d)Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4, the applicable Conversion Price shall be
readjusted to such Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e)If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the applicable Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the applicable Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the applicable Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series C-1 Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3), without consideration or for a consideration per share less than the Conversion Price applicable to a series of Preferred Stock in effect immediately prior to such issue, then the applicable Conversion Price for such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP2 = CP1* (A+ B) ÷ (A+ C).
For purposes of the foregoing formula, the following definitions shall apply:
(a)"CP2" shall mean the applicable Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(b)"CP1" shall mean the applicable Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(c)"A" shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
(d)"B" shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at
a price per share equal to CP1 ( determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and
(e)"C" shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5Determination of Consideration. For purposes of this Subsection 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a)Cash and Property: Such consideration shall:
(i)insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii)insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation (including the approval of at least two-thirds of the Preferred Directors); and
(iii)in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation (including the approval of at least two-thirds of the Preferred Directors).
(b)Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
4.4.6Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or
a series of related transactions and that would result in an adjustment to a Conversion Price pursuant to the terms of Subsection 4.4.4, and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, such Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series C-1 Original Issue Date effect a subdivision of the outstanding Common Stock, each Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series C-1 Original Issue Date combine the outstanding shares of Common Stock, each Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this Subsection 4.5 shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C-1 Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event each Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Conversion Price then in effect by a fraction:
(1)the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2)the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, each Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter each Conversion Price shall be adjusted pursuant to this Subsection 4.6 as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
4.7Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C-1 Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
4.8Adjustment for Merger or Reorganization, etc. Subject to the prov1s1ons of Subsection 2.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation (including the approval of at least two-thirds of the Preferred Directors)) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of a Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock. For the avoidance of doubt, nothing in this Subsection 4.8 shall be construed as preventing the holders of Preferred Stock from seeking any appraisal rights to which they are otherwise entitled under the DGCL in connection with a merger triggering an adjustment hereunder, nor shall this Subsection 4.8 be deemed conclusive evidence of the fair value of the shares of Preferred Stock in any such appraisal proceeding.
4.9Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of an applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the
amount, if any, of other securities, cash or property which then would be received upon the conversion of Preferred Stock.
4.10Notice of Record Date. In the event:
(a)the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b)of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c)of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.
5.Mandatory Conversion.
5.1Trigger Events.
(a)All outstanding shares of Preferred Stock, other than Series C-1 Preferred Stock, shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant to Section 4, upon the closing of the sale of shares of Common Stock to the public at a price per share (such price, the "IPO Value") equal to or greater than one times (1.0x) the Original Issue Price per share applicable to the Series C Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock) in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $100 million of net proceeds to the Corporation, after which the Common Stock is listed on The New York Stock Exchange, the Nasdaq Stock Market, the London Stock Exchange Main Market, or another exchange approved by Unanimous Class Consent (a "Qualified IPO");
(b)All outstanding shares of Series C-1 Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant to Section 4, upon the closing of a Qualified IPO with an IPO Value equal to or greater than one and a half # times (l.5x) the Original Issue Price per share applicable to the Series
C-1 Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock) (the "Target Price").
(c)Notwithstanding the foregoing Section 5.l(b), in the event that a majority of the Disinterested Directors approve the sale of shares of Common Stock to the public in a Qualified IPO at an IPO Value that is less than the Target Price but equal to or greater than one and a quarter times (l.25x) the Original Issue Price per share applicable to the Series C-1 Preferred Stock (subject, in each case, to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock), then upon the closing of such sale, each outstanding share of Series C-1 Preferred Stock shall automatically be converted into a number of shares of Common Stock equal to (A) the number of shares of Common Stock issuable on conversion of such share of Series C-1 Preferred Stock pursuant to the conversion rate in Section 4 (without taking into account any adjustment pursuant to Section 5.1(c)(B)), plus (B) an additional number of shares of Common Stock equal to (x) the difference between the Target Price and the IPO Value, divided by (y) the IPO Value;
(d)All outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant to Section 4, at the date and time, or the occurrence of an event, specified by a Unanimous Class Consent (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the "Mandatory Conversion Time");
provided that, in the case of Subsections 5.l(a), 5.l(b), 5.l(c) and 5.l(d), any such shares of Preferred Stock may not be reissued by the Corporation.
For purposes hereof, the term "Disinterested Director" means the Series B Director, the Common Directors and the General Independent Directors.
5.2Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Subsection 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2. As soon as
practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for the Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
6.Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.
7.Waiver. Any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of Preferred Stock upon the Corporation's receipt of the Requisite Preferred Holder Consent, except for any matter for which (i) a Unanimous Class Consent is otherwise specifically required by another section of this Fifth Amended and Restated Certificate of Incorporation (in which case a waiver shall require a Unanimous Class Consent), or (ii) the consent of a Preferred Voting Group is otherwise required by another section of this Fifth Amended and Restated Certificate of Incorporation (including, without limitation, the matters set out in Section 3.4, Section 3.5 and Section 3.6) (in which case a waiver by the relevant Preferred Voting Group shall be required).
8.Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH: Subject to any additional vote required by the Certificate of Incorporation or Bylaws of the Corporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
SIXTH: Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors of the Corporation or in the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.
Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.
ELEVENTH: The Corporation, on behalf of itself and its Affiliates, renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation or such Affiliates in, or in being offered an opportunity to participate in, any Excluded Opportunity. An "Excluded Opportunity" is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, officer, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, "Covered Persons"), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person's capacity as a director of the Corporation. Any repeal or modification of this Article Eleventh shall only be prospective and shall not affect the rights under this Article Eleventh in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability. Notwithstanding anything to the contrary contained elsewhere in this Fifth Amended and Restated Certificate of Incorporation, a Unanimous Class Consent shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article Eleventh.
* * *
3.That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.
4.That this Fifth Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation's Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
[Signature Page Follows]
IN WITNESS WHEREOF, this Fifth Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 1st day of July, 2019.
|
|
|
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman
|
|
Name: Sjoerd Sjouwerman
|
|
Title: President
|
Signature Page to Fifth Amended and Restated Certificate of Incorporation
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KNOWBE4, INC.
KnowBe4, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify as follows:
(1) The name of the Corporation is KnowBe4, Inc. The original Certificate of Incorporation of the Corporation was filed with the office of the Secretary of State of Delaware on January 19, 2016, upon its conversion from a Delaware limited liability company originally formed on August 10, 2010 under the name SEQRIT, LLC.
(2) This Amended and Restated Certificate of Incorporation (this “Certificate of Incorporation”) was duly adopted by the Board of Directors of the Corporation (the “Board of Directors”) and by the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of the DGCL.
(3) The text of the Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows:
ARTICLE I
The name of the Corporation is KnowBe4, Inc.
ARTICLE II
The name and address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
A.Authorized Capital Stock. The Corporation shall be authorized to issue 1,600,000,000 shares of capital stock, of which (i) 1,000,000,000 shares shall be shares of Class A Common Stock, $0.00001 par value (the “Class A Common Stock”), (ii) 500,000,000 shares shall be shares of Class B Common Stock, $0.00001 par value (the “Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”), and (iii) 100,000,000 shares shall be shares of Preferred Stock, $0.00001 par value (the “Preferred Stock”).
Immediately upon the acceptance of this Certificate of Incorporation for filing by the Secretary of State of the State of Delaware (the “Effective Time”), each share of the Corporation’s capital stock
issued and outstanding or held as treasury stock immediately prior to the Effective Time (the “Old Stock”), shall, automatically and without further action by any stockholder, be reclassified as, and shall become, one share of Class B Common Stock (the “Reclassification”). Each certificate that immediately prior to the Effective Time represented shares of Old Stock shall, until surrendered to the Corporation in exchange for a certificate representing Class B Common Stock, automatically represent that number of shares of Class B Common Stock into which such shares of Old Stock were reclassified in the Reclassification.
B.Preferred Stock. The Board of Directors is hereby expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series the number of shares thereof, such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote thereon, without a separate class vote of the holders of Preferred Stock, or any separate series votes of any series thereof, unless a vote of any such holders is required pursuant to the terms of the Preferred Stock.
C.Rights of Class A Common Stock and Class B Common Stock. The relative powers, rights, qualifications, limitations and restrictions granted to or imposed on each share of Class A Common Stock and Class B Common Stock are as follows:
(1)Identical Rights. Except as expressly provided herein, or required under applicable law, shares of the Class A Common Stock and Class B Common Stock shall have the same rights and privileges and rank equally, share ratably and be identical in all respects as to all matters. The number of authorized shares of Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the DGCL.
(2)Voting Rights.
(a)General Voting Rights. Except as otherwise expressly provided herein, or required by applicable law, the holders of Class A Common Stock and Class B Common Stock shall vote together as one class on all matters submitted to a vote of the stockholders.
(b)Votes Per Share. Except as otherwise expressly provided herein, or required by applicable law, on any matter that is submitted to a vote of
the stockholders, each holder of Class A Common Stock shall be entitled to one (1) vote for each such share outstanding as of the applicable record date, and each holder of Class B Common Stock shall be entitled to ten (10) votes for each such share outstanding as of the applicable record date.
(c)Except as otherwise required by law or provided herein, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).
(3)Dividends and Distributions. The holders of the Class A Common Stock and Class B Common Stock shall be entitled to receive an equal amount of dividends or distributions per share if, as and when declared from time to time by the Board of Directors, unless different treatment of shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class, provided that, in the event of a dividend or distribution of Common Stock, shares of Class B Common Stock shall only be entitled to receive shares of Class B Common Stock and shares of Class A Common Stock shall only be entitled to receive shares of Class A Common Stock.
(4)Treatment in a Change of Control or any Merger Transaction. In connection with any Change of Control Transaction, shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any consideration into which such shares are converted or any consideration paid or otherwise distributed to stockholders of the Corporation, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class; provided, however, that, for the avoidance of doubt, consideration to be paid or received by a holder of Class A Common Stock or Class B Common Stock pursuant to any employment, consulting, severance or similar type of agreement shall not be deemed to be a distribution to stockholders for the purposes of this section. Any merger or consolidation of the Corporation with or into any other entity that is not a Change of Control Transaction shall require approval by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class, unless (i) the shares of Class A Common Stock and Class B Common Stock remain outstanding and no other consideration is received in respect thereof or (ii) such shares are converted on a pro rata basis into shares of the surviving or parent entity in such transaction having identical rights to the shares of Class A Common Stock and Class B Common Stock, respectively.
(5)Subdivision or Combination. If the Corporation in any manner subdivides or combines the outstanding shares of Class A Common Stock or Class B Common Stock, the outstanding shares of the other such class will concurrently therewith be proportionately subdivided or combined in a
manner that maintains the same proportionate equity ownership between the holders of the outstanding Class A Common Stock and the holders of the outstanding Class B Common Stock on the record date for such subdivision or combination, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, each voting separately as a class.
(6)Liquidation, Dissolution or Distribution. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, holders of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, and be entitled to receive an equal amount per share of all the assets of the Corporation of whatever kind available for distribution to holders of Common Stock, after the rights of the holders of the Preferred Stock have been satisfied.
(7)Redemption. Neither the Class A Common Stock nor the Class B Common Stock is redeemable.
D.Definitions. For purposes of this ARTICLE IV:
(1)“Change of Control Transaction” means (i) the sale, lease, exchange, or other disposition (other than liens and encumbrances created in the ordinary course of business, including liens or encumbrances to secure indebtedness for borrowed money that are approved by the Board of Directors, so long as no foreclosure occurs in respect of any such lien or encumbrance) of all or substantially all of the Corporation’s property and assets (which shall for such purpose include the property and assets of any direct or indirect subsidiary of the Corporation), provided that any sale, lease, exchange or other disposition of property or assets exclusively between or among the Corporation and any direct or indirect subsidiary or subsidiaries of the Corporation shall not be deemed a “Change of Control Transaction”; (ii) the merger, consolidation, business combination or other similar transaction of the Corporation with any other entity, other than a merger, consolidation, business combination or other similar transaction that would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) more than fifty percent (50%) of the total voting power of the Corporation or surviving entity or its parent and more than fifty percent (50%) of the total number of outstanding shares of the Corporation’s capital stock or the capital stock of the surviving entity or its parent, in each case as outstanding immediately after such merger, consolidation, business combination or other similar transaction, and the stockholders of the Corporation immediately prior to the merger, consolidation, business combination, or other similar transaction owning voting securities of the Corporation, the surviving entity or its parent immediately following the merger, consolidation, business combination or other similar transaction in substantially the same proportions (vis a vis each other) as such stockholders owned the voting securities of the Corporation immediately prior to the transaction; and (iii) a recapitalization, liquidation, dissolution or other similar transaction involving the Corporation, other than a recapitalization, liquidation, dissolution, or other similar transaction that would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity or its parent) more than fifty percent (50%) of the total voting power of the Corporation or surviving entity or its parent and more than fifty percent (50%) of the total number of outstanding shares of the Corporation’s capital stock or surviving entity or its parent, in each case as outstanding immediately after such recapitalization, liquidation, dissolution or other similar transaction, and the stockholders of the Corporation immediately prior to the recapitalization, liquidation, dissolution or other similar transaction owning voting securities
of the Corporation, the surviving entity or its parent immediately following the recapitalization, liquidation, dissolution or other similar transaction in substantially the same proportions (vis a vis each other) as such stockholders owned the voting securities of the Corporation immediately prior to the transaction.
ARTICLE V
A.Voluntary Conversion of Class B Common Stock. Each one (1) share of Class B Common Stock shall be convertible into one (1) fully paid and nonassessable share of Class A Common Stock at the option of the holder thereof at any time upon written notice to the transfer agent of the Corporation, or upon the happening of a future event specified in such notice.
B.Automatic Conversion of Class B Common Stock. Each share of Class B Common Stock shall automatically, without any further action by the Corporation or the holder thereof, be converted into one (1) fully paid and nonassessable share of Class A Common Stock upon the occurrence of (i) a Transfer other than a Permitted Transfer, of such share of Class B Common Stock, or (ii) the affirmative vote or, if later, at the time of the happening of a future event specified in such vote, of the holders of Class B Common Stock representing not less than sixty-six and two-thirds percent (66-2/3%) of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class.
C.Conversion Upon Death or Disability. Each share of Class B Common Stock held of record by a holder of Class B Common Stock who is a natural person, or by such holder of Class B Common Stock’s Permitted Transferees, shall automatically, without any further action, convert into one (1) fully paid and nonassessable share of Class A Common Stock upon the death or Disability of such holder of Class B Common Stock.
D.Final Conversion of Class B Common Stock. Each share of Class B Common Stock shall automatically, without any further action by the Corporation or the holder thereof, convert into one (1) fully paid and nonassessable share of Class A Common Stock at 5:00 p.m. in New York City, New York on the first Trading Day falling on or after the fifth year anniversary of the Effective Time (the “Final Conversion Date”). Following such conversion, the reissuance of all shares of Class B Common Stock shall be prohibited, and such shares shall be retired and cancelled in accordance with Section 243 of the DGCL and the filing of the certificate with the Secretary of State of the State of Delaware required thereby, and upon the effectiveness of such certificate, if the retired shares constitute all of the authorized shares of the Class B Common Stock, the certificate shall have the effect of eliminating all references to the Class B Common Stock in this Certificate of Incorporation. Upon conversion of Class B Common Stock into Class A Common Stock on the Final Conversion Date, all rights of holders of shares of Class B Common Stock with respect to such shares shall cease and (a) if such shares are certificated, the person or persons in whose name or names the certificate or certificates representing the shares of Class A Common Stock are to be issued or (b) if such shares are not certificated, the person registered as the owner of such shares in book-entry form shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock.
E.Policies and Procedures. The Corporation may, from time to time, establish such policies and procedures, not in violation of applicable law or this Certificate of Incorporation or the Amended and Restated Bylaws of the Corporation (the “Bylaws”), relating to the conversion of shares of the Class B Common Stock into shares of Class A Common Stock as it may deem necessary or advisable. If the Corporation has reason to believe that a Transfer that is not a Permitted Transfer has occurred, the Corporation may request that the purported transferor furnish affidavits or other evidence to the
Corporation as it reasonably deems necessary to determine whether a Transfer that is not a Permitted Transfer has occurred, and if such transferor does not within ten (10) days after the date of such request furnish sufficient (as determined by the Board of Directors, which determination shall be conclusive and binding) evidence to the Corporation (in the manner provided in the request) to enable the Corporation to determine that no such Transfer has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically converted into shares of Class A Common Stock and such conversion shall thereupon be registered on the books and records of the Corporation. A determination by the Corporation as to whether or not a conversion of Class B Common Stock into Class A Common Stock has occurred, or whether or not a Transfer has occurred resulting in such conversion, shall be conclusive and binding.
F.Definitions. For purposes of this ARTICLE V:
(1)“Disability” means permanent and total disability such that the natural person holder of Class B Common Stock is unable to engage in any substantial gainful activity by reason of any medically determinable mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months as determined by a licensed medical practitioner. In the event of a dispute whether the natural-person holder of Class B Common Stock has suffered a Disability, no Disability of the natural person holder of Class B Common Stock shall be deemed to have occurred unless and until an affirmative ruling regarding such Disability has been made by a court of competent jurisdiction, and such ruling has become final and nonappealable.
(2)“IPO Date” means the date the Class A Common Stock is first publicly traded.
(3) “Permitted Entity” means, with respect to Mr. Sjoerd Sjouwerman (the “Founder”), any trust, account, plan, corporation, partnership, limited liability company or charitable organization, foundation or similar entity specified in ARTICLE V, Section F(4)(b)-(f) with respect to the Founder, so long as such Permitted Entity meets the requirements of the exception set forth in ARTICLE V, Section F(4) applicable to such Permitted Entity.
(4)“Permitted Transfer” means a Transfer by a holder of Class B Common Stock to any of the persons or entities listed in clauses (a) through (f) below (each, a “Permitted Transferee”) and from any such Permitted Transferee back to such holder of Class B Common Stock and/or any other Permitted Transferee established by or for such holder of Class B Common Stock:
(a)the Founder’s Permitted Entities, the Founder’s estate as a result of the Founder’s death or the Founder individually;
(b)any Qualified Charity, foundation or similar entity established by a holder of Class B Common Stock so long as the holder of Class B Common Stock has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such entity; provided such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such entity) to the holder of Class B Common Stock; provided, further, that in the event such holder of Class B Common Stock no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such entity, each share of Class B Common Stock then held by such entity shall automatically
convert into one (1) fully paid and nonassessable share of Class A Common Stock;
(c)a trust for the benefit of such holder of Class B Common Stock or persons other than the holder of Class B Common Stock so long as the holder of Class B Common Stock has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust; provided such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such trust) to the holder of Class B Common Stock; provided, further, that in the event such holder of Class B Common Stock no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust, each share of Class B Common Stock then held by such trust shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock;
(d)a trust under the terms of which such holder of Class B Common Stock has retained a “qualified interest” within the meaning of §2702(b)(1) of the Internal Revenue Code and/or a reversionary interest so long as the holder of Class B Common Stock has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust; provided that in the event such holder of Class B Common Stock no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust, each share of Class B Common Stock then held by such trust shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock;
(e)an Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or a pension, profit sharing, stock bonus or other type of plan or trust of which such holder of Class B Common Stock is a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code so long as the holder of Class B Common Stock has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held in such account, plan or trust; provided that in the event such holder of Class B Common Stock no longer has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such account, plan or trust, each share of Class B Common Stock then held by such account, plan or trust shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock; or
(f)any Affiliate of such holder of Class B Common Stock; provided that in the event the holder of Class B Common Stock ceases, for any reason, to be an Affiliate of such Permitted Transferee, each share of Class B Common Stock then held by such Permitted Transferee shall
automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock.
For the avoidance of doubt, to the extent any shares are deemed to be held by a trustee of a trust described in (a) through (f) above, the Transfer shall be a Permitted Transfer and the trustee shall be deemed a Permitted Transferee so long as the other requirements of (a) through (f) above, as applicable, are otherwise satisfied.
(5)“Qualified Charity” means a domestic U.S. charitable organization, contributions to which are deductible for federal income, estate, gift and generation skipping transfer tax purposes.
(6)“Qualified Stockholder” means (i) any registered holder of a share of Class B Common Stock immediately after the IPO Date and (ii) a Permitted Transferee.
(7)“Rights” means any option, warrant, conversion right or contractual right of any kind to acquire shares of the Corporation’s authorized but unissued capital stock.
(8) “Voting Control” means with respect to a share of capital stock or other security, the power (whether exclusive or shared) to vote or direct the voting of such security including by proxy, voting agreement, or otherwise.
(9)“Trading Day” means any day on which the Nasdaq Global Select Market, or any other registered national securities exchange on which the Corporation’s equity securities are then principally listed or traded or any successor exchange, is open for trading.
(10)“Transfer” of a share of Class B Common Stock means, directly or indirectly, any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law (including by merger, consolidation or otherwise), including, without limitation, a transfer of a share of Class B Common Stock to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership), or the transfer of, or entering into a binding agreement with respect to, Voting Control (as defined below) over such share by proxy or otherwise. A “Transfer” will also be deemed to have occurred with respect to all shares of Class B Common Stock beneficially held by any entity that is a Qualified Stockholder if after the IPO Date there is a Transfer of the voting power of the voting securities of such entity or any direct or indirect parent of such entity, such that the previous holders of such voting power no longer retain sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such entity. Notwithstanding the foregoing, the following shall not be considered a “Transfer”:
(a)the grant of a proxy to officers or directors of the Corporation at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;
(b)the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction for so long as such stockholder continues to exercise Voting Control over such pledged shares; provided, however, that a foreclosure on such shares or other
similar action by the pledgee shall constitute a Transfer unless such foreclosure or similar action qualifies as a Permitted Transfer;
(c)entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with stockholders who are holders of Class B Common Stock that (A) is disclosed either in a Schedule 13D filed with the Securities and Exchange Commission or in writing to the Secretary of the Corporation, (B) either has a term not exceeding one (1) year or is terminable by the holder of the shares subject thereto at any time and (C) does not involve any payment of cash, securities, property or other consideration to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner;
(d)the issuance by the Corporation of any shares of Class B Common Stock pursuant to the exercise of options, warrants, securities or rights that are exercisable or exchangeable for, or convertible into, Class B Common Stock; or
(e)entering into a trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with a broker or other nominee; provided, however, that a sale of such shares of Class B Common Stock pursuant to such plan shall constitute a “Transfer” at the time of such sale;
(f)any entry by any holder of shares of Class B Common Stock into a support, voting, tender or similar agreement, arrangement or understanding (with or without granting a proxy) in connection with a Change of Control Transaction or other proposal approved by the Board of Directors or consummating the actions or transactions contemplated therein (including, without limitation, tendering shares of Class B Common Stock or voting such shares in connection with a Change of Control Transaction or such other proposal, the consummation of a Change of Control Transaction or such other proposal or the sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of shares of Class B Common Stock or any legal or beneficial interest in shares of Class B Common Stock in connection with a Change of Control Transaction or such other proposal); provided that such Change of Control Transaction or such other proposal was approved by the Board of Directors; or
(g)the fact that the spouse of any holder of Class B Common Stock possesses or obtains an interest in such holder’s shares of Class B Common Stock arising solely by reason of the application of the community property laws of any jurisdiction, so long as no other event or circumstance shall exist or have occurred that constitutes a “Transfer” of such shares of Class B Common Stock; provided that any transfer of shares by any holder of Class B Common Stock to such holder’s spouse for any reason, including a transfer in connection with a divorce
proceeding, domestic relations order or similar legal requirement, shall constitute a “Transfer” of such shares of Class B Common Stock.
G.Reservation of Stock. The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of Class B Common Stock, such number of shares of Class A Common Stock as will from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock into shares of Class A Common Stock.
H.No Further Issuances. Except for the issuance of Class B Common Stock issuable upon exercise of Rights outstanding at the Effective Time or a dividend payable in accordance with ARTICLE IV, Section C(3), the Corporation shall not at any time after the Effective Time issue any additional shares of Class B Common Stock, unless such issuance is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock, voting separately as a single class. After the Final Conversion Date, the Corporation shall not issue any additional shares of Class B Common Stock.
ARTICLE VI
Subject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
ARTICLE VII
A.General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
B.Number of Directors. The Board of Directors shall consist of that number of members as shall be fixed from time to time by resolution of the Board of Directors.
C.Classified Board Structure; Election of Directors. The Board of Directors shall be and is divided into three (3) classes, as nearly equal in number as possible, designated: Class I, Class II and Class III. In case of any increase or decrease, from time to time, in the number of directors, the number of directors in each class shall be apportioned to be as nearly equal as possible. No decrease in the number of directors shall shorten the term of any incumbent director. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided that each director initially appointed to Class I shall serve for a term initially expiring at the Corporation’s annual meeting of stockholders held in 2022; each director initially appointed to Class II shall serve for a term initially expiring at the Corporation’s annual meeting of stockholders held in 2023; and each director initially appointed to Class III shall serve for a term initially expiring at the Corporation’s annual meeting of stockholders held in 2024; provided, further, that the term of each director shall continue until the election and qualification of his or her successor and be subject to his or her earlier death, resignation or removal.
D.Vacancies. Subject to applicable law and the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized
number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and not by stockholders. Directors so chosen shall hold office until the next election of the class for which such director shall have been chosen and until such director’s successor shall have been duly elected and qualified.
E.Removal. Subject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the voting power of the shares of the Corporation entitled to vote in the election of directors, represented in person or by proxy at a meeting for the election of directors duly called pursuant to the Bylaws.
F.In addition to the powers and authority herein or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, this Certificate of Incorporation and the Bylaws; provided, however, that no Bylaws hereafter adopted shall invalidate any prior act of the directors that would have been valid if such Bylaws had not been adopted.
ARTICLE VIII
A.Special Meetings of Stockholders. Except as otherwise required by law, special meetings of the stockholders may be called only by (i) an officer of the Corporation pursuant to a resolution adopted by the Board of Directors; (ii) the Chairperson of the Board of Directors; (iii) the chief executive officer of the Corporation; or (iv) the president of the Corporation (in the absence of a chief executive officer).
B.Cumulative Voting. No stockholder of the Corporation shall be entitled to exercise any right of cumulative voting.
ARTICLE IX
To the fullest extent authorized by the DGCL, as it presently exists or may hereafter be amended or modified from time to time, no director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended. If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal, modification or elimination of this ARTICLE IX shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal, modification or elimination with respect to acts or omissions occurring prior to such repeal, modification or elimination.
Subject to any provisions of the Bylaws related to indemnification, the Corporation may indemnify, to the fullest extent permitted by applicable law, any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any proceeding mentioned in this ARTICLE IX.
ARTICLE X
In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Bylaws. The affirmative vote of at least a majority of the total number of directors whether or not there exist any vacancies or unfilled seats in previously authorized directorships on the Board of Directors shall be required to adopt, amend, alter or repeal the Bylaws.
ARTICLE XI
Except as provided in ARTICLE IX above, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision of this Certificate of Incorporation inconsistent with, ARTICLES IV, V, VI, VII, VIII, IX, X, XI and XII.
ARTICLE XII
A.The Corporation hereby expressly elects not to be governed by Section 203 of the DGCL.
B.Notwithstanding the foregoing, the Corporation shall not, following the date of closing of the initial public offering of the Class A Common Stock, at which time the Class A Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, engage in any business combination with any interested stockholder for a period of three (3) years following the time that such stockholder became an interested stockholder, unless:
(1)prior to such time, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, or
(2)upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (a) by persons who are directors and also officers of the Corporation and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or
(3)at or subsequent to such time, the business combination is approved by the Board of Directors and authorized or approved at an annual or special meeting of stockholders (or by written consent, if action by written consent is not then prohibited by this Certificate of Incorporation) by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the then outstanding voting stock of the Corporation that is not owned by the interested stockholder.
Notwithstanding the foregoing, the restrictions contained in this ARTICLE XII shall not apply if the business combination is with an interested stockholder who became an interested stockholder at a time when the restrictions contained in this ARTICLE XII did not apply.
C.For purposes of this ARTICLE XII, references to:
(1)“Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person.
(2)“Associate,” when used to indicate a relationship with any person, means: (a) any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of voting stock; (b) any trust or other estate in which such person has at least a 20% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (c) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person.
(3)“Business combination,” when used in reference to the Corporation and any interested stockholder of the Corporation, means:
(a)any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation (1) with the interested stockholder or (2) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the interested stockholder and as a result of such merger or consolidation, Section (B) of this ARTICLE XII is not applicable to the surviving entity;
(b)any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the interested stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation, which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the then outstanding stock of the Corporation;
(c)any transaction that results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any stock of the Corporation or of such subsidiary to the interested stockholder, except: (1) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any subsidiary of the Corporation, which securities were outstanding prior to the time that the interested stockholder became such; (2) pursuant to a merger under Section 251(g) of the DGCL; (3) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any subsidiary of the Corporation, which security is distributed, pro rata to
all holders of a class or series of stock of the Corporation subsequent to the time the interested stockholder became such; (4) pursuant to an exchange offer by the Corporation to purchase stock made on the same terms to all holders of said stock; or (5) any issuance or transfer of stock by the Corporation; provided, however, that in no case under items (3) through (5) of this subsection (c) shall there be an increase in the interested stockholder’s proportionate share of the stock of any class or series of the Corporation or of the voting stock of the Corporation (except as a result of immaterial changes due to fractional share adjustments);
(d)any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation that has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the Corporation or of any subsidiary of the Corporation that is owned by the interested stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption or other transfer of any shares of stock not caused, directly or indirectly, by the interested stockholder; or
(e)any receipt by the interested stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in subsections (a) through (d) above) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.
(4)“Control,” including the terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract, or otherwise. For the purpose of this Article XII, a person who is the owner of 20% or more of the outstanding voting stock of the Corporation, other corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith and not for the purpose of circumventing this ARTICLE XII, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity.
(5)“Exempt Transferee” means (A) any person that acquires (other than in an Excluded Transfer) directly from the Founder (as defined in ARTICLE V) or any of his affiliates, ownership of voting stock of the Corporation, and is designated in writing by the transferor as an “Exempt Transferee” for the purpose of this ARTICLE XII; (B) any Permitted Transferee (as defined in ARTICLE V) of the Founder, which person, for the avoidance of doubt, need not be designated in writing as an Exempt Transferee; or (C) any person that acquires (other than in an Excluded Transfer) directly from a person described in clause (A) of this definition or from any other Exempt Transferee ownership of voting stock of the Corporation, and is designated in writing by the transferor as an “Exempt Transferee” for the purpose of this ARTICLE XII.
(6)“Excluded Transfer” means (a) a transfer to a Person that is not an affiliate or Permitted Transferee of the transferor, which transfer is by gift or otherwise not for value, including a transfer by dividend or distribution by the transferor, (b) a transfer in a public offering that is registered under the Securities Act of 1933, as amended (the “Securities Act”), (c) a transfer to one or more broker-dealers or their affiliates pursuant to a firm commitment purchase agreement for an offering that is exempt from registration under the Securities Act, (d) a transfer made through the facilities of a registered securities exchange or automated interdealer quotation system and (e) a transfer made in compliance with the manner of sale limitations of Rule 144(f) under the Securities Act or any successor rule or provision.
(7)“Interested stockholder” means any person (other than the Corporation or any direct or indirect majority-owned subsidiary of the Corporation) that (a) is the owner of 15% or more of the then outstanding voting stock of the Corporation, or (b) is an affiliate or associate of the Corporation and was the owner of 15% or more of the then outstanding voting stock of the Corporation at any time within the three (3) year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder; and the affiliates and associates of such person; but “interested stockholder” shall not include (x) the Founder, any Exempt Transferee or any of their respective affiliates or successors or any “group,” or any member of any such group, of which any of such persons is a party under Rule 13d-5 of the Exchange Act, or (y) any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of any action taken solely by the Corporation, provided that such person specified in this clause (y) shall be an interested stockholder if thereafter such person acquires additional shares of voting stock of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an interested stockholder, the voting stock of the Corporation deemed to be outstanding shall include stock deemed to be owned by the person through application of the definition of “owner” below, but shall not include any other unissued stock of the Corporation that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(8)“Majority-owned subsidiary” of the Corporation (or specified person) means another person of which the Corporation (or specified person), directly or indirectly with or through one or more majority-owned subsidiaries, is the general partner or managing member of such other person or owns equity securities with a majority of the votes of all equity securities generally entitled to vote in the election of directors or other governing body of such other person.
(9) “Owner,” including the terms “own,” “owned,” and “ownership,” when used with respect to any stock, means a person that individually or with or through any of its affiliates or associates:
(a)beneficially owns such stock, directly or indirectly; or
(b)has (1) the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the owner of stock tendered pursuant to a tender or exchange offer made by such person or any of such person’s affiliates or associates until such tendered stock is accepted for purchase or exchange; or (2) the right to vote such stock pursuant to any agreement, arrangement or understanding; provided,
however, that a person shall not be deemed the owner of any stock because of such person’s right to vote such stock if the agreement, arrangement or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to ten (10) or more persons; or
(c)has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (2) of subsection (b) above of this definition), or disposing of such stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such stock.
(10)“Person” means any individual, corporation, partnership, unincorporated association or other entity.
(11)“Voting stock” means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest.
ARTICLE XIII
If any provision of this Certificate of Incorporation becomes or is declared on any ground by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Certificate of Incorporation, and the court will replace such illegal, void or unenforceable provision of this Certificate of Incorporation with a valid and enforceable provision that most accurately reflects the Corporation’s intent, in order to achieve, to the maximum extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Certificate of Incorporation shall be enforceable in accordance with its terms.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed on its behalf this day of , 2021.
|
|
|
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
By:
|
|
|
|
Name: Sjoerd Sjouwerman
|
|
|
Title: Chief Executive Officer and Chairman
|
BYLAWS OF
KNOWBE4, INC.
Adopted January 19 , 2016
TABLE OF CONTENTS
Page
|
|
|
|
|
|
|
|
|
|
|
ARTICLE I — MEETINGS OF STOCKHOLDERS
|
1
|
|
|
|
|
|
1.1
|
Place of Meetings
|
1
|
|
1.2
|
Annual Meeting
|
1
|
|
1.3
|
Special Meeting
|
1
|
|
1.4
|
Notice of Stockholders’ Meetings
|
2
|
|
1.5
|
Manner of Giving Notice; Affidavit of Notice
|
2
|
|
1.6
|
Quorum
|
2
|
|
1.7
|
Adjourned Meeting; Notice
|
2
|
|
1.8
|
Conduct of Business
|
2
|
|
1.9
|
Voting
|
3
|
|
1.10
|
Stockholder Action by Written Consent Without a Meeting
|
3
|
|
1.11
|
Record Date for Stockholder Notice; Voting; Giving Consents
|
4
|
|
1.12
|
Proxies
|
4
|
|
1.13
|
List of Stockholders Entitled to Vote
|
5
|
|
|
|
|
|
ARTICLE II — DIRECTORS
|
5
|
|
|
|
|
|
2.1
|
Powers
|
5
|
|
2.2
|
Number of Directors
|
5
|
|
2.3
|
Election, Qualification and Term of Office of Directors
|
5
|
|
2.4
|
Resignation and Vacancies
|
6
|
|
2.5
|
Place of Meetings; Meetings by Telephone
|
6
|
|
2.6
|
Conduct of Business
|
6
|
|
2.7
|
Regular Meetings
|
7
|
|
2.8
|
Special Meetings; Notice
|
7
|
|
2.9
|
Quorum
|
7
|
|
2.10
|
Board Action by Written Consent Without a Meeting
|
7
|
|
2.11
|
Fees and Compensation of Directors
|
8
|
|
2.12
|
Approval of Loans to Officers
|
8
|
|
2.13
|
Removal of Directors
|
8
|
|
|
|
|
|
ARTICLE III — COMMITTEES
|
8
|
|
|
|
|
|
3.1
|
Committees of Directors
|
8
|
|
3.2
|
Committee Minutes
|
8
|
|
3.3
|
Meetings and Action of Committees
|
8
|
|
|
|
|
|
ARTICLE IV — OFFICERS
|
9
|
|
|
|
|
|
4.1
|
Officers
|
9
|
|
4.2
|
Appointment of Officers
|
9
|
|
4.3
|
Subordinate Officers
|
9
|
|
4.4
|
Removal and Resignation of Officers
|
9
|
|
4.5
|
Vacancies in Offices
|
10
|
|
4.6
|
Representation of Shares of Other Corporations
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
TABLE OF CONTENTS
(Continued)
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
Authority and Duties of Officers
|
10
|
|
|
|
|
|
ARTICLE V — RECORDS AND REPORTS
|
10
|
|
|
|
|
|
5.1
|
Maintenance and Inspection of Records
|
10
|
|
5.2
|
Inspection by Directors
|
10
|
|
5.3
|
Annual Report
|
11
|
|
|
|
|
|
ARTICLE VI — GENERAL MATTERS
|
11
|
|
|
|
|
|
6.1
|
Stock Certificates; Partly Paid Shares
|
11
|
|
6.2
|
Special Designation on Certificates
|
11
|
|
6.3
|
Lost Certificates
|
11
|
|
6.4
|
Construction; Definitions
|
12
|
|
6.5
|
Dividends
|
12
|
|
6.6
|
Fiscal Year
|
12
|
|
6.7
|
Seal
|
12
|
|
6.8
|
Stock Transfer Agreements
|
12
|
|
6.9
|
Registered Stockholders
|
12
|
|
6.10
|
Waiver of Notice
|
13
|
|
6.11
|
Restrictions on Transfer and Ownership of Capital Stock of the Company
|
13
|
|
|
|
|
|
ARTICLE VII — NOTICE BY ELECTRONIC TRANSMISSION
|
14
|
|
|
|
|
|
7.1
|
Notice by Electronic Transmission
|
14
|
|
7.2
|
Definition of Electronic Transmission
|
15
|
|
7.3
|
Inapplicability
|
15
|
|
|
|
|
|
ARTICLE VIII — INDEMNIFICATION
|
15
|
|
|
|
|
|
8.1
|
Indemnification of Directors and Officers
|
15
|
|
8.2
|
Indemnification of Others
|
16
|
|
8.3
|
Prepayment of Expenses
|
16
|
|
8.4
|
Determination; Claim
|
16
|
|
8.5
|
Non-Exclusivity of Rights
|
16
|
|
8.6
|
Insurance
|
16
|
|
8.7
|
Other Indemnification
|
17
|
|
8.8
|
Amendment or Repeal
|
17
|
|
|
|
|
|
ARTICLE IX — AMENDMENTS
|
17
|
BYLAWS
ARTICLE I — MEETINGS OF STOCKHOLDERS
1.1Place of Meetings. Meetings of stockholders of KnowBe4, Inc.. (the “Company”) shall be held at any place, within or outside the State of Delaware, determined by the Company’s board of directors (the “Board”). The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Company’s principal executive office.
1.2Annual Meeting. An annual meeting of stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board from time to time. Any other proper business may be transacted at the annual meeting. The Company shall not be required to hold an annual meeting of stockholders, provided that (i) the stockholders are permitted to act by written consent under the Company’s certificate of incorporation and these bylaws, (ii) the stockholders take action by written consent to elect directors and (iii) the stockholders unanimously consent to such action or, if such consent is less than unanimous, all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.
1.3Special Meeting. A special meeting of the stockholders may be called at any time by the Board, Chairperson of the Board, Chief Executive Officer or President (in the absence of a Chief Executive Officer) or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting.
If any person(s) other than the Board calls a special meeting, the request shall:
(i)be in writing;
(ii)specify the time of such meeting and the general nature of the business proposed to be transacted; and
(iii)be delivered personally or sent by registered mail or by facsimile transmission to the Chairperson of the Board, the Chief Executive Officer, the President (in the absence of a Chief Executive Officer) or the Secretary of the Company.
The officer(s) receiving the request shall cause notice to be promptly given to the stockholders entitled to vote at such meeting, in accordance with the provisions of sections 1.4 and 1.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting. No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this section 1.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.
1.4Notice of Stockholders’ Meetings. All notices of meetings of stockholders shall be sent or otherwise given in accordance with either section 1.5 or section 7.1 of these bylaws not less than 10 or more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
1.5Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of stockholders shall be given:
(i)if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the Company’s records; or
(ii)if electronically transmitted as provided in section 7.1 of these bylaws.
An affidavit of the Secretary or an Assistant Secretary of the Company or of the transfer agent or any other agent of the Company that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
1.6Quorum. Except as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, in the manner provided in section 1.7, until a quorum is present or represented.
1.7Adjourned Meeting; Notice. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
1.8Conduct of Business. Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by the Chief Executive Officer, or in the absence of the foregoing persons by the President, or in the absence of the foregoing persons by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any
person to act as secretary of the meeting. The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.
1.9Voting. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of section 1.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. If authorized by the Board, the requirement of a written ballot for the election of directors shall be satisfied by a ballot submitted by electronic transmission (as defined in section 7.2 of these bylaws), provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.
At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law, the certificate of incorporation or these bylaws, be decided by the vote of the holders of shares of stock having a majority of the votes which could be cast by the holders of all shares of stock entitled to vote thereon which are present in person or represented by proxy at the meeting.
1.10Stockholder Action by Written Consent Without a Meeting. Unless otherwise provided in the certificate of incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Company as provided in Section 228 of the DGCL. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the DGCL, if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.
1.11Record Date for Stockholder Notice; Voting; Giving Consents. In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which record date:
(i)in the case of determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting;
(ii)in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board; and
(iii)in the case of determination of stockholders for any other action, shall not be more than sixty days prior to such other action.
If no record date is fixed by the Board:
(i)the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held;
(ii)the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance with applicable law, or, if prior action by the Board is required by law, shall be at the close of business on the day on which the Board adopts the resolution taking such prior action; and
(iii)the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided that the Board may fix a new record date for the adjourned meeting.
1.12Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides
for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
1.13List of Stockholders Entitled to Vote. The officer who has charge of the stock ledger of the Company shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Company shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Company’s principal executive office. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
ARTICLE II — DIRECTORS
2.1Powers. Subject to the provisions of the DGCL and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Company shall be managed and all corporate powers shall be exercised by or under the direction of the Board.
2.2Number of Directors. The number of directors shall be determined from time to time by resolution of the Board, provided that the Board shall consist of at least one (1) member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
2.3Election, Qualification and Term of Office of Directors. Except as provided in section 2.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors. Each director, including a director elected to fill a vacancy, shall hold office until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.
2.4Resignation and Vacancies. Any director may resign at any time upon notice given in writing or by electronic transmission to the Company. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these bylaws:
(i)Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(ii)Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
2.5Place of Meetings; Meetings by Telephone. The Board may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
2.6Conduct of Business. Meetings of the Board shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the
absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
2.7Regular Meetings. Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.
2.8Special Meetings; Notice. Special meetings of the Board for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the Secretary or any two directors.
Notice of the time and place of special meetings shall be:
(i)delivered personally by hand, by courier or by telephone;
(ii)sent by United States first-class mail, postage prepaid;
(iii)sent by facsimile; or
(iv)sent by electronic mail,
directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the Company’s records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Company’s principal executive office) nor the purpose of the meeting.
2.9Quorum. At all meetings of the Board, a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
2.10Board Action by Written Consent Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the
minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
2.11Fees and Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.
2.12Approval of Loans to Officers. The Company may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Company or of its subsidiary, including any officer or employee who is a director of the Company or its subsidiary, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Company. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Company.
2.13Removal of Directors. Unless otherwise restricted by statute, the certificate of incorporation or these bylaws, any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
ARTICLE III — COMMITTEES
3.1Committees of Directors. The Board may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Company,
3.2Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
3.3Meetings and Action of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(i)section 2.5 (Place of Meetings; Meetings by Telephone);
(ii) section 2.7 (Regular Meetings);
(iii)section 2.8 (Special Meetings; Notice);
(iv)section 2.9 (Quorum);
(v)section 2.10 (Board Action by Written Consent Without a Meeting); and
(vi)section 6.10 (Waiver of Notice)
with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However:
(i)the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii)special meetings of committees may also be called by resolution of the Board; and
(iii)notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
ARTICLE IV — OFFICERS
4.1Officers. The officers of the Company shall be a Chairperson of the Board, a President or Chief Executive Officer, a Secretary and a Treasurer or Chief Financial Officer. The Company may also have, at the discretion of the Board, a Vice Chairperson of the Board, one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
4.2Appointment of Officers. The Board shall appoint the officers of the Company, except such officers as may be appointed in accordance with the provisions of sections 4.3 and 4.5 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.
4.3Subordinate Officers. The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers and agents as the business of the Company may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.
4.4Removal and Resignation of Officers. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.
4.5Vacancies in Offices. Any vacancy occurring in any office of the Company shall be filled by the Board or as provided in section 4.2.
4.6Representation of Shares of Other Corporations. Unless otherwise directed by the Board, the President or any other person authorized by the Board or the President is authorized to vote, represent and exercise on behalf of the Company all rights incident to any and all shares of any other corporation or corporations standing in the name of the Company. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
4.7Authority and Duties of Officers. Except as otherwise provided in these bylaws, the officers of the Company shall have such powers and duties in the management of the Company as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.
ARTICLE V — RECORDS AND REPORTS
5.1Maintenance and Inspection of Records. The Company shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Company’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the Company at its registered office in Delaware or at its principal executive office.
5.2Inspection by Directors. Any director shall have the right to examine the Company’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Company to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
5.3Annual Report. The Company shall cause an annual report to be sent to the stockholders of the Company to the extent required by applicable law. If and so long as there are fewer than 100 holders of record of the Company’s shares, the requirement of sending of an annual report to the stockholders of the Company is expressly waived (to the extent permitted under applicable law).
ARTICLE VI — GENERAL MATTERS
6.1Stock Certificates; Partly Paid Shares. The shares of the Company shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Company by the Chairperson of the Board or Vice Chairperson of the Board, or the Chief Executive Officer or President or a Vice President, and by the Chief Financial Officer or Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2Special Designation on Certificates. If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock a statement that the Company will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
6.3Lost Certificates. Except as provided in this section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the
Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
6.5Dividends. The Board, subject to any restrictions contained in either (i) the DGCL, or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Company’s capital stock.
The Board may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Company, and meeting contingencies.
6.6Fiscal Year. The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by the Board.
6.7Seal. The Company may adopt a corporate seal, which shall be in such form as may be approved from time to time by the Board. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
6.8Stock Transfer Agreements. The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.9Registered Stockholders. The Company:
(i)shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;
(ii)shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and
(iii)shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
6.10Waiver of Notice. Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
6.11Restrictions on Transfer and Ownership of Common Stock of the Company. Before a stockholder may transfer any of his, her, or its shares of common stock of the Company, such stockholder must comply with the provisions of this section 6.11, together with any other contractual restrictions on transfer as otherwise agreed by such stockholder (e.g., any right of first refusal and co-sale agreement in effect by and among the Company, such stockholder and certain holders of the Company’s stock). Notwithstanding anything herein to the contrary, the provisions of this section 6.11 shall not apply to any transfers of common stock of the Company issued upon conversion of shares of any series of preferred stock of the Company.
(i)Notice of Proposed Transfer. Prior to the selling stockholder (for purposes of this section 6.11, the “Seller”) Transferring any of its shares of common stock (the “Seller Shares”), Seller shall deliver to the Company a written notice (the “Transfer Notice”) at least forty five (45) days prior to such proposed Transfer, stating: (a) Seller’s bona fide intention to Transfer such Seller Shares; (b) the name, address and phone number of each proposed purchaser or other transferee (each, a “Proposed Transferee”); (c) the aggregate number of Seller Shares proposed to be Transferred to each Proposed Transferee (the “Offered Shares”); (d) the bona fide cash price or, in reasonable detail, other consideration for which Seller proposes to Transfer the Offered Shares (the “Offered Price”); and (e) the Company’s right to exercise its Right of First Refusal with respect to the Offered Shares.
(ii)Company’s Right of First Refusal. For a period of fifteen (15) days (the “Initial Exercise Period”) after the date on which the Transfer Notice is delivered to the Company, the Company shall have the right to purchase all or any part of the Offered Shares on the terms and conditions set forth in this section 6.11(ii). In order to exercise its right hereunder, the Company must deliver written notice to Seller within the Initial Exercise Period. Upon the earlier to occur of (a) the expiration of the Initial Exercise Period or (b) the time when Seller has received written confirmation from the Company regarding its exercise of its Right of First Refusal, the Company shall be deemed to have made its election with respect to the Offered Shares.
(iii)ROFR Confirmation Notice. Within five (5) days after the expiration of the Initial Exercise Period, Seller will give written notice to the Company specifying the number of Offered Shares to be purchased by the Company if it exercises its Right of First Refusal (the “ROFR Confirmation Notice”). The ROFR Confirmation Notice shall also specify the number of Offered Shares not purchased by the Company, if any, pursuant to section 6.11(ii) (“Unsubscribed Shares”).
(iv)Seller’s Right to Transfer. Subject to section 6.11(v), if any of the Offered Shares remain available after the exercise of all Rights of First Refusal as described in this section 6.11, then the Seller shall be free to transfer any such remaining shares to the Proposed Transferee at the Offered Price or a higher price as provided in the Transfer Notice; provided however that if the Offered Shares are not so Transferred during the forty five (45) day period following the delivery of the Transfer Notice, then Seller may not Transfer any such remaining Offered Shares without complying again in full with the provisions of this section 6.11.
(v)Board’s Overall Right to Approve. Notwithstanding anything in this section 6.11 to the contrary, the Seller’s right to Transfer provided in section 6.11(iv) shall be subject in all cases to the prior written approval of such Transfer by a majority of the members of the Board. For the avoidance of doubt, no Transfer by the Seller pursuant to section 6.11(iv) shall be effective without the prior written approval of a majority of the members of the Board.
(vi)Purchase Price. The purchase price for the Offered Shares to be purchased by the Company exercising its Right of First Refusal will be as detailed in the Transfer Notice, and will be payable within ten (10) days of the later of (a) the delivery of the ROFR Confirmation Notice or (b) the delivery of the prior written approval of the Board, if necessary.
For purposes of this section 6.11, the following definitions shall apply:
“Right of First Refusal” shall mean the rights of first refusal provided to the Company in this section 6.11.
“Transfer” shall mean and include any sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, including but not limited to transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceeds or general assignees for the benefit of creditors, whether voluntarily or by operation of law, directly or indirectly, except (i) any transfers of Seller Shares by a Seller to Seller’s spouse, ex-spouse, domestic partner, lineal descendant or antecedent, brother or sister, the adopted child or adopted grandchild, or the spouse or domestic partner of any child, adopted child, grandchild or adopted grandchild of Seller, or to a trust or trusts for the exclusive benefit of Seller or those members of Seller’s family specified in this definition or transfers of Seller Shares by Seller by devise or descent; provided that, in all cases, the transferee or other recipient executes an instrument acknowledging receipt of a copy of these bylaws; (ii) any bona fide gift effected for tax planning purposes, provided that the pledgee, transferee or donee or other recipient executes an instrument acknowledging receipt of a copy of these bylaws; (iii) any transfer to the Company pursuant to the terms of this section 6.11; and (iv) any repurchase of Seller Shares by the Company pursuant to agreements under which the Company has the option to repurchase such Seller Shares upon the occurrence of certain events, such as termination of employment, or in connection with the exercise by the Company of any Rights of First Refusal.
ARTICLE VII — NOTICE BY ELECTRONIC TRANSMISSION
7.1Notice by Electronic Transmission. Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of
incorporation or these bylaws, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any such consent shall be deemed revoked if:
(i)the Company is unable to deliver by electronic transmission two consecutive notices given by the Company in accordance with such consent; and
(ii)such inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i)if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii)if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii)if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv)if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Company that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
7.1Definition of Electronic Transmission. An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
7.2Inapplicability. Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
ARTICLE VIII — INDEMNIFICATION
8.1Indemnification of Directors and Officers. The Company shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the Company who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding. The Company shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.
8.2Indemnification of Others. The Company shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the Company who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.
8.3Prepayment of Expenses. The Company shall pay the expenses incurred by any officer or director of the Company, and may pay the expenses incurred by any employee or agent of the Company, in defending any Proceeding in advance of its final disposition; provided that the payment of expenses incurred by a person in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article VIII or otherwise.
8.4Determination; Claim. If a claim for indemnification or payment of expenses under this Article VIII is not paid in full within sixty days after a written claim therefor has been received by the Company the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.
8.5Non-Exclusivity of Rights. The rights conferred on any person by this Article VIII shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
8.6Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of the DGCL.
8.7 Other Indemnification. The Company’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.
8.8Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VIII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.
ARTICLE IX — AMENDMENTS
These bylaws may be adopted, amended or repealed by a majority of the stockholders entitled to vote. However, the Company may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
KNOWBE4, INC.
The undersigned certifies that he is the duly elected, qualified and acting Secretary of KnowBe4, Inc., a Delaware corporation (the “Company”), and that the foregoing bylaws were adopted as the bylaws of the Company on January 19 , 2016 by the sole incorporator of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of January 19 , 2016.
|
|
|
|
|
/s/ Sjoerd Sjouwerman
|
|
Sjoerd Sjouwerman, Secretary
|
AMENDED AND RESTATED BYLAWS OF
KNOWBE4, INC.
(as amended on , 2021, effective as of the
closing of the company’s initial public offering)
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
ARTICLE I - CORPORATE OFFICES
|
1
|
|
1.1 REGISTERED OFFICE
|
1
|
|
1.2 OTHER OFFICES
|
1
|
|
ARTICLE II - MEETINGS OF STOCKHOLDERS
|
1
|
|
2.1 PLACE OF MEETINGS
|
1
|
|
2.2 ANNUAL MEETING
|
1
|
|
2.3 SPECIAL MEETING
|
1
|
|
2.4 ADVANCE NOTICE PROCEDURES
|
2
|
|
2.5 NOTICE OF STOCKHOLDERS’ MEETINGS
|
8
|
|
2.6 QUORUM
|
8
|
|
2.7 ADJOURNED MEETING; NOTICE
|
8
|
|
2.8 CONDUCT OF BUSINESS
|
9
|
|
2.9 VOTING
|
9
|
|
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
9
|
|
2.11 RECORD DATES
|
9
|
|
2.12 PROXIES
|
10
|
|
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
|
10
|
|
2.14 INSPECTORS OF ELECTION
|
11
|
|
ARTICLE III - DIRECTORS
|
11
|
|
3.1 POWERS
|
11
|
|
3.2 NUMBER OF DIRECTORS
|
12
|
|
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
|
12
|
|
3.4 RESIGNATION AND VACANCIES
|
12
|
|
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
|
12
|
|
3.6 REGULAR MEETINGS
|
12
|
|
3.7 SPECIAL MEETINGS; NOTICE
|
13
|
|
3.8 QUORUM; VOTING
|
13
|
|
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
14
|
|
3.10 FEES AND COMPENSATION OF DIRECTORS
|
14
|
|
3.11 REMOVAL OF DIRECTORS
|
14
|
|
ARTICLE IV - COMMITTEES
|
14
|
|
4.1 COMMITTEES OF DIRECTORS
|
14
|
|
4.2 COMMITTEE MINUTES
|
14
|
|
4.3 MEETINGS AND ACTION OF COMMITTEES
|
15
|
|
4.4 SUBCOMMITTEES
|
15
|
|
ARTICLE V - OFFICERS
|
15
|
|
5.1 OFFICERS
|
15
|
|
5.2 APPOINTMENT OF OFFICERS
|
16
|
|
5.3 SUBORDINATE OFFICERS
|
16
|
|
5.4 REMOVAL AND RESIGNATION OF OFFICERS
|
16
|
|
5.5 VACANCIES IN OFFICES
|
16
|
|
5.6 REPRESENTATION OF SECURITIES OF OTHER ENTITIES
|
16
|
|
5.7 AUTHORITY AND DUTIES OF OFFICERS
|
16
|
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
ARTICLE VI - STOCK
|
17
|
|
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
|
17
|
|
6.2 SPECIAL DESIGNATION ON CERTIFICATES
|
17
|
|
6.3 LOST CERTIFICATES
|
18
|
|
6.4 DIVIDENDS
|
18
|
|
6.5 TRANSFER OF STOCK
|
18
|
|
6.6 STOCK TRANSFER AGREEMENTS
|
18
|
|
6.7 REGISTERED STOCKHOLDERS
|
18
|
|
ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER
|
18
|
|
7.1 NOTICE OF STOCKHOLDERS’ MEETINGS
|
18
|
|
7.2 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
|
19
|
|
7.3 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
|
19
|
|
7.4 WAIVER OF NOTICE
|
19
|
|
ARTICLE VIII - INDEMNIFICATION
|
19
|
|
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
|
19
|
|
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE COMPANY
|
20
|
|
8.3 SUCCESSFUL DEFENSE
|
20
|
|
8.4 INDEMNIFICATION OF OTHERS
|
20
|
|
8.5 ADVANCED PAYMENT OF EXPENSES
|
21
|
|
8.6 LIMITATION ON INDEMNIFICATION
|
21
|
|
8.7 DETERMINATION; CLAIM
|
22
|
|
8.8 NON-EXCLUSIVITY OF RIGHTS
|
22
|
|
8.9 INSURANCE
|
22
|
|
8.10 SURVIVAL
|
22
|
|
8.11 EFFECT OF REPEAL OR MODIFICATION
|
23
|
|
8.12 CERTAIN DEFINITIONS
|
23
|
|
ARTICLE IX - GENERAL MATTERS
|
23
|
|
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
|
23
|
|
9.2 FISCAL YEAR
|
23
|
|
9.3 SEAL
|
24
|
|
9.4 CONSTRUCTION; DEFINITIONS
|
24
|
|
9.5 FORUM SELECTION
|
24
|
|
ARTICLE X - AMENDMENTS
|
24
|
BYLAWS OF KNOWBE4, INC.
ARTICLE I - CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of KnowBe4, Inc. (the “Company”) shall be fixed in the Company’s certificate of incorporation, as the same may be amended from time to time.
1.2 OTHER OFFICES
The Company may at any time establish other offices.
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at a place, if any, within or outside the State of Delaware, determined by the board of directors of the Company (the “Board of Directors”). The Board of Directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Company’s principal executive office.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year. The Board of Directors shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and any other proper business, brought in accordance with Section 2.4 of these bylaws, may be transacted. The Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board may cancel, postpone or reschedule any previously scheduled annual meeting at any time, before or after the notice for such meeting has been sent to the stockholders. For the purposes of these bylaws, the term “Whole Board” shall mean the total number of authorized directorships whether or not there exist any vacancies or other unfilled seats in previously authorized directorships.
2.3 SPECIAL MEETING
(a) A special meeting of the stockholders, other than as required by statute, may be called at any time by (i) the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board, (ii) the chairperson of the Board of Directors, (iii) the chief executive officer or (iv) the president, but a special meeting may not be called by any other person or persons and any power of stockholders to call a special meeting of stockholders is specifically denied. The Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
(b) The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of a majority of the Whole Board, the chairperson of the
Board of Directors, the chief executive officer or the president. Nothing contained in this Section 2.3(b) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
2.4 ADVANCE NOTICE PROCEDURES
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors or the proposal of other business to be transacted by the stockholders at an annual meeting of stockholders may be made only (1) pursuant to the Company’s notice of meeting (or any supplement thereto); (2) by or at the direction of the Board of Directors; (3) as may be provided in the certificate of designations for any class or series of preferred stock; or (4) by any stockholder of the Company who (A) is a stockholder of record at the time of giving of the notice contemplated by Section 2.4(a)(ii); (B) is a stockholder of record on the record date for the determination of stockholders entitled to notice of the annual meeting; (C) is a stockholder of record on the record date for the determination of stockholders entitled to vote at the annual meeting; (D) is a stockholder of record at the time of the annual meeting; and (E) complies with the procedures set forth in this Section 2.4(a).
(ii) For nominations or other business to be properly brought before an annual meeting of stockholders by a stockholder pursuant to clause (4) of Section 2.4(a)(i), the stockholder must have given timely notice in writing to the secretary and any such nomination or proposed business must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice must be received by the secretary at the principal executive offices of the Company no earlier than 8:00 a.m., local time, on the 120th day and no later than 5:00 p.m., local time, on the 90th day prior to the day of the first anniversary of the preceding year’s annual meeting of stockholders. However, if no annual meeting of stockholders was held in the preceding year, or if the date of the applicable annual meeting has been changed by more than 25 days from the first anniversary of the preceding year’s annual meeting, then to be timely such notice must be received by the secretary at the principal executive offices of the Company no earlier than 8:00 a.m., local time, on the 120th day prior to the day of the annual meeting and no later than 5:00 p.m., local time, on the 10th day following the day on which public announcement of the date of the annual meeting was first made by the Company. In no event will the adjournment, rescheduling or postponement of any annual meeting, or any announcement thereof, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. If the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors at least 10 days before the last day that a stockholder may deliver a notice of nomination pursuant to the foregoing provisions, then a stockholder’s notice required by this Section 2.4(a)(ii) will also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is received by the secretary at the principal executive offices of the Company no later than 5:00 p.m., local time, on the 10th day following the day on which such public announcement is first made. “Public announcement” means disclosure in a press release reported by a national news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 (as amended and inclusive of rules and regulations thereunder, the “1934 Act”).
(iii) A stockholder’s notice to the secretary must set forth:
(1) as to each person whom the stockholder proposes to nominate for election as a director:
(A) such person’s name, age, business address, residence address and principal occupation or employment; the class and number of shares of the Company that are held of record or are beneficially owned by such person and a description of any Derivative Instruments (defined below) held or beneficially owned thereby or of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of such person; and all information relating to such person that is required to be disclosed in solicitations of proxies for the contested election of directors, or is otherwise required, in each case pursuant to the Section 14 of the 1934 Act;
(B) such person’s written consent to being named in such stockholder’s proxy statement as a nominee of such stockholder and to serving as a director of the Company if elected;
(C) a reasonably detailed description of any direct or indirect compensatory, payment, indemnification or other financial agreement, arrangement or understanding that such person has, or has had within the past three years, with any person or entity other than the Company (including the amount of any payment or payments received or receivable thereunder), in each case in connection with candidacy or service as a director of the Company (a “Third-Party Compensation Arrangement”); and
(D) a description of any other material relationships between such person and such person’s respective affiliates and associates, or others acting in concert with them, on the one hand, and such stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, and their respective affiliates and associates, or others acting in concert with them, on the other hand;
(2) as to any other business that the stockholder proposes to bring before the annual meeting:
(A) a brief description of the business desired to be brought before the annual meeting;
(B) the text of the proposal or business (including the text of any resolutions proposed for consideration and, if applicable, the text of any proposed amendment to these bylaws);
(C) the reasons for conducting such business at the annual meeting;
(D) any material interest in such business of such stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made, and their respective affiliates and associates, or others acting in concert with them; and
(E) a description of all agreements, arrangements and understandings between such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and their respective affiliates or associates or others acting in concert with them, and any other person or persons (including their names) in connection with the proposal of such business by such stockholder; and
(3) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:
(A) the name and address of such stockholder (as they appear on the Company’s books), of such beneficial owner and of their respective affiliates or associates or others acting in concert with them;
(B) for each class or series, the number of shares of stock of the Company that are, directly or indirectly, held of record or are beneficially owned by such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them;
(C) a description of any agreement, arrangement or understanding between such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, and any other person or persons (including, in each case, their names) in connection with the proposal of such nomination or other business;
(D) a description of any agreement, arrangement or understanding (including, regardless of the form of settlement, any derivative, long or short positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions and borrowed or loaned shares) that has been entered into by or on behalf of such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, with respect to the Company’s securities (any of the foregoing, a “Derivative Instrument”), or any other agreement, arrangement or understanding that has been made the effect or intent of which is to create or mitigate loss to, manage risk or benefit of share price changes for or increase or decrease the voting power of such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, with respect to the Company’s securities;
(E) any rights to dividends on the Company’s securities owned beneficially by such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, that are separated or separable from the underlying security;
(F) any proportionate interest in the Company’s securities or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership;
(G) any performance-related fees (other than an asset-based fee) that such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, is entitled to based on any increase or decrease in the value of the Company’s securities or Derivative Instruments, including, without limitation, any such interests held by members of the immediate family of such persons sharing the same household;
(H) any significant equity interests or any Derivative Instruments in any principal competitor of the Company that are held by such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them;
(I) any direct or indirect interest of such stockholder, such beneficial owner or their respective affiliates or associates or others acting in concert with them, in any contract with the Company, any affiliate of the Company or any principal competitor of the Company (in each case, including any employment agreement, collective bargaining agreement or consulting agreement);
(J) a representation and undertaking that the stockholder is a holder of record of stock of the Company as of the date of submission of the stockholder’s notice and intends to appear in person or by proxy at the meeting to bring such nomination or other business before the meeting;
(K) a representation and undertaking that such stockholder or any such beneficial owner intends, or is part of a group that intends, to (x) deliver a proxy statement or form of proxy to holders of at least the percentage of the voting power of the Company’s then-outstanding stock required to approve or adopt the proposal or to elect each such nominee; or (y) otherwise solicit proxies from stockholders in support of such proposal or nomination;
(L) any other information relating to such stockholder, such beneficial owner, or their respective affiliates or associates or others acting in concert with them, or director nominee or proposed business that, in each case, would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies in support of such nominee (in a contested election of directors) or proposal pursuant to Section 14 of the 1934 Act; and
(M) such other information relating to any proposed item of business as the Company may reasonably require to determine whether such proposed item of business is a proper matter for stockholder action.
(iv) In addition to the requirements of this Section 2.4, to be timely, a stockholder’s notice (and any additional information submitted to the Company in connection therewith) must further be updated and supplemented (1) if necessary, so that the information provided or required to be provided in such notice is true and correct as of the record date(s) for determining the stockholders entitled to notice of, and to vote at, the meeting and as of the date that is 10 business days prior to the meeting or any adjournment, rescheduling or postponement thereof and (2) to provide any additional information that the Company may reasonably request. Such update and supplement or additional information, if applicable, must be received by the secretary at the principal executive offices of the Company, in the case of a request for additional information, promptly following a request therefor, which response must be delivered not later than such reasonable time as is specified in any such request from the Company or, in the case of any other update or supplement of any information, not later than five business days after the record date(s) for the meeting (in the case of any update and supplement required to be made as of the record date(s)), and not later than eight business days prior to the date for the meeting or any adjournment, rescheduling or postponement thereof (in the case of the update and supplement required to be made as of 10 business days prior to the meeting or any adjournment, rescheduling or postponement thereof). The failure to timely provide such update, supplement or
additional information shall result in the nomination or proposal no longer being eligible for consideration at the meeting.
(b) Special Meetings of Stockholders. Except to the extent required by the DGCL, and subject to Section 2.3(a), special meetings of stockholders may be called only in accordance with the Company’s certificate of incorporation and these bylaws. Only such business will be conducted at a special meeting of stockholders as has been brought before the special meeting pursuant to the Company’s notice of meeting. If the election of directors is included as business to be brought before a special meeting in the Company’s notice of meeting, then nominations of persons for election to the Board of Directors at such special meeting may be made by any stockholder who (i) is a stockholder of record at the time of giving of the notice contemplated by this Section 2.4(b); (ii) is a stockholder of record on the record date for the determination of stockholders entitled to notice of the special meeting; (iii) is a stockholder of record on the record date for the determination of stockholders entitled to vote at the special meeting; (iv) is a stockholder of record at the time of the special meeting; and (v) complies with the procedures set forth in this Section 2.4(b). For nominations to be properly brought by a stockholder before a special meeting pursuant to this Section 2.4(b), the stockholder’s notice must be received by the secretary at the principal executive offices of the Company no earlier than 8:00 a.m., local time, on the 120th day prior to the day of the special meeting and no later than 5:00 p.m., local time, on the 10th day following the day on which public announcement of the date of the special meeting was first made. In no event will any adjournment, rescheduling or postponement of a special meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice. A stockholder’s notice to the Secretary must comply with the applicable notice requirements of Section 2.4(a)(iii).
(c) Other Requirements.
(i) To be eligible to be a nominee by any stockholder for election as a director of the Company, the proposed nominee must provide to the secretary, in accordance with the applicable time periods prescribed for delivery of notice under Section 2.4(a)(ii) or Section 2.4(b):
(1) a signed and completed written questionnaire (in the form provided by the secretary at the written request of the nominating stockholder, which form will be provided by the secretary within 10 days of receiving such request) containing information regarding such nominee’s background and qualifications and such other information as may reasonably be required by the Company to determine the eligibility of such nominee to serve as a director of the Company or to serve as an independent director of the Company;
(2) a written representation and undertaking that, unless previously disclosed to the Company, such nominee is not, and will not become, a party to any voting agreement, arrangement, commitment, assurance or understanding with any person or entity as to how such nominee, if elected as a director, will vote on any issue;
(3) a written representation and undertaking that, unless previously disclosed to the Company, such nominee is not, and will not become, a party to any Third-Party Compensation Arrangement;
(4) a written representation and undertaking that, if elected as a director, such nominee would be in compliance, and will continue to comply, with the Company’s
corporate governance guidelines as disclosed on the Company’s website, as amended from time to time; and
(5) a written representation and undertaking that such nominee, if elected, intends to serve a full term on the Board of Directors.
(ii) At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director must furnish to the secretary the information that is required to be set forth in a stockholder’s notice of nomination that pertains to such nominee.
(iii) No person will be eligible to be nominated by a stockholder for election as a director of the Company unless nominated in accordance with the procedures set forth in this Section 2.4. No business proposed by a stockholder will be conducted at a stockholder meeting except in accordance with this Section 2.4.
(iv) The chairperson of the applicable meeting of stockholders will, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws or that business was not properly brought before the meeting. If the chairperson of the meeting should so determine, then the chairperson of the meeting will so declare to the meeting and the defective nomination will be disregarded or such business will not be transacted, as the case may be.
(v) Notwithstanding anything to the contrary in this Section 2.4, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear in person at the meeting to present a nomination or other proposed business, such nomination will be disregarded or such proposed business will not be transacted, as the case may be, notwithstanding that proxies in respect of such nomination or business may have been received by the Company and counted for purposes of determining a quorum. For purposes of this Section 2.4, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting, and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting.
(vi) Without limiting this Section 2.4, a stockholder must also comply with all applicable requirements of the 1934 Act with respect to the matters set forth in this Section 2.4, it being understood that (1) any references in these bylaws to the 1934 Act are not intended to, and will not, limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 2.4; and (2) compliance with clause (4) of Section 2.4(a)(i) and with Section 2.4(b) are the exclusive means for a stockholder to make nominations or submit other business (other than as provided in Section 2.4(c)(vii)).
(vii) Notwithstanding anything to the contrary in this Section 2.4, the notice requirements set forth in these bylaws with respect to the proposal of any business pursuant to this Section 2.4 will be deemed to be satisfied by a stockholder if (1) such stockholder has submitted a proposal to the Company in compliance with Rule 14a8 under the 1934 Act; and (2) such stockholder’s proposal has been included in a proxy statement that has been prepared by the Company to solicit proxies for the meeting of stockholders. Subject to Rule 14a8 and other applicable rules and regulations under the 1934 Act, nothing in these bylaws will be construed to permit any stockholder, or give any
stockholder the right, to include or have disseminated or described in the Company’s proxy statement any nomination of a director or any other business proposal.
2.5 NOTICE OF STOCKHOLDERS’ MEETINGS
Whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.
2.6 QUORUM
The holders of a majority of the voting power of the capital stock of the Company issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a class or series or classes or series is required, a majority of the voting power of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairperson of the meeting, or (b) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the original meeting.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11 of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
2.8 CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business and discussion as seem to the chairperson in order. The chairperson of any meeting of stockholders shall be designated by the Board of Directors; in the absence of such designation, the chairperson of the Board of Directors, if any, or the chief executive officer (in the absence of the chairperson of the Board of Directors) or the president (in the absence of the chairperson of the Board of Directors and the chief executive officer), or in their absence any other executive officer of the Company, shall serve as chairperson of the stockholder meeting. The chairperson of any meeting of stockholders shall have the power to adjourn the meeting to another place, if any, date or time, whether or not a quorum is present.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of the stock exchange on which the Company’s securities are listed, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares cast affirmatively or negatively shall be the act of the stockholders and broker non-votes and abstentions will be considered for purposes of establishing a quorum, but will not be considered as votes cast for or against a proposal. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of the voting power of the shares of such class or series or classes or series cast affirmatively or negatively at the meeting and entitled to vote on the subject matter shall be the act of such class or series or classes or series (and broker non-votes and abstentions will not be considered as votes cast for or against such proposal), except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of the stock exchange on which the securities of the Company are listed.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Subject to the rights of holders of preferred stock of the Company, any action required or permitted to be taken by the stockholders of the Company must be effected at a duly called annual or special meeting of stockholders of the Company and may not be effected by any consent in writing by such stockholders.
2.11 RECORD DATES
In order that the Company may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date shall not be more than 60 nor less than 10 days before the date of such
meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 2.11 at the adjourned meeting.
In order that the Company may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders, or such stockholder’s authorized officer, director, employee or agent, may authorize another person or persons to act for such stockholder by proxy authorized by a document or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Company shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Company shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the Company’s principal place of business. In the event that the Company determines to make the list available on an electronic
network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the Company shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The Company may designate one or more persons as alternate inspectors to replace any inspector who fails to act.
Such inspectors shall:
(a) ascertain the number of shares outstanding and the voting power of each;
(b) determine the shares represented at the meeting and the validity of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and
(e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are multiple inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III - DIRECTORS
3.1 POWERS
The business and affairs of the Company shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of a majority of the Whole Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy or newly created directorship, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.
If so provided in the certificate of incorporation, the directors of the Company shall be divided into three classes.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or by electronic transmission to the Company. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.
Unless otherwise provided in the certificate of incorporation or these bylaws or permitted in the specific case by resolution of the Board of Directors, and subject to the rights of holders of Preferred Stock, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by stockholders. If the directors are divided into classes, a person so chosen to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board of Directors may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairperson of the Board of Directors, the chief executive officer, the president, the secretary or a majority of the Whole Board.
Notice of the time and place of special meetings shall be:
(a) delivered personally by hand, by courier or by telephone;
(b) sent by United States first-class mail, postage prepaid;
(c) sent by facsimile;
(d) sent by electronic mail; or
(e) otherwise given by electronic transmission (as defined in Section 232 of the DGCL),
directed to each director at that director’s address, telephone number, facsimile number, electronic mail address or other contact for notice by electronic transmission, as the case may be, as shown on the Company’s records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile, (iii) sent by electronic mail or (iv) otherwise given by electronic transmission, it shall be delivered, sent or otherwise directed to each director, as applicable, at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice of the time and place of the meeting may be communicated to the director in lieu of written notice if such notice is communicated at least 24 hours before the time of the holding of the meeting. The notice need not specify the place of the meeting (if the meeting is to be held at the Company’s principal executive office) nor the purpose of the meeting, unless required by statute.
3.8 QUORUM; VOTING
At all meetings of the Board of Directors, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
The affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, except as may otherwise be expressly provided herein or therein and denoted with the phrase “notwithstanding the final paragraph of Section 3.8 of the bylaws” or language to similar effect, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission. Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given for purposes of this Section 3.9 at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.
3.10 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors.
3.11 REMOVAL OF DIRECTORS
Any director or the entire Board of Directors may be removed from office by stockholders of the Company in the manner specified in the certificate of incorporation and applicable law. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
ARTICLE IV - COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the Whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (b) adopt, amend or repeal any bylaw of the Company.
4.2 COMMITTEE MINUTES
Each committee and subcommittee shall keep regular minutes of its meetings.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees and subcommittees shall be governed by, and held and taken in accordance with, the provisions of:
(a) Section 3.5 (place of meetings and meetings by telephone);
(b) Section 3.6 (regular meetings);
(c) Section 3.7 (special meetings and notice);
(d) Section 3.8 (quorum; voting);
(e) Section 3.9 (action without a meeting); and
(f) Section 7.4 (waiver of notice)
with such changes in the context of those bylaws as are necessary to substitute the committee or subcommittee and its members for the Board of Directors and its members. However, (i) the time and place of regular meetings of committees or subcommittees may be determined either by resolution of the Board of Directors or by resolution of the committee or subcommittee; (ii) special meetings of committees or subcommittees may also be called by resolution of the Board of Directors or the committee or the subcommittee; and (iii) notice of special meetings of committees and subcommittees shall also be given to all alternate members who shall have the right to attend all meetings of the committee or subcommittee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
4.4 SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
ARTICLE V - OFFICERS
5.1 OFFICERS
The officers of the Company shall be a president and a secretary. The Company may also have, at the discretion of the Board of Directors, a chairperson of the Board of Directors, a vice chairperson of the Board of Directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The Board of Directors shall appoint the officers of the Company, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or empower any officer to appoint, such other officers as the business of the Company may require. Each of such officers shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as determined from time to time by the Board of Directors, any duly authorized committee or subcommittee thereof or by any officer who has been conferred such power of determination.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors or, for the avoidance of doubt, any duly authorized committee or subcommittee thereof or by any officer who has been conferred such power of removal.
Any officer may resign at any time by giving notice, in writing or by electronic transmission, to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the Company shall be filled by the Board of Directors or as provided in Section 5.3.
5.6 REPRESENTATION OF SECURITIES OF OTHER ENTITIES
The chairperson of the Board of Directors, the chief executive officer, the president, any vice president, the treasurer, the secretary or assistant secretary of this Company or any other person authorized by the Board of Directors or the chief executive officer, the president or a vice president, is authorized to vote, represent and exercise on behalf of this Company all rights incident to any and all shares or other securities of any other entity or entities, and all rights incident to any management authority conferred on the Company in accordance with the governing documents of any entity or entities, standing in the name of this Company, including the right to act by written consent. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS
Each officer of the Company shall have such authority and perform such duties in the management of the business of the Company as may be designated from time to time by the Board of Directors, any duly authorized committee or subcommittee thereof or by any officer who has been
conferred such power of designation, and, to the extent not so provided, as generally pertain to such office, subject to the control of the Board of Directors.
ARTICLE VI - STOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the Company shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Unless otherwise provided by resolution of the Board of Directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of, the Company by any two officers of the Company representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Company shall not have power to issue a certificate in bearer form.
The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly-paid shares, or upon the books and records of the Company in the case of uncertificated partly-paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully-paid shares, the Company shall declare a dividend upon partly-paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2 SPECIAL DESIGNATION ON CERTIFICATES
If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock, a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the registered owner thereof shall be given a notice, in writing or by electronic transmission, containing the information required to be set forth or stated on certificates pursuant to this Section 6.2 or Sections 156, 202(a), 218(a) or 364 of the DGCL or with respect to this Section 6.2 a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
6.3 LOST CERTIFICATES
Except as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4 DIVIDENDS
The Board of Directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the Company’s capital stock. Dividends may be paid in cash, in property, or in shares of the Company’s capital stock, subject to the provisions of the certificate of incorporation. The Board of Directors may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.
6.5 TRANSFER OF STOCK
Transfers of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer.
6.6 STOCK TRANSFER AGREEMENTS
The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.7 REGISTERED STOCKHOLDERS
The Company:
(a) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and notices and to vote as such owner; and
(b) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER
7.1 NOTICE OF STOCKHOLDERS’ MEETINGS
Notice of any meeting of stockholders shall be given in the manner set forth in the DGCL.
7.2 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any stockholder who fails to object in writing to the Company, within 60 days of having been given written notice by the Company of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice. This Section 7.2 shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
7.3 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Company is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
7.4 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII - INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
Subject to the other provisions of this Article VIII, the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE COMPANY
Subject to the other provisions of this Article VIII, the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former director or officer (for purposes of this Section 8.3 only, as such term is defined in Section 145(c)(1) of the DGCL) of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith. The Company may indemnify any other person who is not a present or former director or officer of the Company against expenses (including attorneys’ fees) actually and reasonably incurred by such person to the extent he or she has been successful on the merits or otherwise in defense of any suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein.
8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the Company shall have power to indemnify its employees and agents, or any other persons, to the extent not prohibited by the DGCL or other applicable law. The Board of Directors shall have the power to delegate to any person or persons identified in subsections (1) through (4) of Section 145(d) of the DGCL the determination of whether employees or agents shall be indemnified.
8.5 ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys’ fees) actually and reasonably incurred by an officer or director of the Company in defending any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including attorneys’ fees) actually and reasonably incurred by former directors and officers or other employees and agents of the Company or by persons serving at the request of the Company as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the Company deems appropriate. The right to advancement of expenses shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 8.6(b) or 8.6(c) prior to a determination that the person is not entitled to be indemnified by the Company.
Notwithstanding the foregoing, unless otherwise determined pursuant to Section 8.8, no advance shall be made by the Company to an officer of the Company (except by reason of the fact that such officer is or was a director of the Company, in which event this paragraph shall not apply) in any Proceeding if a determination is reasonably and promptly made (a) by a vote of the directors who are not parties to such Proceeding, even though less than a quorum, or (b) by a committee of such directors designated by the vote of the majority of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, that facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Company.
8.6 LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3 and the DGCL, the Company shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):
(a) for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(b) for an accounting or disgorgement of profits pursuant to Section 16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(c) for any reimbursement of the Company by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the Company, as required in each case under the 1934 Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);
(d) initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Board of Directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (iii) otherwise required to be made under Section 8.7 or (iv) otherwise required by applicable law; or
(e) if prohibited by applicable law.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receipt by the Company of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The Company shall indemnify such person against any and all expenses that are actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses from the Company under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the Company shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.
8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The Company is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9 INSURANCE
The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
8.11 EFFECT OF REPEAL OR MODIFICATION
A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to or repeal or elimination of the certificate of incorporation or these bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the “Company” shall include, in addition to the resulting company, any constituent company (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent company, or is or was serving at the request of such constituent company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving company as such person would have with respect to such constituent company if its separate existence had continued. For purposes of this Article VIII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Article VIII.
ARTICLE IX - GENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation or these bylaws, the Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the Company; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
9.2 FISCAL YEAR
The fiscal year of the Company shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
9.3 SEAL
The Company may adopt a corporate seal, which shall be adopted and which may be altered by the Board of Directors. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes a corporation, partnership, limited liability company, joint venture, trust or other enterprise, and a natural person. Any reference in these bylaws to a section of the DGCL shall be deemed to refer to such section as amended from time to time and any successor provisions thereto.
9.5 FORUM SELECTION
Unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, stockholder, officer or other employee of the Company to the Company or the Company’s stockholders, (c) any action arising pursuant to any provision of the DGCL or the certificate of incorporation or these bylaws (as either may be amended from time to time) or (d) any action asserting a claim governed by the internal affairs doctrine, except for, as to each of (a) through (d) above, any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction.
Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, against any person in connection with any offering of the Company’s securities, including, without limitation and for the avoidance of doubt, any auditor, underwriter, expert, control person, or other defendant.
Any person or entity purchasing or otherwise acquiring any interest in any security of the Company shall be deemed to have notice of and consented to the provisions of this Section 9.5. This provision shall be enforceable by any party to a complaint covered by the provisions of this Section 9.5. For the avoidance of doubt, nothing contained in this Section 9.5 shall apply to any action brought to enforce a duty or liability created by the 1934 Act or any successor thereto.
ARTICLE X - AMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the affirmative vote of the holders of at least 66 2/3% of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the Company to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII, Section 9.5 of
Article IX or this Article X (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Bylaw). The Board of Directors shall also have the power to adopt, amend or repeal bylaws; provided, however, that a bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the Board of Directors.
Exhibit 4.2
EXECUTION VERSION
KNOWBE4, INC.
AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”), is made as of July 2, 2019, by and among KnowBe4, Inc., a Delaware corporation (the “Company”) and each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an “Investor”.
RECITALS
WHEREAS, certain Investors hold shares of the Company’s Series C Preferred Stock, Series B Preferred Stock, Series A-1 Preferred Stock, Series A Preferred Stock and/or shares of Common Stock issued upon conversion thereof and possess registration rights, information rights, rights of first offer, and other rights pursuant to an Amended and Restated Investors’ Rights Agreement dated as of March 20, 2019 between the Company and such Investors (the “Prior Agreement”); and
WHEREAS, in connection with and as a condition to the sale of shares of the Company’s Series C-1 Preferred Stock (as defined below) pursuant to the Series C-1 Preferred Stock Purchase Agreement among the Company and certain Investors dated as of June 7, 2019 (the “Purchase Agreement”), the Investors desire to amend and restate the Prior Agreement in its entirety and to accept the rights created pursuant to this Agreement in lieu of the rights granted to some of them under the Prior Agreement.
NOW, THEREFORE, the parties hereby agree that the Prior Agreement shall be amended and restated as set forth herein and the parties further agree as follows:
1.Definitions. Capitalized terms used but not defined herein shall have the meanings ascribed such terms in the Certificate of Incorporation. For purposes of this Agreement:
1.1.“Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
1.2.“Arena” means AHM Investment Holdings LLC Series C.
1.3.“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by applicable law or executive order to close.
1.4.“Certificate of Incorporation” means the Company’s Fourth Amended and Restated Certificate of Incorporation, as amended from time to time.
1.5.“Common Stock” means shares of the Company’s common stock, par value $0.00001 per share.
1.6.“Competitor” means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), providing products or services that are substantially the same as, or otherwise competitive with, the products or services of the Company. For the purposes of the definition of “Competitor” hereunder it is acknowledged and agreed that neither the Elephant Parties, the Goldman Parties, the KKR Parties, Arena, EIG nor any of their Affiliates shall, under any circumstances, be deemed to be a Competitor pursuant to this Agreement.
1.7.“Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
1.8.“Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.
1.9.“EIG” means KB4 Indiana, LLC.
1.10.“Elephant Parties” 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.
1.11.“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1.12.“Excluded Registration” means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
1.13.“Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
1.14.“Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
1.15.“GAAP” means generally accepted accounting principles in the United States. applicable.
1.16.“Goldman Sachs” means any or all of the Goldman Parties, as
1.17.“Goldman Parties” means collectively, Broad Street Principal
Investments L.L.C., a Delaware limited liability company, StoneBridge 2017, L.P., a Delaware limited partnership, and StoneBridge 2017 Offshore, L.P., a Cayman Islands exempted limited partnership.
1.18.“Holder” means any holder of Registrable Securities who is a party to this Agreement.
1.19.“Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein.
1.20.“Initiating Holders” means, collectively, Holders who properly initiate a registration request under this Agreement.
1.21.“International Trade Laws” means all applicable U.S. and non-U.S. anti-bribery, anti-corruption, anti-boycott, economic sanctions, export control, and anti- money laundering laws, regulations and executive orders, including, but not limited to, Title 19 of the U.S. Code of Federal Regulations; the Export Administration Regulations, 15 C.F.R. Parts 730-774; Section 38 of the Arms Export Control Act, 22 U.S.C. § 2778; the International Traffic in Arms Regulations, 22 C.F.R. Parts 120-130; the Trading with the Enemy Act, 50 U.S.C. App. §§ 5, 16; the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq.; 31 C.F.R. Parts 500-598; the Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78m, 78dd-1, 78dd-2, 78dd-3, and 78ff; the UK Bribery Act 2010, as amended, and any similar or successor provisions to any of the foregoing.
1.22.“IPO” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.
1.23.“Key Employee” means any executive-level employee (including, division director and vice president-level positions) as well as any employee who, either alone or in concert with others, develops, invents, programs, or designs any Company Intellectual Property (as defined in the Purchase Agreement).
1.24.“KKR” means KKR Knowledge Investors L.P..
1.25.“KKR Parties” means KKR and TenEleven.
1.26.“Legal or Regulatory Transfer” shall mean any transfer of any Registrable Securities held by any of the Goldman Parties or the KKR Parties, which, based on the advice of counsel, is necessary or appropriate to bring such Goldman Party or KKR Party (or any of their Affiliates) into compliance (or into anticipated compliance) with applicable law or regulation, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, as it may be amended from time to time, and the regulations promulgated thereunder.
1.27.“Major Investor” means (i) any Investor that, individually or together with such Investor’s Affiliates, holds at least 127,038 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof), and (ii) each of the KKR Parties for so long as they, individually or together with their Affiliates, collectively hold at least 43,840 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof).
1.28.“New Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.
1.29.“Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.
1.30.“Preferred Director” means any director of the Company that the holders of record of any series of Preferred Stock is entitled to elect pursuant to the Company’s Certificate of Incorporation.
1.31.“Preferred Stock” means, collectively, shares of the Company’s Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock.
1.32.“Prospectus” means the prospectus used in connection with a Registration Statement.
1.33.“Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clause (i) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 6.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Subsection 2.14 of this Agreement.
1.34.“Registrable Securities then outstanding” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
1.35.“Restricted Securities” means the securities of the Company required to be notated with the legend set forth in Subsection 2.13(b) hereof.
1.36.“SEC” means the Securities and Exchange Commission.
1.37.“SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.
1.38.“SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.
1.39.“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
1.40.“Selling Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.7.
1.41.“Series A Preferred Stock” means shares of the Company’s Series A Preferred Stock, par value $0.00001 per share.
1.42.“Series A-1 Preferred Stock” means shares of the Company’s Series A-1 Preferred Stock, par value $0.00001 per share.
1.43.“Series B Preferred Stock” means shares of the Company’s Series B Preferred Stock, par value $0.00001 per share.
1.44.“Series C Preferred Stock” means shares of the Company’s Series C Preferred Stock, par value $0.00001 per share.
1.45.“Series C-1 Preferred Stock” means shares of the Company’s Series C-1 Preferred Stock, par value $0.00001 per share
1.46.“Shelf Registration” means a registration of securities pursuant to a Registration Statement filed with the SEC in accordance with and pursuant to Rule 415 promulgated under the Securities Act (or any successor rule then in effect) that, in accordance with Subsection 2.2, the Company may be required to keep effective for longer than 90 days.
1.47.“TenEleven” means collectively, Ten Eleven Growth Fund, L.P. and Ten Eleven Growth Fund II, L.P.
1.48. “Transaction Agreements” means the Certificate of Incorporation, this Agreement, the Purchase Agreement and the other agreements entered into in connection with the Purchase Agreement.
2.Registration Rights. The Company covenants and agrees as follows:
2.1.Demand Registration.
(a)Form S-1 Demand. If at any time after the earlier of (i) four (4) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, (A) the Company receives a request from Holders of thirty percent (30%) of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least forty percent (40%) of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of Selling Expenses, would exceed $10 million) or (B) the Company receives a request from Holders of (i) a majority of the outstanding Series B Preferred Stock, or (ii) a majority of the outstanding Series C Preferred Stock and Series C-1 Preferred Stock together as a single class, if in the case of either of foregoing clauses (A), or (B) (x) the anticipated aggregate offering price, net of Selling Expenses would exceed $10 million or (y) the Registrable Securities to be sold by such Holders in such offering represent all of the remaining Registrable Securities held by such Holders, then the Company shall (x) within ten (10) days after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(b) and 2.4.
(b)Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Company’s Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such sixty (60) day period other than an Excluded Registration.
(c)The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a)(i) during the period that is sixty (60) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.2. The Company shall not be obligated to effect, or to take any action to effect, any registration (i) pursuant to Subsection 2.1(a)(i)(A) after the Company has effected two registrations pursuant to Subsection 2.1(a)(i)(A) or (ii) pursuant to Subsection 2.1(a)(i)(B) after the Company has effected two registrations pursuant to Subsection 2.1(a)(i)(B). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.2(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Subsection 2.2(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Subsection 2.1(c) until such time as the applicable registration statement has been declared effective by the SEC and is maintained effective until the date on which all Registrable Securities covered by such registration statement have been sold, provided, however, that if the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses thereof, and forfeit their right to one demand registration statement pursuant to Subsection 2.7, such withdrawal shall be counted as “effected” for purposes of this Subsection 2.1(c), unless such withdrawal is due to a delay by the Company to cause a registration statement to either become effective or remain effective.
2.2.Shelf Registration.
(a)Filing. The Company shall use commercially reasonable efforts to file, and shall thereafter use its commercially reasonable efforts to cause to be declared effective as promptly as reasonably practicable thereafter, a Shelf Registration on Form S-3 (or other appropriate form) for the offer and resale of Registrable Securities on a delayed or continuous basis (the “Form S-3 Shelf”) as soon as reasonably practicable after the Company is eligible to use Form S-3. The Company shall give written notice of the filing of the Form S-3 Shelf at least fifteen (15) days prior to filing thereof to all Holders of Registrable Securities (the “Shelf Registration Notice”) and shall include in such registration statement all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) days after sending the Shelf Registration Notice. The Company shall maintain the Form S-3 Shelf until the date on which all Registrable Securities have been sold pursuant to the Shelf Registration or have otherwise ceased to be Registrable Securities or, if sooner, the maximum length permitted by the SEC, and comply with the provisions of the Securities Act (including by preparing and filing with the SEC any Prospectus or supplement to be used in connection therewith) with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Holders as set forth in such registration statement.
(b)Requests for Underwritten Shelf Takedowns. At any time and from time to time after the Form S-3 Shelf having been declared effective by the SEC, any Holder or Holders (in such capacity, each a “Shelf Takedown Requesting Holder”) may request to sell all or any portion of their Registrable Securities (i) having an anticipated aggregate offering price, net of Selling Expenses, of at least $5 million or (ii) that represent all of the remaining Registrable Securities held by such Holders in an underwritten offering that is registered pursuant to the Form S-3 Shelf (each, an “Underwritten Shelf Takedown”).
(c)Demand Notices. All requests for Underwritten Shelf Takedowns shall be made by giving written notice to the Company (the “Demand Shelf Takedown Notice”). Each Demand Shelf Takedown Notice shall specify the approximate number of Registrable Securities proposed to be sold in the Underwritten Shelf Takedown and the expected price range (net of underwriting discounts and commissions) of such Underwritten Shelf Takedown. Within five (5) Business Days after receipt of any Demand Shelf Takedown Notice, the Company shall give written notice of such requested Underwritten Shelf Takedown to all other Holders which have Registrable Securities included on such Form S-3 Shelf (the “Company Shelf Takedown Notice”) and, subject to the provisions of Subsection 2.2(d), shall include in such Underwritten Shelf Takedown all Registrable Securities with respect to which the Company has received written requests for inclusion therein within five (5) Business Days after sending the Company Shelf Takedown Notice.
(d)Underwritten Block Trades. Notwithstanding the foregoing, if a Shelf Takedown Requesting Holder wishes to engage in an underwritten block trade or similar transaction or other transaction with a 2-day or less marketing period (collectively, “Underwritten Block Trade”) in an Underwritten Shelf Takedown, then notwithstanding the foregoing time periods, such Shelf Takedown Requesting Holder only needs to notify the Company of the Underwritten Block Trade two (2) Business Days prior to the day such offering is to commence, and the Company shall notify other Holders on the same day, and such other Holders must elect whether or not to participate by the next Business Day (i.e., one (1) Business Day prior to the day such offering is to commence), and the Company shall, subject to Subsection 2.2(e), use its commercially reasonable efforts to facilitate such Underwritten Shelf Takedown (which may close as early as three (3) Business Days after the date it commences); provided, however, that the Shelf Takedown Requesting Holder requesting such Underwritten Block Trade shall use commercially reasonable efforts to work with the Company and the underwriters prior to making such request in order to facilitate preparation of the registration statement, prospectus and other offering documentation related to the Underwritten Block Trade.
(e)Restrictions on Underwritten Shelf Takedowns. The Company shall not be obligated to effect an Underwritten Shelf Takedown within ninety (90) days after the pricing of a previous Underwritten Shelf Takedown, or, if longer, until the date on which the Company lock-up obligations in the previous Underwritten Shelf Takedown has expired.
(f)Selection of Underwriters. The Holders of a majority of the Registrable Securities requested to be included in an Underwritten Shelf Takedown shall have the right to select the investment banker(s) and manager(s) to administer the offering (which shall consist of one or more reputable nationally recognized investment banks), subject to the Company’s approval which shall not be unreasonably withheld, conditioned or delayed.
2.3.Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 2.4, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 2.3 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Subsection 2.7.
2.4.Underwriting Requirements.
(a)If, pursuant to Subsection 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Subsection 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders (including any of the Goldman Parties and the KKR Parties, to the extent either of them is an Initiating Holder). In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 2.5(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Subsection 2.4, if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
(b)In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Subsection 2.3, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering or (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Subsection 2.4(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.
(c)For purposes of Subsection 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Subsection 2.4(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
2.5.Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a)prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to
compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to one hundred twenty (120) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;
(b)prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c)furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d)use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e)in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
(f)use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g)provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h)promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i)notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
(j)after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
2.6.Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information specifically relating to (i) the beneficial ownership of shares of the capital stock of the Company by such Holder and its respective Affiliates as disclosed in the section of such document entitled “Selling Stockholders” or “Principal and Selling Stockholders” or other documents thereof, (ii) the name and address of such Holder and (iii) its intended method of disposition of such securities. Notwithstanding anything to the contrary in this Agreement, none of the Holders shall be required to furnish any additional information, unless otherwise expressly agreed to in writing by such respective Holder. If any additional information about such Holder is required by law or by the SEC to be disclosed in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, then such Holder shall not unreasonably withhold its agreement referred to in the immediately preceding sentence.
2.7.Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $100,000, of one counsel for the selling Holders (“Selling Holder Counsel”), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsection 2.1(a) or Subsection 2.1(b), as the case may be; provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Subsection 2.1(a) or Subsection 2.1(b). All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
2.8.Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
2.9.Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:
(a)To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, employees and stockholders of each such Holder; professional advisors for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.9(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
(b)To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration (as such written information may be corrected, supplemented or made not misleading (via written delivery) by such Holder prior to the filing of the applicable registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto); and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.9(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Subsections 2.9(b) and 2.9(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
(c)Promptly after receipt by an indemnified party under this Subsection 2.9 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Subsection 2.9, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Subsection 2.9, to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Subsection 2.9.
(d)To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Subsection 2.9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Subsection 2.9, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Subsection 2.9(d), when combined with the amounts paid or payable by such Holder pursuant to Subsection 2.9(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
(e)Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Subsection 2.9 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.
2.10.Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a)make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b)use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c)furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
2.11.Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the shares of common stock issued or issuable upon conversion of the then outstanding shares of Preferred Stock, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (i) to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included; (ii) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder or (iii) would grant any such holder or prospective holder, individually or collectively, the right to require the Company to effect an IPO; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Subsection 6.9.
2.12.“Market Stand-off” Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1 and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days in the case of the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Subsection 2.12 shall apply only to the IPO, and shall not apply to (i) the sale of any shares to an underwriter pursuant to an underwriting agreement, (ii) any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock acquired by an Investor or any of its Affiliates (excluding shares of Common Stock issued upon the conversion of the shares of Preferred Stock held by the Investor and its Affiliates), or (iii) the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value. The foregoing provisions of this Subsection 2.12 shall be applicable to the Holders only if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than one percent (1%) of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock). The underwriters in connection with such registration are intended third-party beneficiaries of this Subsection 2.12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Subsection 2.12 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
2.13.Restrictions on Transfer.
(a)The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-
transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
(b)Each certificate, instrument, or book entry representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Subsection 2.13(c)) be notated with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Subsection 2.13.
(c)The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any
transaction in compliance with SEC Rule 144; or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Subsection 2.13. Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Subsection 2.13(b), except that such certificate instrument, or book entry shall not be notated with such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act. The Company and the Holders hereby agree that the Investors shall not be bound by (and the Company shall waive) any of the foregoing restrictions on the transfer by an Investor of Restricted Securities (i) to one or more Affiliates of the Investor (with or without consideration) or (ii) in connection with any Legal or Regulatory Transfer, provided that the Investor gives written notice to the Company of such transfer.
2.14.Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsections 2.1 or 2.3 shall terminate upon the earliest to occur of:
(a)the closing of a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation;
(b)such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares without limitation during a three-month period without registration; and
(c)the fifth anniversary of the IPO.
2.15.Assistance with Obligations if Deemed an Underwriter.
(a)In connection with any offering of Registrable Securities by an Investor or any of its Affiliates as a selling shareholder covered by a registration statement filed by the Company with the SEC or covered by Offering Materials (as defined below) prepared by or on behalf of the Company and effected under Rule 144A or Regulation S (collectively, a “Covered Offering”), the Company agrees as follows:
(i)to cooperate with the applicable Investor or its Affiliates in allowing them to conduct customary “underwriter’s due diligence” with respect to the Company and satisfy any obligations they may have as an underwriter in connection with that Covered Offering;
(ii)at the request of the Investor, to furnish to the Investor from time to time on such dates as it may reasonably request (x) to the extent that the Company is receiving a letter, dated as of such date, from the Company’s independent accountants of the type customarily given by independent accountants in an offering of the type contemplated by the Covered Offering, an executed copy of that letter addressed to the Investor, and (y) to the extent that the Company is receiving opinion(s), dated as of
such date, of one or more counsel representing the Company in the Covered Offering (including both outside counsel and counsel employed by the Company) of the type customarily given by counsel in an offering of the type contemplated by the Covered Offering (including, without limitation, a standard “10b-5” opinion), an executed copy of each such opinion addressed to the Investor; and
(iii)to permit legal counsel to the Investor (as selected by the Investor in its sole discretion) to review and comment upon (x) any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or offering memorandum (the “Offering Materials”) at least five business days prior to its filing with the SEC or when it is first used, as the case may be, and each amendment or supplement to any Offering Materials within a reasonable number of days prior to its filing with the SEC or when it is first used, as the case may be (including, in particular, any disclosures related to Investor or the possibility of the Investor being named as an “underwriter,” as such term is defined in Section 2(a)(11) of the Securities Act, or a “deemed” underwriter). The Company shall also not file any registration statement or amendment or supplement thereto in a form to which legal counsel to the Investor reasonably objects.
(b)To the extent that Goldman Sachs, KKR or any of their Affiliates are deemed to be an underwriter of Registrable Securities pursuant to any SEC comments or policies, the Company agrees that the indemnification and contribution provisions contained in Section 2.8 shall be applicable to the benefit of such Person in their role as deemed underwriter in addition to their capacity as a Holder and such Person may require the Company to enter into a further agreement to such effect, including providing representations, warranties and indemnities similar to those contained in a customary underwriting agreement.
(c)Notwithstanding the foregoing, nothing in this Section 2.14 shall obligate the Company to engage Goldman Sachs, KKR or any of their Affiliates as an underwriter in any public offering of securities of the Company.
3.Information and Observer Rights.
3.1.Delivery of Financial Statements. The Company shall deliver to each Major Investor:
(a)as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Subsection 3.1(e)) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such year, and (iii) a statement of stockholders’ equity as of the end of such year, all such financial statements audited and certified by independent public accountants
of nationally recognized standing selected by the Company (provided, however, that the foregoing statements and other information for the 2018 fiscal year will not be required to be delivered until July 31, 2019);
(b)as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c)as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Major Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete, and correct;
(d)as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet and statement of stockholders’ equity as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(e)as soon as practicable, but in any event (i) sixty (60) days before the end of each fiscal year a draft of a budget and business plan for the next fiscal year, and (ii) thirty (30) days before the end of each fiscal year, a finalized budget and business plan for the next fiscal year (collectively, the “Budget”), approved by the Board of Directors and prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company;
(f)such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Major Investor may from time to time reasonably request (including without limitation a current capitalization table of the Company showing the number of shares of each class and series of capital stock and outstanding securities convertible into or exercisable for shares of capital stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Major Investors to calculate their respective percentage equity ownership in the Company); provided, however, that the Company shall not be obligated under this Subsection 3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in a form acceptable to the
Company); or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel; and
(g)on a current basis, information regarding any events, discussions with any governmental authority, notices or material changes with respect to any tax (other than ordinary course communications which would not reasonably be expected to be material to the Company), criminal or regulatory investigation or action involving the Company or any of its subsidiaries.
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Subsection 3.1 to the contrary, the Company may cease providing the information set forth in this Subsection 3.1 during the period starting with the date thirty (30) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Subsection 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective. Notwithstanding anything else to the contrary contained in this Agreement, the Company shall deliver to any Investor the information provided pursuant to Section 3.1(a), (b) and (g) for so long as the Investor or any of their Affiliates hold any Registrable Securities.
3.2.Inspection. The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Subsection 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
3.3.Observer Rights.
(a)For so long as the Elephant Parties together with their Affiliates and Permitted Transferees own not less than 91,925 shares of Preferred Stock (or an equivalent number of shares of Common Stock issued upon conversion thereof, such number to be adjusted for any stock splits, dividends, reorganizations or the like), the Company shall invite a representative of the Elephant Parties to attend all meetings of the Company’s Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting
or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets of the Company.
(b)For so long as the Goldman Parties together with their Affiliates and Permitted Transferees own not less than 41,148 shares of Preferred Stock (or an equivalent number of shares of Common Stock issued upon conversion thereof, such number to be adjusted for any stock splits, dividends, reorganizations or the like), the Company shall invite a representative of Goldman Sachs to attend all meetings of the Company’s Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets of the Company.
(c)For so long as the KKR Parties together with their Affiliates and Permitted Transferees own not less than 41,148 shares of Preferred Stock (or an equivalent number of shares of Common Stock issued upon conversion thereof, such number to be adjusted for any stock splits, dividends, reorganizations or the like), the Company shall invite two representatives of the KKR Parties to attend all meetings of the Company’s Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representatives copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representatives shall agree to hold in confidence and trust all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representatives from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets of the Company.
(d)For so long as Lars Letonoff (i) is an executive officer of the Company or (ii) owns or holds stock options or outstanding Shares representing not less than one (1%) percent of the Company’s outstanding Shares, on an as-converted basis, the Company shall invite Lars Letonoff to attend all meetings of the Company’s Board of Directors in a nonvoting observer capacity and, in this respect, shall give Lars Letonoff copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that Lars Letonoff shall agree to hold in confidence and trust all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude Lars Letonoff from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets of the Company. The right pursuant to this clause (c) is exclusive to Lars Letonoff and non- transferable and non-assignable.
3.4.Termination of Information and Observer Rights. The covenants set forth in Subsection 3.1, Subsection 3.2 and Subsection 3.3 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, whichever event occurs first.
3.5.Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Subsection 3.5 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, fundraising activities or protecting its rights under the Transaction Agreements; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Subsection 3.5; (iii) to any Affiliate, partner, member, officer, director, employee debt or equity funding source, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; (iv) as may otherwise be required by law or required or requested by any regulatory or governmental authority; or (v) as and to the extent that such Investor determines in good faith, based on the advice of counsel, to be necessary or advisable in light of ongoing review or oversight by a regulatory or governmental authority with jurisdiction over such Investor, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
4.Rights to Future Stock Issuances.
4.1.Right of First Offer. Subject to the terms and conditions of this Subsection 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Major Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having “beneficial ownership,” as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Major Investor (“Investor Beneficial Owners”); provided that any such Affiliate or Investor Beneficial Owner (y) is not a Competitor, unless such party’s purchase of New Securities is otherwise consented to by the Board of Directors, and (z) agrees to enter into this Agreement and each of the Voting Agreement and Right of First Refusal and Co-Sale Agreement of even date herewith among the Company, the Investors
and the other parties named therein, as an “Investor” under each such agreement (provided that any Competitor shall not be entitled to any rights as an Investor under Subsections 3.1, 3.2 and 4.1 hereof).
(a)The Company shall give notice (the “Offer Notice”) to each Major Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.
(b)By notification to the Company within twenty (20) days after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Major Investor (including all shares of Common Stock then issued or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Major Investor) bears to the total Common Stock of the Company held by all Major Investors together then outstanding (assuming full conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by all Major Investors together). At the expiration of such twenty (20) day period, the Company shall promptly notify each Major Investor that elects to purchase or acquire all the shares available to it (each, a “Fully Exercising Investor”) of any other Major Investor’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors were entitled to subscribe but that were not subscribed for by the Major Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Subsection 4.1(b) shall occur within the later of ninety (90) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Subsection 4.1(c).
(c)If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection 4.1(b), the Company may, during the ninety day period following the expiration of the periods provided in Subsection 4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Subsection 4.1.
(d)The right of first offer in this Subsection 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Company’s Certificate of Incorporation); and (ii) shares of Common Stock issued in the IPO.
4.2.Termination. The covenants set forth in Subsection 4.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, or (ii) upon a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, whichever event occurs first.
5.Additional Covenants.
5.1.Insurance. The Company currently maintains from financially sound and reputable insurers, Directors and Officers liability insurance and term “key-person” insurance on Sjoerd Sjouwerman, each in an amount and on terms and conditions satisfactory to the Board of Directors, and will use commercially reasonable efforts to cause such insurance policies to be maintained until such time as the Board of Directors (including the affirmative vote or consent of each Preferred Director) determines that such insurance should be discontinued. The key-person policy shall name the Company as loss payee, and neither policy shall be cancelable by the Company without prior approval by the Board of Directors including each Preferred Director. Notwithstanding any other provision of this Section 5.1 to the contrary, for so long as a Preferred Director is serving on the Board of Directors, the Company shall not cease to maintain a Directors and Officers liability insurance policy in an amount of at least two (2) million dollars unless approved by each Preferred Director.
5.2.Employee Agreements. The Company will cause (i) each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement; (ii) each employee to enter into a one (1) year nonsolicitation agreement and (iii) each employee that also receives any equity grant in connection with his or her employment to enter into a one (1) year noncompetition agreement. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above- referenced agreements or any restricted stock agreement between the Company and any employee, without the consent of one of the Preferred Directors.
5.3.Employee Stock. Unless otherwise approved by the Board of Directors, including one of the Preferred Directors, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof (“Future Equity”) shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a market stand-off provision substantially similar to that in Subsection 2.12. Any “acceleration” provisions included as part of any issuance of Future Equity (whether in connection with a change in control of the Company or otherwise) shall be approved by the Board of Directors, including one of the Preferred Directors. In addition, unless otherwise approved by the Board of Directors, including one of the Preferred Directors, the Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and shall
have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.
5.4.Matters Requiring Investor Director Approval. So long as the holders of Preferred Stock are entitled to elect a Preferred Director, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote of one of the Preferred Directors, provided, however, that clauses (g) and (i) shall require the affirmative vote of at least two-thirds of the Preferred Directors:
(a)make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;
(b)make, or permit any subsidiary to make, any loan or advance to any Person, including, without limitation, any employee or director of the Company or any subsidiary, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;
(c)guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;
(d)otherwise enter into or be a party to any transaction with any director or officer of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, including without limitation any “management bonus” or similar plan providing payments to employees in connection with a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, except for transactions contemplated by this Agreement, the Purchase Agreement, and transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair, reasonable and arms-length terms that are approved by a majority of the Board of Directors;
(e)hire, terminate, or change the compensation of the executive officers, including approving any option grants, stock awards or bonuses to executive officers;
(f)change the principal business of the Company, enter new lines of business, or exit the current line of business;
(g)sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business; or
(h)enter into any corporate strategic relationship involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $500,000; or
(i)enter into any corporate strategic relationship involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $1,000,000.
5.5.Board Matters. Unless otherwise determined by the vote of a majority of the directors then in office, the Board of Directors shall meet at least quarterly in accordance with an agreed-upon schedule. The Company shall reimburse the nonemployee directors and board observers for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending meetings of the Board of Directors. Each Preferred Director shall be entitled at such person’s discretion to be a member of any Board of Directors committee or subcommittee. If and for so long as the Elephant Parties, the Goldman Parties, and/or the KKR Parties have a designee on the Board of Directors, elected in accordance with the Voting Agreement, the Company shall, unless waived by the relevant designee, require that the presence of such designee in any meeting of the Board of Directors or any committee or subcommittee thereof shall be required in order for a quorum of the Board of Directors, or any such committee or subcommittee, to transact business.
5.6.Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, its Certificate of Incorporation, or elsewhere, as the case may be.
5.7.Indemnification Matters. The Company hereby acknowledges that one (1) or more of the directors nominated to serve on the Board of Directors by the Investors (each a “Fund Director”) may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Fund Director are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Fund Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by such Fund Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Fund Director to the extent legally permitted and as required by the Company’s Certificate of Incorporation or Bylaws of the Company (or any agreement between the Company and such Fund Director), without regard to any rights such Fund Director may have against the Fund Indemnitors, and, (c) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of any such Fund Director with respect to any claim for which such Fund Director has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Fund Director against the Company. So long as the holders of Series B Preferred Stock and/or Series C Preferred Stock are respectively entitled to appoint a director to the Board of Directors, the Company hereby covenants and agrees to execute, deliver and perform for any such director newly
appointed, an indemnification agreement in form attached hereto as Exhibit A, or in form satisfactory to such director and the Company.
5.8.Right to Conduct Certain Activities.
(a)The Company hereby agrees and acknowledges that the Elephant Parties and the KKR Parties and/or their Affiliates are professional investment funds and Goldman Sachs is in the business of venture capital, growth equity and private equity investing, and as such may invest in numerous portfolio companies, some of which may be deemed competitive with the Company’s business (as currently conducted or as currently propose to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, neither the Elephant Parties, Goldman Sachs, the KKR Parties nor any of their respective Affiliates shall be liable to the Company for any claim arising out of, or based upon, (i) the investment by the Elephant Parties, Goldman Sachs, the KKR Parties or any of their respective Affiliates in any entity competitive with the Company, or (ii) actions taken by any partner, officer or other representative of the Elephant Parties, Goldman Sachs, the KKR Parties or any of their respective Affiliates to assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided, however, that the foregoing shall not relieve (x) any of the Investors from liability associated with the unauthorized disclosure of the Company’s confidential information obtained pursuant to this Agreement, or (y) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.
(b)The Company agrees not to require the Investors or any of their Affiliates to (i) limit or restrict any of its business activities (including, without limitation, business activities of an Investor or any of its Affiliates in the same line of business as the Company or investments by an Investor or any of its Affiliates in any entity engaged in the same line of business of the Company), (ii) send any business opportunities to the Company or (iii) violate any duty or client confidence.
(c)Notwithstanding anything to the contrary in this Agreement (including, without limitation, Section 2.12), the Purchase Agreement or in any of the other Transaction Agreements, none of the provisions herein or therein shall in any way limit Goldman Sachs, the KKR Parties or any of their respective Affiliates from engaging in any brokerage, investment advisory, financial advisory, anti-raid advisory, principaling, merger advisory, financing, asset management, trading, market making, arbitrage, investment activity or other similar activities conducted in the ordinary course of its business.
(d)The parties hereto acknowledge and agree that nothing in this Agreement or any of the Transaction Agreements shall create a fiduciary duty of (i) Goldman Sachs or (ii) the KKR Parties or any of their respective Affiliates to the Company or its shareholders.
(e)Notwithstanding anything to the contrary in this Agreement, any of the other Transaction Agreements or any actions or omissions by representatives of Goldman Sachs or the KKR Parties in whatever capacity, it is understood that neither Goldman Sachs nor the KKR Parties are acting under this Agreement or any of the Transaction Agreements as a
financial advisor, agent or underwriter to the Company or any of its Affiliates or otherwise on behalf of the Company or any of its Affiliates.
(f)The Company hereby acknowledges and agrees that it will not, for so long as the Goldman Parties or the KKR Parties hold any Registrable Securities, enter into any agreements, understanding or arrangement with clients, or otherwise engage in any activities or investments that would cause it to be engaged in activities that are “financial in nature” and “activities that are incidental thereto”, as defined under Section 4(k) of the Bank Holding Company Act, as amended, 12 USC 1843(k)(4)(B) and (F), and the Federal Reserve Board’s Regulation Y, 12 CFR 225.28 thereunder, without the prior written consent of (i) the Goldman Parties holding a majority of the shares of Common Stock issued or issuable upon conversion of the then outstanding shares of Preferred Stock held by the Goldman Parties, and (ii) the KKR Parties holding a majority of the shares of Common Stock issued or issuable upon conversion of the then outstanding shares of Preferred Stock held by the KKR Parties.
5.9.FCPA. The Company represents that it shall not (and shall not permit any of its subsidiaries or affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to) promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, any third party, including any Non-U.S. Official (as (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti- corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) cease all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti- corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. Upon request, the Company agrees to provide responsive information and/or certifications concerning its compliance with applicable anti-corruption laws. The Company shall promptly notify each Investor if the Company becomes aware of any Enforcement Action (as defined in the Purchase Agreement). The Company shall, and shall cause any direct or indirect subsidiary or entity controlled by it, whether now in existence or formed in the future, to comply with the FCPA. The Company shall use its best efforts to cause any direct or indirect subsidiary, whether now in existence or formed in the future, to comply in all material respects with all applicable laws. In furtherance of the foregoing, the Company shall implement the actions, policies and procedures indicated on Schedule I attached hereto by the applicable timeline provided on Schedule I attached hereto.
5.10.Trade Control Compliance.
(a)The Company shall, and shall cause all of its controlled Affiliates to, comply with all applicable International Trade Laws.
(b)Affiliates of Goldman Sachs are required to disclose under Section 13(r) of the Exchange Act (“Section 13(r)”) whether any of their affiliates have engaged during the calendar year in certain Iran-related activities, including those targeted under the Iran Sanctions of Act of 1996 and other Iran-related Laws. To the extent that the Company, or its controlled Affiliates, officers or directors are, or become, engaged in any activities that would be reportable by the Company if the Company was required to make a disclosure under Section 13(r), the Company shall promptly upon becoming aware of such information disclose such information in writing to the Goldman Parties in sufficient detail in order that Affiliates of Goldman Sachs can timely satisfy their own disclosure obligations under Section 13(r). After the end of each calendar year, but in no event later than fifteen (15) days after the end of each calendar year, the Company shall provide a written certification to the Goldman Parties that it and its controlled Affiliates, officers and directors have disclosed to Goldman Sachs all activities contemplated by this Section 5.11(b).
(c)As soon as practicable after the date hereof, the Company shall implement suitable written, risk-based compliance procedures and related training regarding International Trade Laws along with procedures for the collection of data and other information required under Section 13(r) from its controlled Affiliates, officers and directors. In furtherance of the foregoing, the Company shall implement the actions, policies and procedures indicated on Schedule I attached hereto by the applicable timeline provided on Schedule I attached hereto.
5.11.Use of Name.
(a)The Company agrees that it will not, without the prior written consent of the Goldman Parties holding a majority of the shares of Common Stock issued or issuable upon conversion of the then outstanding shares of Preferred Stock held by the Goldman Parties, use in connection with any public announcement, posting of information on a website or written news release, advertising, publicity or otherwise, the name of Goldman Sachs & Co. LLC or any of its Affiliates or any partner or employee thereof, nor represent, directly or indirectly, that any product or service provided by the Company has been approved or endorsed by any of the foregoing. Notwithstanding the foregoing, the Company may use and disclose the name of Goldman Sachs in disclosures required by law or regulation; provided, Goldman Sachs is given prior written notice of such requirement and an opportunity to seek a protective order. The Company hereby grants to Goldman Sachs and its Affiliates permission to use the Company’s name and logo in their respective marketing materials. Goldman Sachs and its Affiliates shall include a trademark attribution notice giving notice of the Company’s ownership of its trademarks in the marketing materials in which the Company’s name and logo appear.
(b)The Company agrees that it will not, without the prior written consent of the relevant KKR Party, use in connection with any public announcement, posting of information on a website or written news release, advertising, publicity or otherwise, the name of any of the KKR Parties or any of their Affiliates or any partner or employee thereof, nor represent, directly or indirectly, that any product or service provided by the Company has been approved or endorsed by any of the foregoing. Notwithstanding the foregoing, the Company may use and disclose the names of the KKR Parties in disclosures required by law or regulation; provided, the KKR Parties are given prior written notice of such requirement and an opportunity to seek a protective order. The Company hereby grants to the KKR Parties and their Affiliates permission
to use the Company’s name and logo in their respective marketing materials. The KKR Parties and their Affiliates shall include a trademark attribution notice giving notice of the Company’s ownership of its trademarks in the marketing materials in which the Company’s name and logo appear.
5.12.Restrictive Covenants. The Company agrees that it has not and will not enter into any agreement that contains a non-competition or non-solicitation covenant that binds any of the Investors or their Affiliates (other than any Investor that is an employee or officer of the Company and any of his or her Affiliates); nor shall the Company require any Investor (other than any Investor that is an employee or officer of the Company and any of his or her Affiliates) to agree to or execute any agreement or instrument containing any non-competition or non-solicitation covenant applicable to such Investor or its Affiliates.
5.13.Investor Agreements.
(a)The Company hereby represents and warrants to the KKR Parties that, except for the Transaction Agreements, the Series A Preferred Stock Purchase Agreement between the Company and the Investors named therein, dated January 19, 2016, the Series A-1 Preferred Stock Purchase Agreement between the Company and the Investors named therein, dated February 22, 2017, the Series B Preferred Stock Purchase Agreement between the Company and the Investors named therein, dated October 19, 2017, the Series C Preferred Stock Purchase Agreement between the Company and the Investors named therein, dated February 27, 2019 and customary management rights letter agreements with certain of the Investors entered into concurrently with their purchase of Preferred Stock, the Company is not a party to any agreements, arrangements or understandings, whether written or oral, with any holder of shares of Preferred Stock with respect to the rights, preferences, privileges or restrictions of the Preferred Stock (or any series thereof).
(b)The Company hereby agrees to disclose to the Goldman Parties and the KKR Parties all material agreements, arrangements or understandings, whether written or oral, that the Company enters into or agrees to with any current or future holders of shares of Preferred Stock, or other shares of preferred stock of the Company issued from time to time, with respect to the rights, preferences, privileges or restrictions of such shares of Preferred Stock or other preferred stock.
5.14.Termination of Covenants. The covenants set forth in this Section 5, except for Subsection 5.7, shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, whichever event occurs first.
6.Miscellaneous.
6.1.Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holder’s Immediate Family Member or
trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; (iii) after such transfer, holds at least 200,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations) or (iv) in connection with a Legal or Regulatory Transfer; provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Subsection 2.12. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
6.2.Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of New York, without regard to conflicts of law principles thereof.
6.3.Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
6.4.Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
6.5.Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage
prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Subsection 6.5. If notice is given to the Company, a copy shall also be sent to Foley & Lardner LLP, 100 North Tampa Street, Suite 2700, Tampa Florida 33602, Attention: Curt P. Creely and if notice is given to Stockholders, a copy shall also be given to Fried, Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New York, NY 10004, Attention: Mark H. Lucas, (ii) Goldman Sachs & Co. LLC, 200 West Street New York, NY 10282, Attention: Benjamin P. Haskins, (iii) Sidley Austin LLP, Woolgate Exchange, 25 Basinghall Street, London EC2V 5HA, United Kingdom, Attention: Wim De Vlieger, and (iv) Kohlberg Kravis Roberts & Co. Partners LLP, Stirling Square, 7 Carlton Gardens, London SW1Y 5AD, United Kingdom, Attention: Stephen Shanley, and (v) Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, One Marina Park Drive, Suite 900, Boston, MA 02210, Attention: Michael S. Hacker.
6.6.Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of the Preferred Stock by means of a Requisite Preferred Holder Consent (as that term is defined in the Certificate of Incorporation); provided that the Company may in its sole discretion waive compliance with Subsection 2.13(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Subsection 2.13(c) shall be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, (i) this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction), (ii) Subsection 3.3(a) hereof may only be amended or waived with the prior written consent of the Elephant Parties holding a majority of the shares of Common Stock issued or issuable upon conversion of the then-outstanding shares of Preferred Stock held by the Elephant Parties, Subsection 3.3(b) hereof may only be amended or waived with the prior written consent of the Goldman Parties holding a majority of the shares of Common Stock issued or issuable upon conversion of the then outstanding shares of Preferred Stock held by the Goldman Parties, and Subsection 3.3(c) hereof may only be amended or waived with the prior written consent of KKR, and (iii) Section 2.5 (Furnish Information), the second sentence of Section 2.12 (Market Stand-off Agreement), the third and final sentences of Section 2.13(c) (Restriction on Transfer), Section 2.15 (Assistance with Obligations if Deemed an Underwriter), Section 3.3(b) (Board Observer), Section 5.1 (Insurance), Section 5.5 (Board Matters), Section 5.8 (Right to Conduct Certain Activities), Section 5.9 (FCPA), Section 5.10 (Trade Control
Compliance), Section 5.11 (Use of Name), Section 5.12 (Restrictive Covenants), Section 5.13 (Investor Agreements), and this Section 6.6 (Amendments and Waivers) of this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the prior written consent of such Investor. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Subsection 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
6.7.Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
6.8.Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
6.9.Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Preferred Stock after the date hereof, whether pursuant to the Purchase Agreement or otherwise, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.
6.10.Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) and the other Transaction Agreements constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect
6.11.Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of New York and to the jurisdiction of the United States District Court for the Southern District of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon
this Agreement except in the state courts of New York or the United States District Court for the Southern District of New York, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
6.12.WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL- ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
6.13.The prevailing party shall be entitled to reasonable attorney’s fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled. Each of the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for the Southern District of New York or any court of the State of New York having subject matter jurisdiction.
6.14.Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
6.15.Acknowledgment. The Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing
or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.
6.16.Exculpation. Each Investor acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Investor agrees that no Investor or its Affiliates, respective controlling persons, officers, directors, partners, agents, or employees shall be liable to any other Investor for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of any securities of the Company.
6.17.Sale Rights.
(a)Goldman Sachs and its Affiliates holding any shares of capital stock of the Company shall have the right and option to sell any or all of its shares of capital stock of the Company (including shares of Series B Preferred Stock and Common Stock issued upon the conversion thereof) to the Company at any time for an aggregate purchase price equal to $1.00 (one dollar) by delivery of a written notice to the Company setting forth the number and class of shares to be sold, without the necessity of obtaining the consent or approval of the Company or any other stockholder.
(b)Each Investor shall have the right and option to sell any or all of its shares of capital stock of the Company (including shares of Preferred Stock and shares of Common Stock issued upon the conversion thereof) to the Company at any time for an aggregate purchase price equal to $1.00 (one dollar) by delivery of a written notice to the Company setting forth the number and class of shares to be sold, without the necessity of obtaining the consent or approval of the Company or any other stockholder.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman
|
|
|
Name:
|
Sjoerd Sjouwerman
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
|
|
Address:
|
33 North Garden Ave
Suite 1200
Clearwater, FL 33755
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
ELEPHANT PARTNERS I, L.P.
|
|
|
|
|
|
|
By: Elephant Partners GP I, LLC
|
|
|
Its: General Partner
|
|
|
|
|
|
|
By:
|
/s/ Jeremiah Daly
|
|
|
Name: Jeremiah Daly
|
|
|
Title: Managing Member
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
11 Newbury Street, 5th Floor
Boston, MA 02116
Attention: Patrick Cammarata, COO
Email: pat@elephantvc.com
|
|
|
|
|
|
|
ELEPHANT PARTNERS II, L.P.
for itself and as nominee for
ELEPHANT PARTNERS II-B, L.P.
|
|
|
|
|
|
|
By: Elephant Partners GP II, LLC
|
|
|
Its: General Partner
|
|
|
|
|
|
|
By:
|
/s/ Jeremiah Daly
|
|
|
Name: Jeremiah Daly
|
|
|
Title: Managing Member
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
11 Newbury Street, 5th Floor
Boston, MA 02116
Attention: Patrick Cammarata, COO
Email: pat@elephantvc.com
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
ELEPHANT PARTNERS 2019 SPV-A, L.P.
|
|
|
|
|
|
|
By: Elephant Partners GP I, LLC
|
|
|
Its: General Partner
|
|
|
|
|
|
|
By:
|
/s/ Jeremiah Daly
|
|
|
Name: Jeremiah Daly
|
|
|
Title: Managing Member
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
11 Newbury Street, 5th Floor
Boston, MA 02116
Attention: Patrick Cammarata, COO
Email: pat@elephantvc.com
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
BROAD STREET PRINCIPAL
INVESTMENTS, L.L.C.
|
|
|
|
|
|
|
By:
|
/s/ Joseph DiSabato
|
|
|
Name: Joseph DiSabato
|
|
|
Title: Vice President
|
|
|
|
|
|
|
Address:
|
c/o Goldman Sachs & Co. LLC
555 California Street, 45th Floor
San Francisco, California
Facsimile: (415) 249 -7400
Email: Joe.DiSabato@gs.com
|
|
|
|
|
|
|
With a copy which shall not constitute notice to:
|
|
|
|
|
|
|
Fried, Frank, Harris, Shriver & Jacobson LLP,
One New York Plaza, New York, NY 10004,
Facsimile: (212) 859-4000
Email: Mark.Lucas@friedfrank.com
Attention: Mark H. Lucas
|
|
|
|
|
|
|
Goldman Sachs & Co. LLC
200 West Street, New York, NY 10282,
Facsimile: (212) 493-9039
Email: Ben.Haskins@gs.com
Attention: Benjamin P. Haskins
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
STONEBRIDGE 2017, L.P.
|
|
|
|
|
|
|
By: Bridge Street Opportunity Advisors, L.L.C.
|
|
|
Its: General Partner
|
|
|
|
|
|
|
By:
|
/s/ Joseph DiSabato
|
|
|
Name: Joseph DiSabato
|
|
|
Title: Vice President
|
|
|
|
|
|
|
Address:
|
c/o Goldman Sachs & Co. LLC
555 California Street, 45th Floor
San Francisco, California
Facsimile: (415) 249 -7400
Email: Joe.DiSabato@gs.com
|
|
|
|
|
|
|
With a copy which shall not constitute notice to:
|
|
|
|
|
|
|
Fried, Frank, Harris, Shriver & Jacobson LLP,
One New York Plaza, New York, NY 10004,
Facsimile: (212) 859-4000
Email: Mark.Lucas@friedfrank.com
Attention: Mark H. Lucas
|
|
|
|
|
|
|
Goldman Sachs & Co. LLC
200 West Street, New York, NY 10282,
Facsimile: (212) 493-9039
Email: Ben.Haskins@gs.com
Attention: Benjamin P. Haskins
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
STONEBRIDGE 2017 OFFSHORE, L.P.
|
|
|
|
|
|
|
By: Bridge Street Opportunity Advisors, L.L.C.
|
|
|
Its: General Partner
|
|
|
|
|
|
|
By:
|
/s/ Joseph DiSabato
|
|
|
Name:
|
Joseph DiSabato
|
|
|
Title:
|
Vice President
|
|
|
|
|
|
|
Address:
|
c/o Goldman Sachs & Co. LLC
555 California Street, 45th Floor
San Francisco, California
Facsimile: (415) 249 -7400
Email: Joe.DiSabato@gs.com
|
|
|
|
|
|
|
With a copy which shall not constitute notice to:
|
|
|
|
|
|
|
Fried, Frank, Harris, Shriver & Jacobson LLP,
One New York Plaza, New York, NY 10004,
Facsimile: (212) 859-4000
Email: Mark.Lucas@friedfrank.com
Attention: Mark H. Lucas
|
|
|
|
|
|
|
Goldman Sachs & Co. LLC
200 West Street, New York, NY 10282,
Facsimile: (212) 493-9039
Email: Ben.Haskins@gs.com
Attention: Benjamin P. Haskins
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
KKR KNOWLEDGE INVESTORS L.P.
|
|
|
|
|
|
|
By: KKR Knowledge Investors GP LLC
|
|
|
Its: General Partner
|
|
|
|
|
|
|
By:
|
/s/ William J. Janetschek
|
|
|
Name: William J. Janetschek
|
|
|
Title: Chief Financial Officer, Treasurer and Vice President
|
|
|
|
|
|
|
Address:Kohlberg Kravis Roberts & Co. L.P.
9 W 57th St Suite 4200
New York, NY 10019
|
|
|
|
|
|
|
With a copy which shall not constitute notice to:
|
|
|
|
|
|
|
Sidley Austin LLP
Woolgate Exchange
25 Basinghall Street
London EC2V 5hA
Email: wdevlieger@sidley.com
Attention: Wim De Vlieger
|
|
|
|
|
|
|
Kohlberg Kravis Roberts & Co. Partners LLP
Stirling Square
7 Carlton Gardens
London SW1Y 5AD
Email: stephen.shanley@kkr.com
Attention: Stephen Shanley
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
TEN ELEVEN GROWTH FUND II, L.P.
a Cayman Islands exempted limited partnership
|
|
|
|
|
|
|
By:
|
TEN ELEVEN MID-TIER GP ENTITY II, L.P., a Cayman Islands exempted limited partnership
|
|
|
Its:
|
General Partner
|
|
|
|
|
|
|
By:
|
TEN ELEVEN TOP-TIER GP, LTD., a Cayman Islands exempted limited company
|
|
|
Its:
|
General Partner
|
|
|
|
|
|
|
By:
|
/s/ Mark Hatfield
|
|
|
Name:
|
Mark Hatfield
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
Address:
|
345 Lorton Ave, Suite 401
c/o Ten Eleven Ventures
Burlingame, CA 94010
|
|
|
|
|
|
|
With a copy which shall not constitute notice to:
|
|
|
|
|
|
|
Goodwin Procter LLP
100 Northern Avenue
Boston, MA 02210
Email: RBishop@goodwinlaw.com
Attention: Robert E. Bishop
|
|
|
|
|
|
|
Ten Eleven Ventures, LLC
345 Lorton Ave., Suite 401
Burlingame, CA 94010
Email: mh@1011vc.com
Attention: Mark Hatfield
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
TEN ELEVEN GROWTH FUND, L.P.
a Cayman Islands exempted limited partnership
|
|
|
|
|
|
|
By:
|
TEN ELEVEN MID-TIER GP ENTITY, L.P., a Cayman Islands exempted limited partnership
|
|
|
Its:
|
General Partner
|
|
|
|
|
|
|
By:
|
TEN ELEVEN TOP-TIER GP, LTD., a Cayman Islands exempted limited company
|
|
|
Its:
|
General Partner
|
|
|
|
|
|
|
By:
|
/s/ Mark Hatfield
|
|
|
Name:
|
Mark Hatfield
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
Address:
|
345 Lorton Ave, Suite 401
c/o Ten Eleven Ventures
Burlingame, CA 94010
|
|
|
|
|
|
|
With a copy which shall not constitute notice to:
|
|
|
|
|
|
|
Goodwin Procter LLP
100 Northern Avenue
Boston, MA 02210
Email: RBishop@goodwinlaw.com
Attention: Robert E. Bishop
|
|
|
|
|
|
|
Ten Eleven Ventures, LLC
345 Lorton Ave., Suite 401
Burlingame, CA 94010
Email: mh@1011vc.com
Attention: Mark Hatfield
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
KB4 INDIANA, LLC
|
|
|
|
|
|
|
By:
|
/s/ George B. Huber
|
|
|
Name: George B. Huber
|
|
|
Title: Manager
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
KB4 Indiana, LLC
c/o Equity Investment Group
127 W. Berry Street, Suite 300
Fort Wayne, IN 46802
Attn: George B. Huber, Manager
Email: ghuber@eigfw.com
(with a copy which shall not constitute notice to: azirille@eigfw.com)
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
AHM INVESTMENT HOLDINGS LLC SERIES C
|
|
|
|
|
|
|
By: Arena Holdings Group LP Series B, its Member
|
|
|
By: Arena Holdings Management LLC, its General Partner
|
|
|
|
|
|
|
By:
|
/s/ Feroz Dewan
|
|
|
Name: Feroz Dewan
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
|
|
Address:
|
119 Fifth Avenue
8th Floor
New York, New York 10003
|
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
KNOWBE4, INC.
2016 EQUITY INCENTIVE PLAN
1.PURPOSE. The KnowBe4, Inc. 2016 Equity Incentive Plan has two complementary purposes: (a) to attract and retain outstanding individuals to serve as officers, employees, directors, consultants and advisors to the Company and its affiliates, and (b) to increase stockholder value. The Plan will provide participants incentives to increase stockholder value by offering the opportunity to share in the Company’s success through acquisition of shares of the Company’s common stock or receipt of monetary payments based on the value of such common stock on potentially favorable terms.
2.EFFECTIVE DATE. The Plan shall become effective and Awards may be granted on and after January 19 , 2016.
3.DEFINITIONS. Capitalized terms used in this Plan have the following meanings:
(a)“Affiliate” means with respect to any Person, (i) any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation any partner, officer, director, or member of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person, or (ii) where applicable, an individual’s spouse and descendants (whether natural or adopted) and any trust formed solely for the benefit of such individual and/or such individual’s spouse and/or descendants.
(b)“Award” means a grant of Options, Stock Appreciation Rights, Performance Shares, Restricted Shares or Restricted Stock Units.
(c)“Board” means the Board of Directors of the Company.
(d)“Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied, including, but not limited to, the signing of documents by all parties and approval by all regulatory agencies, if required:
(i)the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing the domicile of the Company), unless the Company’s stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least fifty percent (50%) of the voting power of the surviving or acquiring entity (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Sale of Company hereunder); or
(ii)a sale of all or substantially all of the assets of the Company, other than such transaction effected primarily for the purpose of changing the domicile of the Company.
Notwithstanding the foregoing, with respect to an Award that is considered deferred compensation subject to Code Section 409A, if the definition of “Change of Control” results in the payment of such Award, then such definition shall be amended to the minimum extent necessary, if at all, so that the definition satisfies the requirements of a change of control under Code Section 409A.
(e) “Cause” shall have the same meaning as set forth in your employment agreement or individual Award with the Company, or, if you do not have an employment agreement with the
Company (or your individual Award does not otherwise define the term), “Cause” shall mean a good faith finding by the Company that you have (i) failed, neglected, or refused to perform the lawful employment duties related to your position or as from time to time assigned to you (other than due to disability within the meaning of Code Section 22(e)(3)); (ii) committed any willful, intentional, or grossly negligent act having the effect of injuring the interest, business, or reputation of the Company or any Affiliate; (iii) violated or failed to comply in any material respect with the Company’s or an Affiliate’s published rules, regulations, or policies, as in effect or amended from time to time, to the extent applicable to you; (iv) committed an act constituting a felony or misdemeanor involving moral turpitude, fraud, theft, or dishonesty; (v) misappropriated or embezzled any property of the Company or an Affiliate (whether or not an act constituting a felony or misdemeanor); or (vi) breached any material provision of any applicable confidentiality, non-compete, non-solicit, general release, covenant not-to-sue, or other agreement with the Company or any Affiliate.
(f)“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.
(g)“Committee” means the Compensation Committee of the Board (or a successor committee with similar authority).
(h)“Common Stock” means the common stock of the Company.
(i)“Company” means KnowBe4, Inc., a Delaware corporation, or any successor thereto.
(j)“Disability” means inability, in the opinion of a qualified physician acceptable to the Board, to perform your duties with the Company or an Affiliate because of your sickness or injury.
(k)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. Any reference to a specific provision of the Exchange Act shall be deemed to include any successor provision thereto.
(l)“Fair Market Value” means, per Share on a particular date, the value as determined by the Committee using a reasonable valuation method within the meaning of Code Section 409A, based on all information in the Company’s possession at such time, or if the Company in its sole discretion so chooses, the value as determined by an independent appraiser selected by the Board or Committee.
(m)“Good Reason” means any of the following events that are not cured to the reasonable satisfaction of the Participant after providing notice to the Company and a thirty (30) day period to cure: a material diminution of the Participant’s responsibilities, or those of the Participant’s direct report, as compared to the Participant’s responsibilities immediately prior to the termination, (ii) any reduction in the Participant’s base salary or bonus plan targets as compared to such base salary or such targets as of the date immediately prior to the termination, or (iii) any relocation of the Participant’s principal place of employment to a location more than seventy-five (75) miles from the Participant’s principal place of employment as of the date immediately prior to the termination.
(n)“Option” means the right to purchase Shares at a stated price upon and during a specified time. “Options” may either be “incentive stock options” which meet the requirements of Code Section 422, or “nonqualified stock options” which do not meet the requirements of Code Section 422.
(o) “Participant” means an officer or other employee of the Company or its Affiliates, or an individual that the Company or an Affiliate has engaged to become an officer or employee, or a consultant or advisor who provides services to the Company or its Affiliates, including a non-employee
director of the Board, Advisor to the Company or any other person whom the Committee designates to receive an Award.
(p)“Performance Shares” means the right to receive Shares to the extent the Company, Subsidiary, Affiliate or other business unit and/or Participant achieves certain goals that the Committee establishes over a period of time the Committee designates.
(q)“Person” means any natural person, general partnership, limited partnership, corporation, association, cooperative, joint stock company, trust, limited liability company, business trust, joint venture, unincorporated organization or governmental entity (or any department, agency or political subdivision thereof) or any other natural person or entity in its own or any representative capacity.
(r)“Plan” means this KnowBe4, Inc. 2016 Equity Incentive Plan, as amended from time to time.
(s)“Restricted Shares” means Shares that are subject to a risk of forfeiture and/or restrictions on transfer, which may lapse upon the achievement or partial achievement of performance goals during a specified period and/or upon the completion of a period of service or upon the occurrence of other events, as determined by the Committee.
(t)“Restricted Stock Unit” means the right to receive a Share, or a cash payment, the amount of which is equal to the Fair Market Value of a Share, which is subject to a risk of forfeiture which may lapse upon the achievement or partial achievement of performance goals during a specified period and/or upon the completion of a period of service or upon the occurrence of other events, as determined by the Committee.
(u)“Share” means a share of Common Stock.
(v)“Stock Appreciation Right” or “SAR” means the right of a Participant to receive cash, and/or Shares with a Fair Market Value, equal to the excess of the Fair Market Value of a Share over the grant price.
(w)“Subsidiary” means, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries).
(x)“10% Owner-Employee” means an employee who, at the time an incentive stock option is granted, owns (directly or indirectly, within the meaning of Code Section 424(d)) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Subsidiary.
4.ADMINISTRATION.
(a)Committee Administration. The Committee has full authority to administer this Plan, including the authority to (i) interpret the provisions of this Plan, (ii) prescribe, amend and rescind rules and regulations relating to this Plan, (iii) correct any defect, supply any omission, or reconcile any
inconsistency in any Award or agreement covering an Award in the manner and to the extent it deems desirable to carry this Plan into effect, and (iv) make all other determinations necessary or advisable for the administration of this Plan. All actions or determinations of the Committee are made in its sole discretion and will be final and binding on any person with an interest therein. If at any time the Committee is not in existence, the Board shall administer the Plan and references to the Committee in the Plan shall mean the Board.
(b)Delegation to Committees or Officers. To the extent applicable law permits, the Board may delegate to another committee of the Board or to one or more officers of the Company, or the Committee may delegate to a sub-committee, any or all of the authority and responsibility of the Committee. If the Board or Committee has made such a delegation, then all references to the Committee in this Plan include such committee, sub-committee or one or more officers to the extent of such delegation.
(c)No Liability. No member of the Committee, and no individual or officer to whom a delegation under subsection (b) has been made, will be liable for any act done, or determination made, by the individual in good faith with respect to the Plan or any Award. The Company will indemnify and hold harmless such individual to the maximum extent that the law and the Company’s bylaws permit.
5.DISCRETIONARY GRANTS OF AWARDS. Subject to the terms of this Plan, the Committee has full power and authority to: (a) designate from time to time the Participants to receive Awards under this Plan; (b) determine the type or types of Awards to be granted to each Participant; (c) determine the number of Shares with respect to which an Award relates; and (d) determine any terms and conditions of any Award. Awards may be granted either alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted under another plan of the Company or any Affiliate). The Committee’s designation of a Participant in any year will not require the Committee to designate such person to receive an Award in any other year. If an Option or SAR is granted to a Participant who does not provide services to the Company or any subsidiary that qualifies as an Affiliate, then such Award is considered nonqualified deferred compensation that must satisfy the requirements of Code Section 409A.
6.SHARES RESERVED UNDER THIS PLAN.
(a)Plan Reserve. An aggregate of Eight Hundred Eighteen Thousand Six Hundred Sixty Two (818,662) Shares are reserved for issuance under this Plan, all of which may be issued as incentive stock options. The limitations of this subsection are subject to adjustment as provided in Section 14. The Shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Common Stock or treasury Common Stock.
(b)Replenishment of Shares Under this Plan. If an Award lapses, expires, terminates or is cancelled without the issuance of Shares or payment of cash under the Award, then the Shares subject to or reserved for in respect of such Award, or the Shares to which such Award relates, may again be used for new Awards as determined under subsection (a), including issuance pursuant to incentive stock options. If Shares are delivered to (or withheld by) the Company in payment of the exercise price or withholding taxes of an Award, then such Shares may be used for new Awards under this Plan as determined under subsection (a), including issuance pursuant to incentive stock options. If Shares are issued under any Award and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, then such Shares may be used for new Awards under this Plan as determined under subsection (a), but excluding issuance pursuant to incentive stock options.
(c)Changes in Stock. Subject to Section 4 hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger, consolidation or sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan; (ii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan; (iii) the repurchase price per share subject to each outstanding Award, if any; and (iv) the exercise price and/or exchange price for each share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The adjustment by the Committee shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.
The Committee may also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Committee that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code or would violate Section 422(d) of the Code.
Unless the Committee determines otherwise, any adjustment made pursuant to this Section 6(c) to an Award that is exempt from Section 409A of the Code shall be made in a manner that permits the Award to continue to be so exempt, and any adjustment to an Award that is subject to Section 409A of the Code shall be made in a manner that complies with the provisions thereof.
(d)Substitute Awards. The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 6(a).
7.OPTIONS. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each Option, including but not limited to:
(a)Whether the Option is an incentive stock option or a nonqualified stock option; provided that in the case of an incentive stock option, if the aggregate Fair Market Value (determined at the time of grant) of the Shares with respect to which such option and all other incentive stock options issued under this Plan (and under all other incentive stock option plans of the Company or any Affiliate that is required to be included under Code Section 422) are first exercisable by the Participant during any calendar year exceeds $100,000, such Option automatically shall be treated as a nonqualified stock
option to the extent this limit is exceeded. Only employees of the Company or a Subsidiary are eligible to be granted incentive stock options;
(b)The number of Shares subject to the Option;
(c)The exercise price per Share, which may not be less than the Fair Market Value of a Share as determined on the date of grant; provided that an incentive stock option granted to a 10% Owner-Employee must have an exercise price that is at least one hundred ten percent (110%) of the Fair Market Value of a Share on the date of grant;
(d)The terms and conditions of exercise; and
(e)The termination date, except that each Option must terminate no later than the tenth (10th) anniversary of the date of grant, and each incentive stock option granted to any 10% Owner- Employee must terminate no later than the fifth (5th) anniversary of the date of grant.
In all other respects, the terms of any incentive stock option should comply with the provisions of Code Section 422 except to the extent the Committee determines otherwise.
8.STOCK APPRECIATION RIGHTS. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each SAR, including but not limited to:
(a)The number of Shares to which the SAR relates;
(b)The grant price, provided that the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant;
(c)The terms and conditions of exercise or maturity;
(d)The term, provided that a SAR must terminate no later than the tenth (10th) anniversary of the date of grant; and
(e)Whether the SAR will be settled in cash, Shares or a combination thereof.
9.PERFORMANCE SHARE AWARDS. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each Performance Share Award, including but not limited to:
(a)The number of Shares to which the Performance Share Award relates;
(b)The terms and conditions of each Award, including, without limitation, the selection of the performance goals that must be achieved for the Participant to realize all or a portion of the benefit provided under the Award; and
(c)Whether all or a portion of the Shares subject to the Award will be issued to the Participant, without regard to whether the performance goals have been attained, in the event of the Participant’s death, disability, retirement or other circumstance.
10.RESTRICTED STOCK AND RESTRICTED UNIT AWARDS. Subject to the terms of this Plan, the Committee will determine all terms and conditions of each award of Restricted Stock or Restricted Stock Units, including but not limited to:
(a)The number of Shares or Restricted Stock Units to which such Award relates;
(b)The period of time over which, and/or the criteria or conditions that must be satisfied so that, the risk of forfeiture and/or restrictions on transfer imposed on the Restricted Shares or Restricted Stock Units will lapse;
(c)Whether all or a portion of the Restricted Shares or Restricted Stock Units will be released from a right of repurchase and/or be paid to the Participant in the event of the Participant’s death, disability, retirement or other circumstance;
(d)With respect to awards of Restricted Stock, the manner of registration of certificates for such Shares, and whether to hold such Shares in escrow pending lapse of the risk of forfeiture, right of repurchase and/or restrictions on transfer or to issue such Shares with an appropriate legend referring to such restrictions;
(e)With respect to awards of Restricted Shares, whether dividends paid with respect to such Shares will be immediately paid or held in escrow or otherwise deferred and whether such dividends shall be subject to the same terms and conditions as the Award to which they relate; and
(f)With respect to awards of Restricted Stock Units, whether to credit dividend equivalent units equal to the amount of dividends paid on a Share and whether such dividend equivalent units shall be subject to the same terms and conditions as the Award to which they relate.
11.AWARD TRANSFERABILITY. Awards granted under this Plan are not transferable other than by will or the laws of descent and distribution, or to a revocable trust, or as permitted by Rule 701 of the Securities Act of 1933, or amended. No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company, and any such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option in the event of the Optionee’s death to the extent provided herein. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award agreement regarding a given Option that the optionee may transfer, without consideration for the transfer, his or her Non-Qualified Stock Options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.
12.TERMINATION AND AMENDMENT.
(a)Term. Subject to the right of the Board or Committee to terminate the Plan earlier pursuant to Section 12(b), the Plan shall terminate on, and no Awards may be granted after the tenth (10th) anniversary of the Plan’s effective date.
(b)Termination and Amendment. The Board or Committee may amend, alter, suspend, discontinue or terminate this Plan at any time, provided that:
(i)the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (a) action of the Board, (b) applicable corporate law, or (c ) any other applicable law or rule of a self-regulatory organization;
(ii)stockholders must approve any of the following Plan amendments: (a) an amendment to materially increase any number of Shares specified in Section 6(a) (except as permitted by Section 14) or expand the class of individuals eligible to receive an Award in each case to the extent required by the Code, the Company’s bylaws or any other applicable law, any other amendment if required by applicable law or the rules of any self-regulatory organization, or (c) an amendment that would diminish the protections afforded by Section 12(e).
(c)Amendment, Modification or Cancellation of Awards. Except as provided in subsection and subject to the restrictions of this Plan, the Committee may modify or amend an Award or waive any restrictions or conditions applicable to an Award (including relating to the exercise, vesting or payment thereof), and the Committee may modify the terms and conditions applicable to any Award (including the terms of the Plan), and the Committee may cancel any Award, provided that the Participant (or any other person as may then have an interest in such Award as a result of the Participant’s death or the transfer of an Award) must consent in writing if any such action would adversely affect the rights of the Participant (or other interested party) under such Award. Notwithstanding the foregoing, the Committee need not obtain Participant (or other interested party) consent for the amendment, modification or cancellation of an Award pursuant to the provisions of Section 14, or the amendment or modification of an Award to the extent deemed necessary to comply with any applicable law, the listing requirements of any principal securities exchange or market on which the Shares are then traded, or to preserve favorable accounting treatment of any Award for the Company.
(d)Survival of Committee Authority and Awards. Notwithstanding the foregoing, the authority of the Committee to administer this Plan and modify or amend an Award, and the authority of the Board or Committee to amend this Plan, shall extend beyond the date of this Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in full force and effect after termination of this Plan except as they may lapse or be terminated by their own terms and conditions.
(e)Repricing Prohibited. Notwithstanding anything in this Plan to the contrary, neither the Committee nor any other person may decrease the exercise price of any Option or the grant price of any SAR nor take any action that would result in a deemed decrease of the exercise price or grant price of an Option or SAR under Code Section 409A, after the date of grant, except in accordance with Section 14 and Section 1.409A-1(b)(5)(v)(D) of the Treasury Regulations, or in connection with a transaction which is considered the grant of a new Option or SAR for purposes of Section 409A of the Code, provided that the new exercise price or grant price is not less than the Fair Market Value of a Share on the new grant date.
(f)Foreign Participation. To assure the viability of Awards granted to Participants employed or residing in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Committee approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country.
13.TAXES.
(a)Withholding. In the event the Company or any Affiliate is required to withhold any foreign, Federal, state or local taxes or other amounts in respect of any income recognized by a Participant as a result of the grant, vesting, payment or settlement of an Award or disposition of any Shares acquired under an Award, the Company may deduct (or require an Affiliate to deduct) from any
payments of any kind otherwise due the Participant cash, or with the consent of the Committee, Shares otherwise deliverable or vesting under an Award, to satisfy such tax obligations. Alternatively, the Company may require such Participant to pay to the Company, in cash, promptly on demand, or make other arrangements satisfactory to the Company regarding the payment to the Company of the aggregate amount of any such taxes and other amounts required to be withheld. If Shares are deliverable upon exercise or payment of an Award, the Committee may permit a Participant to satisfy all or a portion of the foreign, Federal, state and local withholding tax obligations arising in connection with such Award by electing to (a) have the Company withhold Shares otherwise issuable under the Award, (b) tender back Shares received in connection with such Award, or (c) deliver other previously owned Shares; provided that the amount to be withheld may not exceed the total minimum foreign, Federal, state and local tax withholding obligations associated with the transaction to the extent needed for the Company to avoid an accounting charge. If an election is provided, the election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Company requires. In any case, the Company may defer making payment or delivery under any Award if any such tax may be pending unless and until indemnified to its satisfaction.
(b)No Guarantee of Tax Treatment. Notwithstanding any provisions of the Plan, the Company does not guarantee to any Participant or any other person with an interest in an Award that any Award intended to be exempt from Code Section 409A shall be so exempt, nor that any Award intended to comply with Code Section 409A shall so comply, nor that any Award designated as an incentive stock option within the meaning of Code Section 422 qualifies as such, and neither the Company or any Affiliate shall indemnify, defend or hold harmless any individual with respect to the tax consequences of any such failure.
14.ADJUSTMENT PROVISIONS; CHANGE OF CONTROL.
(a)Adjustment of Shares. If (i) the Company shall at any time be involved in a merger or other transaction in which the Shares are changed or exchanged; (ii) the Company shall subdivide or combine the Shares or the Company shall declare a dividend payable in Shares, other securities or other property; (iii) the Company shall effect a cash dividend the amount of which, on a per Share basis, exceeds ten percent (10%) of the Fair Market Value of a Share at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Shares in the form of cash, or a repurchase of Shares, that the Committee determines by resolution is special or extraordinary in nature or that is in connection with a transaction that is a recapitalization or reorganization involving the Shares; or any other event shall occur, which, in the case of this subsection (iv), in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then, in each case, the Committee shall, in such manner as it may deem equitable, adjust any or all of: (i) the number and type of Shares subject to this Plan (including the number and type of Shares that may be issued pursuant to incentive stock options), the number and type of Shares subject to outstanding Awards, (iii) the grant, purchase, or exercise price with respect to any Award, and (iv) the performance goals established under any Award.
(i)In any such case, the Committee may also make provision for a cash payment, in an amount determined by the Committee, to the holder of an outstanding Award in exchange for the cancellation of all or a portion of the Award (without the consent of the holder of an Award), effective at such time as the Committee specifies (which may be the time such transaction or event is effective); provided that any such adjustment to an Award that is exempt from Code Section 409A shall be made in manner that permits the Award to continue to be so exempt, and any adjustment to an Award that is subject to Code Section 409A shall be made in a manner that complies with the provisions thereof. However, with respect to Awards of incentive
stock options, no such adjustment may be authorized to the extent that such authority would cause this Plan to violate Code Section 422(b). Further, the number of Shares subject to any Award payable or denominated in Shares must always be a whole number.
(ii)Without limitation, in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of Control, other than any such transaction in which the Company is the continuing corporation and in which the outstanding Common Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof, the Committee may substitute, on an equitable basis as the Committee determines, for each Share then subject to an Award, the number and kind of shares of stock, other securities, cash or other property to which holders of Common Stock are or will be entitled in respect of each Share pursuant to the transaction.
(iii)Notwithstanding the foregoing, in the case of a stock dividend (other than a stock dividend declared in lieu of an ordinary cash dividend) or subdivision or combination of the Shares (including a reverse stock split), if no action is taken by the Committee, adjustments contemplated by this subsection that are proportionate shall nevertheless automatically be made as of the date of such stock dividend or subdivision or combination of the Shares.
(b)Issuance or Assumption. Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Committee may authorize the issuance or assumption of awards upon such terms and conditions as it may deem appropriate.
(c)Change of Control. Upon a Change of Control, the Committee may, in its discretion, determine that any or all outstanding Awards held by Participants who are then in the employ or service of the Company or any Affiliate shall vest or be deemed to have been earned in full (assuming the maximum performance goals provided under such Award were met, if applicable), and:
(i)If the successor or surviving corporation (or parent thereof) so agrees, all outstanding Awards shall be assumed, or replaced with the same type of award with similar terms and conditions, by the successor or surviving corporation (or parent thereof) in the Change of Control. If applicable, each Award which is assumed by the successor or surviving corporation (or parent thereof) shall be appropriately adjusted, immediately after such Change of Control, to apply to the number and class of securities which would have been issuable to the Participant upon the consummation of such Change of Control had the Award been exercised or vested immediately prior to such Change of Control, and such other appropriate adjustments in the terms and conditions of the Award shall be made.
(ii)If the provisions of paragraph (i) do not apply, then all outstanding Awards shall be cancelled as of the date of the Change of Control in exchange for a payment in cash and/or Shares (which may include shares or other securities of any surviving or successor entity or the purchasing entity or any parent thereof) equal to:
(1)In the case of an Option or SAR, the excess of the Fair Market Value of the Shares on the date of the Change of Control covered by the vested portion of the Option or SAR that has not been exercised over the exercise or grant price of such Shares under the Award;
(2)In the case of Restricted Stock Units, the Fair Market Value of a Share on the date of the Change of Control multiplied by the number of vested units; and
(3)In the case of a Performance Share Award, the Fair Market Value of a Share on the date of the Change of Control multiplied by the number of earned Shares.
(d)Parachute Payment Limitation.
(i)Except as may be set forth in a written agreement by and between the Company and the holder of an Award, in the event that the Company’s auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in Code Section 280G, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount; provided that the foregoing reduction in the Payments shall not apply if the After-Tax Value to the Participant of the Payments prior to reduction in accordance herewith is greater than the After-Tax Value to the Participant if the Payments are reduced in accordance herewith. For purposes of this Section 14(d), the “Reduced Amount” shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of Code Section 280G. For purposes of determining the After-Tax Value of the Payments, the Participant shall be deemed to pay federal income taxes and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Payments are to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Participant’s domicile for income tax purposes on the date the Payments are to be made, net of the maximum reduction in federal income taxes that may be obtained from deduction of such state and local taxes.
(ii)If the Company’s auditors determine that any Payment would be nondeductible by the Company because of Code Section 280G, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within ten (10) days of receipt of notice. If no such election is made by the Participant within such ten (10) day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Section 14(d), present value shall be determined in accordance with Code Section 280G(d)(4). All determinations made by the Company’s auditors under this Section 14(d) shall be binding upon the Company and the Participant and shall be made within sixty (60) days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.
(iii)As a result of uncertainty in the application of Code Section 280G at the time of an initial determination by the Company’s auditors hereunder, it is possible that Payments will have been made by the Company that should not have been made (an “Overpayment”) or that additional Payments that will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Company’s auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant that the auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in Code Section 7872(f)(2); provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount subject to taxation under Code Section 4999. In the event that the auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in Code Section 7872(f)(2).
(iv)For purposes of this Section 14(d), the term “Company” shall include affiliated corporations to the extent determined by the auditors in accordance with Code Section 280G(d)(5).
(15)STOCK TRANSFER RESTRICTIONS.
(a)Restriction on Transfer. Shares issued under the Plan may not be sold or otherwise disposed of except as permitted by the Company. As a condition to the receipt of Shares hereunder, the Participant (or permitted transferee pursuant to Section 11 hereof) may be required to execute a stockholders agreement, investors rights agreement or other similar agreement required by the Committee.
(b)Restrictions; Legends. All Shares delivered under the Plan shall be subject to such restrictions as the Company may deem advisable, and the Company may cause a legend or legends to be put on any certificates for shares to make appropriate references to such restrictions.
(16)EXERCISE PRIOR TO VESTING (“EARLY EXERCISE”). If permitted in a Participant’s Award (i.e., the “Exercise Schedule” indicates “Early Exercise Permitted”) and subject to the provisions of the Option, the Participant may elect at any time that is both (i) during the period of his or her employment with, or engagement by, the Company or any of its Subsidiaries, and (ii) during the term of the Option option, to exercise all or part of the Option, including the unvested portion of the Option; provided, however, that:
(a)a partial exercise of an Option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
(b)any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company’s form of Early Exercise Stock Purchase Agreement;
(c)the Participant shall enter into the Company’s form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred;
(d)if the Option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which the Option plus all other Incentive Stock Options held by the Participant are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options;
(e)Non-Exempt Employees. No Option granted to a Participant that is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable for any share of Common Stock until at least six months following the date of grant of the Option. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay;
(f)Early Exercise. The Option may, but need not, include a provision whereby the Participant may elect at any time before the Participant’s employment by, or engagement with, the Company or any of its Subsidiaries terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company shall not be required to exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid classification of the Option as a liability for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Award; and
(g)Right of Repurchase. The Option may include a provision whereby the Company may elect to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option.
(17)PURCHASE OPTION.
(a)Option. In addition to any repurchase rights set forth in any Award or otherwise described herein, upon the termination of a Participant’s employment with, or engagement by, the Company or any of its Subsidiaries, for any reason whatsoever, the Company shall have the right, but not the obligation, to purchase all of the Shares of the Company acquired by the Participant pursuant to any Award granted under this Plan which are owned by the Participant at the time of such termination, or acquired thereafter by exercise of any unexpired Options, for the price and upon the terms herein; provided, however, that this provision shall not apply with respect to any Shares listed on a national securities exchange or traded on the over-the-counter market.
(b)Exercise. The Company shall exercise its purchase option by delivering written notice thereof (the “Repurchase Notice”) within 180 days from the date of termination of employment, or, in the case of death, appointment of an executor, administrator or other personal representative of the employee’s estate (or such longer or shorter period of time required to avoid classification of the Award as a liability for financial accounting purposes).
(c)Purchase Price. Except as may otherwise be provided in the Award, the purchase price for each repurchased Share shall be equal to the following: (i) in the event that the Participant’s employment with, or engagement by, the Company is terminated for Cause or in the event that Cause exists at any time after such termination, the purchase price will be equal to the exercise price actually paid for such Share, and (ii) in any other instance, the purchase price for each repurchased Share shall be equal to the fair market value of the repurchased Share at the time that the Company delivers the Repurchase Notice (as defined below) to the Participant. For purposes of this Section 17, the fair market
value of the Shares shall be determined by a qualified independent appraiser selected by the Company, and such appraisal shall take into account any applicable valuation discounts, including without limitation discounts for lack of marketability or lack of control. The aggregate purchase price for the repurchased Shares shall be paid, at the option of the Company, either 100% in immediately available funds at closing or in eight (8) equal quarterly installments of principal with interest at the per annum “prime rate” as published by the Wall Street Journal.
(d)Closing. Unless otherwise agreed to by the parties, the closing of any purchase and sale of Shares pursuant to this Section 17 shall be made at the Company’s principal executive offices on a business day selected by the Company on a date that is no less than fifteen (15) days, but no more than sixty (60) days, after the date on which the Company delivers the Repurchase Notice to the Participant. Upon the closing the selling and purchasing parties shall execute and deliver to each other the various documents which shall be required to carry out the transaction, including, the payment of cash and the execution and delivery of stock certificates.
(e)Termination of Purchase Option. The Company’s rights under this Section 17 shall terminate upon the closing of the issuance and sale of shares of Common Stock of the Company in the Company’s first underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended.
(18)MISCELLANEOUS.
(a)Other Terms and Conditions. The grant of any Award under this Plan may also be subject to other provisions (whether or not applicable to the Award awarded to any other Participant) as the Committee determines appropriate, subject to any limitations imposed in the Plan.
(b)Code Section 409A. The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Award that is subject to Code Section 409A to comply therewith.
(c)Employment or Service. The issuance of an Award shall not confer upon a Participant any right with respect to continued employment or service with the Company or any Affiliate, or the right to continue as a consultant or director. Unless determined otherwise by the Committee, for purposes of the Plan and all Awards, the following rules shall apply:
(i)a Participant who transfers employment between the Company and any Affiliate, or between Affiliates, will not be considered to have terminated employment;
(ii)a Participant who ceases to be a consultant, advisor or non-employee director because he or she becomes an employee of the Company or an Affiliate shall not be considered to have ceased service with respect to any Award until such Participant’s termination of employment with the Company and its Affiliates;
(iii)a Participant who ceases to be employed by the Company or an Affiliate of the Company and immediately thereafter becomes a non-employee director of the Company or any Affiliate, or a consultant to the Company or any Affiliate, shall not be considered to have terminated employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased; and
(iv) a Participant employed by an Affiliate will be considered to have terminated employment when such entity ceases to be an Affiliate of the Company.
Notwithstanding the foregoing, with respect to an Award subject to Code Section 409A, a Participant shall be considered to have terminated employment (where termination of employment triggers payment of the Award) upon the date of his separation from service within the meaning of Code Section 409A.
(d)No Fractional Shares. No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Committee may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise eliminated.
(e)Unfunded Plan. This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s general unsecured creditors.
(f)Requirements of Law. The granting of Awards under this Plan and the issuance of Shares in connection with an Award are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of this Plan or any award agreement, the Company has no liability to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. In addition, if applicable, the Company has no liability to deliver any Shares under this Plan if the delivery of such Shares would cause the Company to lose its status as an S corporation under Federal tax laws. In such event, the Company may substitute cash for any Share(s) otherwise deliverable hereunder without the consent of the Participant or any other person.
(g)Governing Law. This Plan, and all agreements under this Plan, shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to any conflict of law principles. Any legal action or proceeding with respect to this Plan, any Award or any award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any Award or any award agreement, may only be brought and determined in a court sitting in the State of Florida.
(h)Limitations on Actions. Any legal action or proceeding with respect to this Plan, any Award or any Award agreement, must be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint.
(i)Construction. Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Title of sections are for general information only, and the Plan is not to be construed with reference to such titles.
(j)Severability. If any provision of this Plan or any award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any award agreement or any Award under any law the Committee deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan, award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such award agreement and such Award will remain in full force and effect.
AMENDMENT NO. 1
TO
KNOWBE4, INC.
2016 EQUITY INCENTIVE PLAN
This Amendment No. 1 to KnowBe4, Inc. 2016 Equity Incentive Plan (the “Plan”) is hereby made effective as of July 2, 2019. Any capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan.
RECITALS
WHEREAS, KnowBe4, Inc., a Delaware corporation (the “Company”) approved and adopted the Plan effective as of January 19, 2016; and
WHEREAS, the Board of Directors of the Company approved an amendment to the Plan by unanimous written consent on June 7, 2019 to increase the number shares subject to the Plan from 818,662 to 943,200 shares; and
WHEREAS, the Stockholders of the Company approved such amendment by a written consent dated June 7, 2019; and
WHEREAS, the Company is authorized to amend the Plan pursuant to Section 12 thereof.
NOW, THEREFORE, the Plan is hereby amended as follows:
1.Section 6(a) of the Plan is hereby amended and restated to read in its entirety as follows:
"(a)Plan Reserve. An aggregate of Nine Hundred Forty Three Thousand Two Hundred (943,200) Shares are reserved for issuance under this Plan, all of which may be issued as incentive stock options. The limitations of this subsection are subject to adjustment as provided in Section 14. The Shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Common Stock or treasury Common Stock.”
IN WITNESS WHEREOF, the undersigned executes this Amendment No. 1 by and on behalf of the Company as of the date first set forth above.
|
|
|
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman
|
|
|
Sjoerd Sjouwerman, President
|
AMENDMENT NO. 2
TO
KNOWBE4, INC.
2016 EQUITY INCENTIVE PLAN
This Amendment No. 2 to KnowBe4, Inc. 2016 Equity Incentive Plan (the “Plan”) is effective as of May 11, 2020. Any capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan.
RECITALS
WHEREAS, KnowBe4, Inc., a Delaware corporation (the “Company”) approved and adopted the Plan effective as of January 19, 2016, and the Plan was previously amended by Amendment No. 1 thereto effective as of July 2, 2019; and
WHEREAS, the Board of Directors of the Company approved the below amendment to Section 17 of the Plan by unanimous written consent on May 11, 2020; and
WHEREAS, the Company is authorized to amend the Plan pursuant to Section 12 thereof.
NOW, THEREFORE, the Plan is hereby amended as follows:
1.Sections 17(b) and 17(c) of the Plan are hereby amended and restated to read in their entirety as follows:
"(b)Exercise. The Company may exercise its purchase option by delivering written notice thereof (the “Repurchase Notice”) within one (1) year after the date of termination of employment, or, in the case of death, appointment of an executor, administrator or other personal representative of the employee’s estate (or such longer or shorter period of time required to avoid classification of the Award as a liability for financial accounting purposes). However, with respect to Shares issued or issuable pursuant to Awards granted prior to May 11, 2020, unless otherwise agreed to by the Participant, the Repurchase Notice must be delivered within one hundred eighty (180) days after the date of termination of employment, or, in the case of death, appointment of an executor, administrator or other personal representative of the employee’s estate (or such longer or shorter period of time required to avoid classification of the Award as a liability for financial accounting purposes). Notwithstanding the preceding two sentences, the Company may not exercise its purchase option unless the Participant has held the Shares to be repurchased for at least six (6) months and one day to the extent necessary to avoid classification of the Award as a liability for financial accounting purposes.
"(c)Purchase Price. Except as may otherwise be provided in the Award, the purchase price for each repurchased Share shall be equal to the following: (i) in the event that the Participant’s employment with, or engagement by, the Company is terminated for Cause or in the event that Cause exists at any time after such termination, the purchase price will be equal to the exercise price actually paid for such Share, and (ii) in any other instance, the purchase price for each repurchased Share shall be equal to the fair market value of the repurchased Share at the time that the Company delivers the Repurchase Notice (as defined below) to the Participant. For purposes of this Section 17, the fair market value of the Shares shall be determined by a qualified independent appraiser selected by the Company (which may be the most recent appraisal obtained by the Company for purposes of Section 409A of the Code), and such appraisal shall take into account any applicable valuation discounts, including without limitation discounts for lack of marketability or lack of control. The aggregate purchase price for the repurchased Shares shall be
paid, at the option of the Company, either 100% in immediately available funds at closing or in eight (8) equal quarterly installments of principal with interest at the per annum “prime rate” as published by the Wall Street Journal.”
IN WITNESS WHEREOF, the undersigned executes this Amendment No. 2 by and on behalf of the Company as of the date first set forth above.
|
|
|
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman
|
|
|
Sjoerd Sjouwerman, President
|
KNOWBE4, INC.
2016 EQUITY INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
Name: «Adam_Haney»
Email:
Dear:
Subject to your signature below, you have been granted an option (the “Option”) to purchase shares of common stock (“Common Stock”) of KnowBe4, Inc., a Delaware corporation (the “Company”), pursuant to the KnowBe4, Inc. 2016 Equity Incentive Plan (the “Plan”) and this Stock Option Award Agreement (the “Option Agreement”). Your Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Capitalized terms used but not defined in this Option Agreement shall have the same meaning as set forth in the Plan.
|
|
|
|
|
|
|
|
Grant Date:
|
|
|
Vesting Commencement Date:
|
|
|
Type of Option:
|
|
|
Number of Shares:
|
«M__of_Shares_»
|
|
Exercise Price per Share:
|
|
|
Term:
|
This Option shall expire on the date that is ten (10) years after the Grant Date of your Option (the “Expiration Date”) or the date that it is exercised pursuant to its terms, unless terminated earlier pursuant to the terms of this Option Agreement or the Plan. Upon termination, exercise or expiration of this Option, all your rights hereunder shall cease.
|
|
|
|
|
|
|
|
|
Vesting:
|
One fourth (1/4) of the total shares subject to this Option will vest on the last day of the month that includes the first anniversary of the Vesting Commencement Date of this Option and thereafter an additional one forty-eighth (1/48) of the total shares subject to this Option will vest at the end of each month, provided that you are still employed with, or are still in the service of, the Company as of each such monthly vesting date. If application of the vesting schedule causes a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month of such vesting period. For purposes of clarity, other than described above, you shall not be entitled to any pro rata vesting upon termination.
|
|
|
|
|
|
|
|
|
Termination of Employment:
|
The following conditions apply to your Option in the event that your employment or service (your “Service”) with the Company is terminated prior to the Expiration Date. In no event, however, will the time periods described herein extend the term of this Option beyond its Expiration Date or beyond the date this Option is otherwise cancelled pursuant to the provisions of the Plan. Unless provided otherwise in this Option Agreement or the Plan, upon any termination of your employment with, or cessation of your service to the Company and/or its Affiliates the unvested portion of this Option shall be forfeited. For purposes of this Option, your Service will be deemed to have terminated only if such termination constitutes a “separation from service” within the meaning of Code Section 409A.
a. Termination As a Result of Death or Disability. If your employment or service with the Company terminates by reason of your death or Disability at a time when your employment or service could not otherwise have been terminated for Cause, then this Option will terminate on the earlier of: (i) the Expiration Date, or (ii) the date that is six months after the date of such termination of your employment or service by reason of your death or Disability.
b. Termination for Cause. If your employment or service with the Company is terminated for Cause, this Option (vested and unvested) shall be forfeited immediately upon such termination, and you shall be prohibited from exercising your Option as of the date of such termination.
c. Termination For a Reason Other than Cause, Death or Disability (e.g., resign or fired without Cause). If your employment or service with the Company is terminated other than for Cause or other than as a result of your death or Disability, then this Option will terminate on the earlier of: (i) the Expiration Date, or (ii) the date that is ninety (90) days after the date of such termination.
|
|
|
|
|
|
|
|
|
Exercise:
|
You (or your estate, beneficiary or heir in the case of your death) may exercise this Option only if it has not been forfeited, terminated or has not otherwise expired, and only to the extent it is then vested. To exercise this Option, you must complete the Notice of Stock Option Exercise in the form attached hereto as Exhibit A (the “Notice of Stock Option Exercise”) and the Investment Representation Statement attached hereto as Exhibit B and return it to the address indicated on that form. The Notice of Stock Option Exercise will become effective upon its receipt by the Company. If your beneficiary or heir, or such other person or persons as may acquire your rights under this Option by will or by the laws of descent and distribution, wishes to exercise this Option after your death, such person must contact the Company and prove to the Company’s satisfaction that such person has the right and is entitled to exercise this Option. Your ability to exercise this Option may be restricted by the Company if required by applicable law. For administration purposes, this Option may not be exercised as to fewer than ten percent (10%) of the total Shares underlying the total grant unless it is exercised as to all Shares remaining under the Option.
To exercise this Option, your Notice of Stock Option Exercise must be accompanied by payment of the exercise price through any of the following methods of payment listed in the attached Notice of Stock Option Exercise.
|
|
Change of Control:
|
In the event of a Change of Control, your Option will be treated as set forth in Section 14 of the Plan.
|
|
Transferability:
|
You may not transfer or assign this Option for any reason, other than as set forth in the Plan, unless otherwise permitted by the Board or Committee. Any attempted transfer or assignment of this Option, other than as set forth in the Plan or as permitted by the Board or Committee, will be null and void.
|
|
|
|
|
|
|
|
|
Lockup Provision:
|
You agree that you will not, without the prior written consent of the managing underwriter (if any), during (a) the period commencing on the date of the final prospectus relating to the Company’s initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed two hundred ten (210) days), or (b) during the ninety (90) day period following the effective date of any other registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”): (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Shares acquired under this Option, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Shares acquired under this Option, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Shares or other securities, in cash or otherwise. The underwriters in connection with the applicable offering are intended third-party beneficiaries of this Stock Option Award Agreement and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. You further agree to execute such agreements as may be reasonably requested by the underwriters in connection with any applicable offering that are consistent with this market stand-off provision or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all stockholders subject to such agreements pro rata based on the number of shares subject to such agreements.
|
|
|
|
|
|
|
|
|
Restrictions on Exercise, Issuance and Transfer of Shares:
|
a. General. No individual may exercise the Option, and no shares of Common Stock subject to this Option will be issued, unless and until the Company has determined to its satisfaction that such exercise and issuance will comply with all applicable federal and state securities laws, rules and regulations of the Securities and Exchange Commission, rules of any stock exchange on which shares of Common Stock of the Company may then be traded, or any other applicable laws.
b. Securities Laws. You acknowledge that you are acquiring this Option, and the right to purchase the shares of Common Stock subject to this Option, for investment purposes only and not with a view toward resale or other distribution thereof to the public which would be in violation of the Securities Act. You agree and acknowledge with respect to any shares of Common Stock that have not been registered under the Securities Act, that: (i) you will not sell or otherwise dispose of such shares of Common Stock, except as permitted pursuant to a registration statement declared effective under the Securities Act and qualified under any applicable state securities laws, or in a transaction which in the opinion of counsel for the Company is exempt from such required registration, and (ii) that a legend containing a statement to such effect will be placed on the certificates evidencing such shares of Common Stock. Further, as additional conditions to the issuance of the shares of Common Stock subject to this Option, you agree (with such agreement being binding upon any of your beneficiaries, heirs, legatees and/or legal representatives) to do the following prior to any issuance of such shares of Common Stock: (i) to execute and deliver to the Company such investment representations and warranties as set forth in the Investment Representation Statement attached hereto as Exhibit B; (ii) to enter into a restrictive stock transfer agreement, stockholders’ agreement, investors’ rights agreement or similar agreement restricting transfer of the Shares subject to this Option; and (iii) to take or refrain from taking such other actions as counsel for the Company may deem necessary or appropriate for compliance with the Securities Act, and any other applicable federal or state securities laws, regardless of whether the shares of Common Stock have at that time been registered under the Securities Act, or otherwise qualified under any applicable state securities laws.
|
|
|
|
|
|
|
|
|
Miscellaneous:
|
a. Acceptance of this award shall constitute acknowledgement and renewed assent to any nondisclosure, confidentiality or invention assignment provisions previously made by you to the Company.
b. This Option Agreement may be amended only by written consent signed by both you and the Company, unless the amendment is not to your detriment. In addition, this Option Agreement may be amended or terminated by the Company or the Board without your consent in accordance with the provisions of the Plan.
c. The tax treatment of this Option is not guaranteed. Neither the Company nor any of its designees shall be liable for any taxes, penalties or other monetary amounts owed by any participant, employee, beneficiary or other person as a result of the grant, amendment, modification, exercise and/or payment of, or under, any award, notwithstanding any challenge made to the determination of Fair Market Value by any taxing authority. By accepting this Option, you acknowledge and agree to the foregoing. Furthermore, you acknowledge that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that the Company has advised you to consult a tax adviser prior to such exercise or disposition.
d. The failure of the Company to enforce any provision of this Option Agreement at any time shall in no way constitute a waiver of such provision or of any other provision hereof.
e. In the event any provision of this Option Agreement is held illegal or invalid for any reason, such illegality or invalidity shall not affect the legality or validity of the remaining provisions of this Option Agreement, and this Option Agreement shall be construed and enforced as if the illegal or invalid provision had not been included in the Option Agreement.
f. As a condition to the grant of this Option, you agree (with such agreement being binding upon your legal representatives, guardians, legatees or beneficiaries) that this Option Agreement shall be interpreted by the Board or the Committee, as the case may be, and that any interpretation by the Board or the Committee of the terms of this Option Agreement, and any determination made by the Board or Committee pursuant to this Option Agreement, shall be final, binding and conclusive.
|
|
|
|
|
|
|
|
|
|
g. This Option Agreement may be executed in counterparts each of which shall be deemed an original and all of which shall constitute one and the same agreement. This Option Agreement and the Notice of Stock Option Exercise Agreement may be executed and delivered by facsimile or PDF copy and, upon such delivery, be deemed effective.
|
BY SIGNING BELOW OR BY WAY OF ELECTRONIC ACCEPTANCE AND AGREEING TO THIS STOCK OPTION AWARD AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED HEREIN AND IN THE PLAN. YOU ALSO ACKNOWLEDGE RECEIPT OF A COPY OF THE PLAN.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Alicia Dietzen, General Counsel
|
|
|
, Optionee
|
EXHIBIT A
KNOWBE4, INC.
NOTICE OF STOCK OPTION EXERCISE
Your completed form should be delivered to: KNOWBE4, INC., 33 N. Garden Ave, Suite 1200, Clearwater, Florida 33755 ATTENTION: GENERAL COUNSEL
Phone: 855-566-9234 ext. 102
Email: legal@knowbe4.com
Incomplete forms may cause a delay in processing your option exercise.
Please complete the following. PLEASE WRITE YOUR FULL LEGAL NAME SINCE THIS NAME MAY BE ON YOUR STOCK CERTIFICATE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Work Phone #:
|
(
|
|
)
|
-
|
|
-
|
|
|
Home Phone #:
|
(
|
|
)
|
-
|
|
-
|
|
|
|
|
|
|
DESCRIPTION OF OPTION(S) BEING EXERCISED
|
Please complete the following for each option that you wish to exercise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
Type of Option
(specify ISO or NQSO)
|
Exercise Price Per Share
|
Number of Option Shares Being Purchased*
|
Total Exercise Price (multiply Exercise Price Per Share by Number of Option Shares Being Purchased)
|
|
|
|
$
|
|
$
|
|
Aggregate Exercise Price
|
$
|
*Must be a whole number only. Exercise of fractional Option Shares is not permitted.
|
|
|
|
|
METHOD OF PAYMENT OF OPTION EXERCISE PRICE
|
Please select only one:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
☐
|
Cash Exercise. I am enclosing a check or money order payable to “KnowBe4, Inc.” for the Aggregate Exercise Price.
|
|
|
|
|
|
|
|
☐
|
Cancellation of Indebtedness. Currently owed and payable to me in the amount of
|
|
|
$
|
|
.
|
|
Please select only one.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name(s) in which the certificate for the purchased shares will be issued:
|
|
☐
|
In my name only
|
|
☐
|
In the names of my spouse and myself as community property
|
|
☐
|
In the names of my spouse and myself as joint tenants with the rights of survivorship
|
|
|
|
|
|
|
|
|
|
|
|
|
Spouse’s name (if applicable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The certificate for the purchased shares should be sent to the following address (complete only if to be sent to a different address than specified in Part 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Street Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City:
|
|
|
State:
|
|
|
Zip Code:
|
|
|
|
|
|
|
METHOD OF SATISFYING TAX WITHHOLDING OBLIGATION
|
Please select only one. You do not need to complete this Part if you are exercising only incentive stock options (ISOs) or if you are a non-employee director or consultant.
|
|
|
|
|
|
|
|
☐
|
Cash. I am enclosing a check or money order payable to “KnowBe4, Inc.” for the withholding tax amount.
|
|
|
|
|
☐
|
Tax Amount Request. Please notify me of the amount of withholding taxes that will be due as a result of this option exercise. I understand that, after receiving notification of the withholding tax amount, I must immediately remit to the Company a check or money order payable to “KnowBe4, Inc.” for that amount. I understand that the Company will not process my option exercise until it receives the check or money order covering the withholding tax amount due.
|
|
|
|
|
☐
|
I am not an employee.
|
|
|
|
|
|
ACKNOWLEDGEMENT AND SIGNATURE
|
Prior to receipt of the Shares exercised in accordance with this Notice, I acknowledge that I have delivered an executed Investment Representation Statement to ______________.
|
|
|
|
|
|
|
|
|
|
|
FOR COMPANY USE ONLY:
|
|
|
|
|
|
Received by the Company on
|
|
.
|
|
|
|
|
EXHIBIT B
KNOWBE4, INC.
INVESTMENT REPRESENTATION STATEMENT
|
|
|
|
|
|
|
|
TRANSFEREE:
|
[Transferee Name, a resident of State of Residence (“Transferee”)]
|
|
ISSUER:
|
KNOWBE4, INC., a Delaware corporation
|
|
SECURITY:
|
[__________ shares of Common Stock (the “Shares”)]
|
|
DATE:
|
[________ __, 20__]
|
In connection with the exercise of any or all options under that certain Stock Option Award Agreement, dated [_____________ ___, 20__], between Transferee and Issuer, Issuer issued the Shares to Transferee and, therefore, Transferee represents to the Issuer the following:
1.Transferee confirms that the Shares are being acquired by the Transferee for the Transferee’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Transferee has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, Transferee further represents that Transferee does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares.
2.Transferee has received a copy of the KnowBe4, Inc. 2016 Equity Incentive Plan (the “Plan”), and understands that the Shares when issued will continue to be subject to the Plan, including Section thereof.
3.Transferee understands that the Shares remain subject to the provisions of the Stock Option Award Agreement between the Company and the Transferee, including, but not limited to the Company’s Share Repurchase Right with respect to the Shares.
4.Transferee has had an opportunity to discuss the Issuer’s business, management, financial affairs and the terms and conditions of the offering of the Shares with the Issuer’s management and has had an opportunity to review the Issuer’s facilities.
5.Transferee understands that the Shares have not been, and will not be, registered under the Securities Act of 1933, as amended (“Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Transferee’s representations as expressed herein. Transferee understands that the Shares are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, Transferee must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Transferee acknowledges that the Issuer has no obligation to register or qualify the Shares for resale except as set forth in the Investors’ Rights Agreement, if any, of the Issuer. Transferee further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and
on requirements relating to the Issuer which are outside of the Transferee’s control, and which the Issuer is under no obligation and may not be able to satisfy.
6.Transferee understands that no public market now exists for the Shares, and that the Issuer has made no assurances that a public market will ever exist for the Shares.
7.Transferee understands that the Shares and any securities issued in respect of or exchange for the Shares, may bear one or all of the following legends:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”
8.Transferee is aware of the adoption of Rule 144 by the Securities and Exchange Commission, promulgated under the Securities Act, which permits limited public resale of shares acquired in a non-public offering subject to the satisfaction of certain conditions.
9.Transferee further acknowledges and understands that if the Issuer is not satisfying the current public information requirement of Rule 144 at the time Transferee wishes to sell the Shares, Transferee would be precluded from selling the Shares under Rule 144 even if the minimum holding period has been satisfied.
10.Transferee is fully aware of: (a) the highly speculative nature of the investment in the Shares; (b) the financial hazards involved; (c) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Transferee may not be able to sell or dispose of the Shares or use them as collateral for loans); (d) the qualifications and backgrounds of the management of the Issuer; and (e) the tax consequences of investment in the Shares.
11.In addition, Transferee represents and warrants that:
a.At no time was Transferee presented with or solicited by any leaflet, public promotional meeting, circular, newspaper or magazine article, radio or television advertisement, or any other form of general advertising.
b.Transferee understands that, in transferring the Shares, the Issuer has relied upon the exemption from registration under the Securities Act contained in Section 4(2) and that, in an attempt to effect compliance with all the conditions thereof and the applicable state law exemption, the Issuer is relying in good faith upon all of the foregoing representations and warranties on the part of the undersigned.
|
|
|
|
|
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
By:
|
|
|
|
Transferee Name
|
KNOWBE4, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purposes of the Plan. The Plan is intended to increase stockholder value and the success of the Company by motivating Employees to (i) perform to the best of their abilities and (ii) achieve the Company’s objectives.
2. Definitions.
(a) “Actual Award” means as to any Performance Period, the actual award (if any) payable to a Participant for the Performance Period, subject to the Committee’s authority under Section 3(d) to modify the award.
(b) “Affiliate” means any corporation or other entity (including, but not limited to, partnerships and joint ventures) controlled by the Company.
(c) “Board” means the Board of Directors of the Company.
(d) “Bonus Pool” means the pool of funds available for distribution to Participants. Subject to the terms of the Plan, the Committee establishes the Bonus Pool for each Performance Period.
(e) “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will include such section or regulation, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(f) “Committee” means the committee appointed by the Board (pursuant to Section 5) to administer the Plan. Unless and until the Board otherwise determines, the Board’s Compensation Committee will administer the Plan.
(g) “Company” means KnowBe4, Inc., a Delaware corporation, or any successor thereto, and “Company Group” means the Company and any Parents, Subsidiaries, and Affiliates.
(h) “Disability” means a permanent and total disability determined in accordance with uniform and nondiscriminatory standards adopted by the Committee from time to time.
(i) “Employee” means any executive, officer, or other employee of the Company or of an Affiliate, whether such individual is so employed at the time the Plan is adopted or becomes so employed subsequent to the adoption of the Plan.
(j) “Fiscal Year” means the fiscal year of the Company.
(k) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e).
(l) “Participant” means as to any Performance Period, an Employee who has been selected by the Committee for participation in the Plan for that Performance Period.
(m) “Performance Period” means the period of time for the measurement of the performance criteria that must be met to receive an Actual Award, as determined by the Committee in its sole discretion. A Performance Period may be divided into one or more shorter periods if, for example, but not by way of limitation, the Committee desires to measure some performance criteria over 12 months and other criteria over 3 months.
(n) “Plan” means this Executive Incentive Compensation Plan, as set forth in this instrument (including any appendix attached hereto) and as hereafter amended from time to time.
(o) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Code Section 424(f), in relation to the Company.
(p) “Target Award” means the target award, at 100% of target level performance achievement, payable under the Plan to a Participant for the Performance Period, as determined by the Committee in accordance with Section 3(b).
3. Selection of Participants and Determination of Awards.
(a) Selection of Participants. The Committee, in its sole discretion, will select the Employees who will be Participants for any Performance Period. Participation in the Plan is in the sole discretion of the Committee, on a Performance Period by Performance Period basis. Accordingly, an Employee who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for participation in any subsequent Performance Period or Performance Periods.
(b) Determination of Target Awards. The Committee, in its sole discretion, will establish a Target Award for each Participant (which may be expressed as a percentage of a Participant’s average annual base salary for the Performance Period or a fixed dollar amount or such other amount or based on such other formula as the Committee determines).
(c) Bonus Pool. Each Performance Period, the Committee, in its sole discretion, will establish a Bonus Pool, which pool may be established before, during or after the applicable Performance Period. Actual Awards will be paid from the Bonus Pool.
(d) Discretion to Modify Awards. Notwithstanding any contrary provision of the Plan, the Committee may, in its sole discretion and at any time, (i) increase, reduce or eliminate a Participant’s Actual Award, and/or (ii) increase, reduce or eliminate the amount allocated to the Bonus Pool. The Actual Award may be below, at or above the Target Award, in the Committee’s discretion. The Committee may determine the amount of any increase,
reduction or elimination on the basis of such factors as it deems relevant, and will not be required to establish any allocation or weighting with respect to the factors it considers.
(e) Discretion to Determine Criteria. Notwithstanding any contrary provision of the Plan, the Committee, in its sole discretion, will determine the performance goals (if any) applicable to any Target Award (or portion thereof) which may include, without limitation, (i) attainment of research and development milestones, (ii) bookings, (iii) business divestitures and acquisitions, (iv) cash flow, (v) cash position, (vi) contract awards or backlog, (vii) customer renewals, (viii) customer retention rates from an acquired company, subsidiary, business unit or division, (vi) earnings (which may include earnings before interest and taxes, earnings before taxes, and net taxes), (vii) earnings per share, (viii) expenses, (ix) gross margin, (x) growth in stockholder value relative to the moving average of the S&P 500 Index or another index, (xi) internal rate of return, (xii) market share, (xiii) net income, (xiv) net profit, (xv) net sales, (xvi) new product development, (xvii) new product invention or innovation, (xviii) number of customers, (xix) operating cash flow, (xx) operating expenses, (xxi) operating income, (xxii) operating margin, (xxiii) overhead or other expense reduction, (xxiv) product defect measures, (xxv) product release timelines, (xxvi) productivity, (xxvii) profit, (xxviii) retained earnings, (xxxix) return on assets, (xxx) return on capital, (xxxi) return on equity, (xxxii) return on investment, (xxxiii) return on sales, (xxxiv) revenue, (xxxv) revenue growth, (xxxvi) sales results, (xxxvii) sales growth, (xxxviii) stock price, (xxxix) time to market, (xxxx) total stockholder return, (xxxxi) working capital, and (xxxxii) individual objectives such as peer reviews or other subjective or objective criteria. As determined by the Committee, the performance goals may be based on generally accepted accounting principles (“GAAP”) or non-GAAP results and any actual results may be adjusted by the Committee for one-time items or unbudgeted or unexpected items and/or payments of Actual Awards under the Plan when determining whether the performance goals have been met. The goals may be on the basis of any factors the Committee determines relevant, and may be on an individual, divisional, business unit, segment or Company-wide basis. Any criteria used may be measured on such basis as the Committee determines, including but not limited to, as applicable, (A) in absolute terms, (B) in combination with another performance goal or goals (for example, but not by way of limitation, as a ratio or matrix), (C) in relative terms (including, but not limited to, results for other periods, passage of time and/or against another company or companies or an index or indices), (D) on a per-share basis, (E) against the performance of the Company as a whole or a segment of the Company and/or (F) on a pre-tax or after-tax basis. The performance goals may differ from Participant to Participant and from award to award. Failure to meet the goals will result in a failure to earn the Target Award, except as provided in Section 3(d). The Committee also may determine that a Target Award (or portion thereof) will not have a performance goal associated with it but instead will be granted (if at all) in the sole discretion of the Committee.
4. Payment of Awards.
(a) Right to Receive Payment. Each Actual Award will be paid solely from the general assets of the Company. Nothing in this Plan will be construed to create a trust or to
establish or evidence any Participant’s claim of any right other than as an unsecured general creditor with respect to any payment to which he or she may be entitled.
(b) Timing of Payment. Payment of each Actual Award shall be made as soon as practicable after the end of the Performance Period to which the Actual Award relates and after the Actual Award is approved by the Committee, but in no event later than the later of (i) the 15th day of the third month of the Fiscal Year immediately following the Fiscal Year in which the Participant’s Actual Award is first no longer subject to a substantial risk of forfeiture, and (ii) March 15 of the calendar year immediately following the calendar year in which the Participant’s Actual Award is first no longer subject to a substantial risk of forfeiture. Unless otherwise determined by the Committee, to earn an Actual Award a Participant must be employed by the Company or any Affiliate on the date the Actual Award is paid.
It is the intent that this Plan be exempt from or comply with the requirements of Code Section 409A so that none of the payments to be provided hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to be so exempt or so comply. Each payment under this Plan is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
(c) Form of Payment. Each Actual Award generally will be paid in cash (or its equivalent) in a single lump sum. The Committee reserves the right, in its sole discretion, to settle an Actual Award with a grant of an equity award under the Company’s then-current equity compensation plan, which equity award may have such terms and conditions, including vesting, as the Committee determines in its sole discretion.
(d) Payment in the Event of Death or Disability. If a Participant dies or is terminated due to his or her Disability prior to the payment of an Actual Award the Committee has determined will be paid for a prior Performance Period, the Actual Award will be paid to his or her estate or to the Participant, as the case may be, subject to the Committee’s discretion to reduce or eliminate any Actual Award otherwise payable.
5. Plan Administration.
(a) Committee is the Administrator. The Plan will be administered by the Committee. The Committee will consist of not less than 2 members of the Board. The members of the Committee will be appointed from time to time by, and serve at the pleasure of, the Board.
(b) Committee Authority. It will be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The Committee will have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (i) determine which Employees will be granted awards, (ii) prescribe the terms and conditions of awards, (iii) interpret the Plan and the awards, (iv) adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside of the United States, (v) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (vi) interpret, amend or revoke any such rules.
(c) Decisions Binding. All determinations and decisions made by the Committee, the Board, and/or any delegate of the Committee pursuant to the provisions of the Plan will be final, conclusive, and binding on all persons, and will be given the maximum deference permitted by law.
(d) Delegation by Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company.
(e) Indemnification. Each person who is or will have been a member of the Committee will be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any award, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she will give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
6. General Provisions.
(a) Tax Withholding. The Company (or the Affiliate employing the applicable Employee) will withhold all applicable taxes from any Actual Award, including any federal, state and local taxes (including, but not limited to, the Participant’s FICA and SDI obligations).
(b) No Effect on Employment or Service. Nothing in the Plan will interfere with or limit in any way the right of the Company (or the Affiliate employing the applicable Employee) to terminate any Participant’s employment or service at any time, with or without cause. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Affiliates (or between Affiliates) will not be deemed a termination of employment. Employment with the Company and its Affiliates is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a Performance Period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant.
(c) Forfeiture Events.
(i) Clawback Policy; Applicable Laws. All awards under the Plan will be subject to reduction, cancellation, forfeiture, or recoupment in accordance with any
clawback policy that the Company Group is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. In addition, the Committee may impose such other clawback, recovery or recoupment provisions with respect to an award under the Plan as the Committee determines necessary or appropriate, including without limitation a reacquisition right in respect of previously acquired cash, stock, or other property provided with respect to an award. Unless this Section 6(c) is specifically mentioned and waived in a written agreement between a Participant and a member of the Company Group or other document, no recovery of compensation under a clawback policy will give the Participant the right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with a member of the Company Group.
(ii) Additional Forfeiture Terms. The Committee may specify when providing for an award under the Plan that the Participant’s rights, payments, and benefits with respect to the award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of the award. Such events may include, without limitation, termination of the Participant’s status as an Employee for “cause” or any act by a Participant, whether before or after the Participant’s status as an Employee terminates, that would constitute “cause.”
(iii) Accounting Restatements. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any Participant who knowingly or through gross negligence engaged in the misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, will reimburse the Company Group the amount of any payment with respect to an award earned or accrued during the twelve (12) month period following the first public issuance or filing with the U.S. Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement.
(d) Participation. No Employee will have the right to be selected to receive an award under this Plan, or, having been so selected, to be selected to receive a future award.
(e) Successors. All obligations of the Company under the Plan, with respect to awards granted hereunder, will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
(f) Beneficiary Designations. If permitted by the Committee, a Participant under the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid award will be paid in the event of the Participant’s death. Each such designation will revoke all prior designations by the Participant and will be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant’s death will be paid to the Participant’s estate.
(g) Nontransferability of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, or to the limited extent provided in Section 6(e). All rights with respect to an award granted to a Participant will be available during his or her lifetime only to the Participant.
7. Amendment, Termination, and Duration.
(a) Amendment, Suspension, or Termination. The Board or the Committee, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. The amendment, suspension or termination of the Plan will not, without the consent of the Participant, alter or impair any rights or obligations under any Actual Award theretofore earned by such Participant. No award may be granted during any period of suspension or after termination of the Plan.
(b) Duration of Plan. The Plan will commence on the date first adopted by the Board or the Committee, and subject to Section 7(a) (regarding the Board’s and/or the Committee’s right to amend or terminate the Plan), will remain in effect thereafter until terminated.
8. Legal Construction.
(a) Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also will include the feminine; the plural will include the singular and the singular will include the plural.
(b) Severability. In the event any provision of the Plan will be held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included.
(c) Requirements of Law. The granting of awards under the Plan will be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(d) Governing Law. The Plan and all awards will be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.
(e) Bonus Plan. The Plan is intended to be a “bonus program” as defined under U.S. Department of Labor regulation 2510.3-2(c) and will be construed and administered in accordance with such intention.
(f) Captions. Captions are provided herein for convenience only, and will not serve as a basis for interpretation or construction of the Plan.
KNOWBE4, INC.
OUTSIDE DIRECTOR COMPENSATION POLICY
Adopted and approved by the Board of Directors on February 16, 2021
KnowBe4, Inc. (the “Company”) believes that providing cash and equity compensation to its members of the Board of Directors (the “Board,” and members of the Board, the “Directors”) represents an effective tool to attract, retain and reward Directors who are not employees of the Company (the “Outside Directors”). This Outside Director Compensation Policy (the “Policy”) is intended to formalize the Company’s policy regarding the compensation to its Outside Directors. Unless otherwise defined herein, capitalized terms used in this Policy will have the meaning given to such terms in the Company’s 2021 Equity Incentive Plan (the “Plan”), or if the Plan is no longer in place, the meaning given to such terms or any similar terms in the equity plan then in place. Each Outside Director will be solely responsible for any tax obligations incurred by such Outside Director as a result of the equity and cash payments such Outside Director receives under this Policy.
Subject to Section 7 of this Policy, this Policy will be effective as of the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(b) of the Exchange Act, with respect to any class of the Company’s securities (the “Registration Statement”) (such date, the “Effective Date”).
1. CASH COMPENSATION
Annual Cash Retainer
Each Outside Director will be paid an annual cash retainer of $30,000. There are no per-meeting attendance fees for attending Board meetings. This cash compensation will be paid quarterly in arrears on a prorated basis.
Committee Annual Cash Retainer
Effective as of the Effective Date, each Outside Director who serves as the chair of the Board, the lead Outside Director, or the chair or a member of a committee of the Board listed below
will be eligible to earn additional annual cash fees (paid quarterly in arrears on a prorated basis) as follows:
|
|
|
|
|
|
|
|
Chair of the Board
|
$20,000
|
|
|
|
|
|
Chair of Audit Committee:
|
$20,000
|
|
|
|
|
|
Member of Audit Committee:
|
$10,000
|
|
|
|
|
|
Chair of Compensation Committee:
|
$10,000
|
|
|
|
|
|
Member of Compensation Committee:
|
$5,000
|
|
|
|
|
|
Chair of Nominating Committee:
|
$7,500
|
|
|
|
|
|
Member of Nominating Committee:
|
$4,000
|
|
For clarity, each Outside Director who serves as the chair of a committee shall receive only the additional annual cash fee as the chair of the committee, and not the additional annual cash fee as a member of the committee.
2. EQUITY COMPENSATION
Outside Directors will be eligible to receive all types of Awards (except Incentive Stock Options) under the Plan (or the applicable equity plan in place at the time of grant), including discretionary Awards not covered under this Policy. All grants of Awards to Outside Directors pursuant to Section 2 of this Policy will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions:
(a) No Discretion. No person will have any discretion to select which Outside Directors will be granted any Awards under this Policy or to determine the number of Shares to be covered by such Awards.
(b) Initial Award. Each Outside Director joining the Board after the Registration Date shall be automatically granted the following awards upon first joining the Board (such date, the “Start Date”):
(i) Standard Initial Award. An award of Restricted Stock Units with a Value of $360,000 (the “Initial Award”). The Initial Award will vest annually over three years (on the same day of the month as the Start Date), to the Outside Director continuing to be a Service Provider through the applicable vesting date.
(ii) Pro-Rated Annual Award. An Outside Director will only receive an Award under this Section 2(b)(ii) (a “Pro-Rated Annual Award”) if the Start Date is not on the date of an Annual Meeting (as defined below). If the Outside Director’s Start Date is an Annual Meeting, then
the Directors shall receive the Annual Award described in Section 2(c) and no Pro-Rated Annual Award. If an Outside Director is eligible for a Pro-Rated Annual Award, then the Outside Director shall be automatically granted on the Start Date an award of Restricted Stock Units with a Value of (x) $180,000 multiplied by (y) the fraction obtained by dividing (A) the number of full months during the period beginning on the Start Date and ending on the one-year anniversary of the date of the then-most recent Annual Meeting by (B) 12. The Pro-Rated Annual Award will vest at the next following Annual Meeting, subject to the Outside Director continuing to be a Service Provider through the applicable vesting date.
For the avoidance of doubt, if an individual was a member of the Board and also an employee, becoming an Outside Director due to termination of employment will not entitle the Outside Director to an Initial Award or a Pro-Rated Annual Award under Section 2(b). Such an Outside Director would receive an Annual Award under Section 2(c).
(c) Annual Award. On the date of each annual meeting of the Company’s stockholders following the Effective Date (each, an “Annual Meeting”), each Outside Director will be automatically granted an award of restricted stock units (an “Annual Award”) covering a number of Shares having a Value (as defined below) of $180,000.
Subject to Section 3 of this Policy, each Annual Award will vest on the earlier of (i) the one-year anniversary of the date the Annual Award is granted or (ii) the day prior to the date of the Annual Meeting next following the date the Annual Award is granted, in each case, subject to the Outside Director continuing to be a Service Provider through the applicable vesting date.
(d) For purposes of Section 2, “Value” means the Fair Market Value of a Share based on the closing price on the date of grant, with the number of Shares of our Common Stock determined based on that Value, rounded down.
3. CHANGE IN CONTROL
In the event of a Change in Control, each Outside Director’s outstanding Company equity awards will accelerate and vest.
4. LIMITATIONS
Any cash compensation and Awards granted to an Outside Director shall be subject to the limits provided in Section 11 of the Plan.
5. TRAVEL EXPENSES
Each Outside Director’s reasonable, customary and documented travel expenses to Board or Board committee meetings will be reimbursed by the Company.
6. ADDITIONAL PROVISIONS
All provisions of the Plan not inconsistent with this Policy will apply to Awards granted to Outside Directors.
7. SECTION 409A
In no event will cash compensation or expense reimbursement payments under this Policy be paid after the later of (i) 15th day of the 3rd month following the end of the Company’s fiscal year in which the compensation is earned or expenses are incurred, as applicable, or (ii) 15th day of the 3rd month following the end of the calendar year in which the compensation is earned or expenses are incurred, as applicable, in compliance with the “short-term deferral” exception under Section 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and guidance thereunder, as may be amended from time to time (together, “Section 409A”). It is the intent of this Policy that this Policy and all payments hereunder be exempt from or otherwise comply with the requirements of Section 409A so that none of the compensation to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be so exempt or comply. In no event will the Company reimburse an Outside Director for any taxes imposed or other costs incurred as a result of Section 409A.
8. REVISIONS
The Board may amend, alter, suspend or terminate this Policy at any time and for any reason. No amendment, alteration, suspension or termination of this Policy will materially impair the rights of an Outside Director with respect to compensation that already has been paid or awarded, unless otherwise mutually agreed between the Outside Director and the Company. Termination of this Policy will not affect the Board’s or the Compensation Committee’s ability to exercise the powers granted to it under the Plan with respect to Awards granted under the Plan pursuant to this Policy prior to the date of such termination.
FIRST AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS FIRST AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of February 26, 2020 (the “Effective Date”), by and between KNOWBE4, INC., a Delaware corporation (the “Company”), and SJOERD A. SJOUWERMAN, an individual residing in the State of Florida (the “Executive”). This Agreement amends, restates, and supersedes in its entirety that certain Employment Agreement, dated July 2, 2019, between the Executive and the Company (the “Prior Employment Agreement”).
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Prior Employment Agreement, Executive was employed as the Chief Executive Officer and President of the Company.
WHEREAS, the Company and the Executive desire to amend and restate the Prior Employment Agreement in the manner set forth herein in order to, among other things, make certain changes to the Executive’s title and compensation as originally specified in the Prior Employment Agreement.
WHEREAS, the Company desires to employ the Executive as the Company’s Chief Executive Officer, and the Executive desires to accept such employment, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Executive agree as follows:
1.Employment.
The Company agrees to employ the Executive during the Term specified in Section 2 below, and the Executive agrees to accept such employment, upon the terms and conditions hereinafter set forth.
2.Term.
Subject to the terms and conditions of this Agreement, the Executive’s employment by the Company shall commence on the Effective Date and shall continue in effect until terminated in accordance with Section 6 of this Agreement (the “Term”). The Executive acknowledges, subject to the provisions of Section 6 of this Agreement, that the Executive’s employment with the Company is on an at-will basis, and the Company may therefore terminate the Executive’s employment, with or without cause, at any time and for any reason upon the terms and conditions specified in Section 6 hereof.
3.Duties and Responsibilities.
a.Position. During the Term, the Executive shall have the position of Chief Executive Officer of the Company, and in connection therewith, the Executive shall perform such duties and responsibilities and have such authority as is commonly incident to such office. As Chief Executive Officer, the Executive shall be the principal executive officer of the Company and shall report directly to the Board of Directors of the Company (the “Board”).
b.Full Time. The Executive’s employment by the Company shall be full-time, and during the Term, the Executive agrees to devote substantially all of his business time and attention to the performance of the Executive's duties hereunder and will not engage in any
other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Board. Notwithstanding the foregoing, the Executive will be permitted to act or serve as a director, trustee, committee member, or principal of any type of civic or charitable organization as long as such activities are disclosed in writing to the Company and are consistent with the Company’s conflict-of-interest policies and other policies and do not interfere with the performance of his duties hereunder.
c.Related Entities. To the extent that the Company shall have any parent company, subsidiaries, affiliated corporations, partnerships, or joint ventures (collectively, “Related Entities”), the Executive shall perform his duties hereunder to promote these Related Entities and to promote and protect their respective interests to the same extent as the interests of the Company without additional compensation.
4.Compensation.
a.Base Salary. As compensation for his services hereunder and in consideration of the restrictive covenants set forth below, during the Term, the Company shall pay the Executive a base salary (the “Base Salary”) of Four Hundred Thousand Dollars ($400,000.00) per annum, payable in installments in accordance with the Company’s normal payroll schedule. The Base Salary will be reviewed annually and may be adjusted upward, but not downward, in the sole discretion of the Board or by any Compensation Committee (or similar committee) of the Board.
b.Performance-Based Bonuses. The Executive will be eligible to participate in any annual performance-based cash bonus plan as may be established from time to time in the discretion of the Board (or a duly authorized committee thereof). The target bonus amount for the Executive’s participation in such plan will be One Hundred Percent (100%) of the Executive’s Base Salary as then in effect (the “Target Bonus Amount”), provided that nothing shall preclude the Board from granting a bonus above the Target Bonus Amount. The receipt of a bonus under such plan shall be contingent upon achievement of the Company’s performance goals as determined by the Board, successful individual Executive performance as evaluated by the Board, and approval of the Board and satisfaction of such other conditions as the Board may establish.
c.Tax Matters. All payments of Base Salary and other compensation, if any, will be subject to any required tax or other legally required withholdings by the Company.
d.Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any compensation paid to the Executive pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
5.Expenses; Benefits.
a.Expense Reimbursement. The Company agrees to pay or to reimburse the Executive during the Term for all reasonable, ordinary and necessary business or entertainment expenses, substantiated by receipts or other written documentation provided to
the Company, incurred in the performance of the Executive’s services hereunder in accordance with the standard expense reimbursement policies or practices of the Company as may be in effect from time to time.
b.Vacation. Executive shall be entitled to vacation time in accordance with the Company’s standard vacation policy for its senior executives as in effect from time to time.
c.Benefits. During the Term, the Executive shall be eligible to participate in and receive benefits under such pension, life insurance, health/medical/dental/vision insurance, disability insurance and other benefits plans, if any, which the Company may from time to time make available to its other senior executives. Further, during the Term, the Company shall maintain and continue to pay its obligations under the Tesla Lease Agreement between the Company and Tesla Motors, Inc., dated as of March 10, 2015 (or a subsequent lease for substantially the same lease amount for a vehicle reasonably acceptable to the Company and Executive).
6.Termination.
a.Termination by the Company for Cause. The Company may terminate the Executive’s employment at any time for Cause (as defined below) upon written notice to the Executive. In the event of a termination for Cause, the Company shall be relieved of all its obligations to the Executive provided for by this Agreement as of the effective date of termination, and all employment-related payments to the Executive hereunder shall immediately cease and terminate as of such date, except that the Executive shall be entitled to any accrued but unpaid Base Salary up to and including the effective date of termination. As used in this Agreement, “Cause” shall mean the following:
i.the Executive's willful failure to perform his duties (other than any such failure resulting from incapacity due to physical or mental illness);
ii.the Executive’s failure to follow any lawful instruction or policy of the Board consistent with the Executive’s position and duties as defined under this Agreement (including any request to cooperate with an investigation by or with respect to the Company);
iii.gross negligence, willful misconduct, or illegal conduct by the Executive that materially impairs the performance of the Executive’s duties or that is materially injurious to the Company;
iv.the Executive’s (A) commission of any fraudulent act relating to the Company or his employment or (B) breach of his duty of loyalty to the Company involving personal dishonesty by the Executive and intended to result in personal enrichment of the Executive (or the Executive’s family or friend(s)) at the expense of the Company;
v.misappropriation of funds, theft, or embezzlement by the Executive of Company funds or property;
vi.conviction of the Executive (including by a plea of guilty or nolo contendere) of any felony, or any crime that involves theft, fraud, perjury, or moral turpitude;
vii.any material breach of the Executive’s obligations under (A) this Agreement, (B) any other agreement between the Executive and the Company, or (C) any written policy of the Company; or
viii.the Executive deliberately falsifies any work records, personnel records or other records of the Company;
provided, however, that in the case of any of the events described in clauses (i), (ii), or (vii) above, such event shall not constitute Cause hereunder unless and until there is given to Executive by the Company a written notice which sets forth the specific respects in which it believes that Executive’s conduct constitutes Cause hereunder, which conduct is not cured to the reasonable satisfaction of the Board within ten (10) days after written notice thereof. For purposes of foregoing clauses (i) though (viii), the term “Company” shall include Related Entities.
b.Termination by the Company Without Cause. In addition to the other termination provisions of this Agreement, the Company may terminate the Executive’s employment at any time without cause and for any reason (a “Termination Without Cause”), provided that a Termination Without Cause shall require the affirmative vote of at least six (6) members of the Board voting in favor of a proposal to effect a Termination Without Cause at a duly called meeting of the Board. In the event of a Termination Without Cause, (i) the Executive shall be entitled to his accrued but unpaid Base Salary up to and including the effective date of termination, and (ii) the Executive shall be entitled to the severance compensation specified in Section 6(e) below.
c.Resignation by the Executive.
i.The Executive may resign and terminate the Executive’s employment hereunder at any time and for any reason by delivering written notice to the Company in accordance with Section 14 of this Agreement (an “Executive Termination Notice”) at least three (3) months prior to the Executive’s last day of employment (such three-month period being referred to as the “Executive Notice Period”). Upon the delivery of an Executive Termination Notice, the Company may, in its sole discretion, waive the Executive Notice Period in whole or in part upon written notice to the Executive, in which event the last day of employment shall be specified in the notice delivered by the Company. Upon the delivery of an Executive Termination Notice, the Company shall be relieved of all its obligations to the Executive provided for by this Agreement other than the payment of Base Salary and benefits under Section 5 hereof through the last day of the Executive’s employment, upon which all employment-related payments to the Executive hereunder shall immediately cease and terminate (except that the Executive shall be entitled to his accrued but unpaid Base Salary up to and including his last day of employment).
ii.The Executive shall have the right to resign his employment for “Good Reason” if (i) there is a material adverse change or material diminution in the Executive’s duties, responsibilities, functions or title with the Company as a result of an explicit decision or action by the Board or (ii) the Company commits a material breach of this Agreement. The Executive cannot terminate his employment for Good Reason unless he has provided written notice to the Company of the existence of the circumstances providing grounds for termination
for Good Reason within fifteen (15) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances (and has failed to cure such circumstances within such period). If the Company has not, within such thirty (30) day period, cured the circumstances providing ground for termination for Good Reason and Executive does not terminate his employment for Good Reason within ten (10) days after the expiration of the Company’s cure period in the preceding sentence, the Executive will be deemed to have waived his right to terminate for Good Reason with respect to such grounds.
d.Death or Disability. The Executive’s employment hereunder shall automatically terminate upon the Executive’s death, and his estate shall be entitled to receive accrued but unpaid compensation through the date of termination. If, during the Term, the Executive becomes permanently physically or mentally disabled in the determination of a physician appointed or selected by the Company, or if due to any physical or mental condition the Executive becomes unable for a period of more than sixty (60) days during any six (6) month period to perform the Executive’s duties hereunder (with or without reasonable accommodation) as determined by a physician selected by the Company, the Company may, at its option, terminate the Executive’s employment upon not less than thirty (30) days written notice. In the event of a termination pursuant to the preceding sentence, the Executive shall be entitled to his accrued but unpaid Base Salary up to and including the effective date of termination.
e.Severance Compensation. In the event of either (i) a Termination Without Cause by the Company or (ii) a termination for Good Reason by the Executive in accordance with Section 6(c)(ii) above, the Executive shall be entitled to receive separation pay in the form of equal installment payments (“Separation Payments”) which are in the aggregate equal to the sum of (i) twelve (12) months of the Executive’s Base Salary (as in effect at the time of termination of employment) plus (ii) any earned but unpaid annual bonus with respect to any completed fiscal year immediately preceding the effective date of Executive’s termination, plus (iii) the Pro Rata Bonus (as defined below), and (iv) an additional amount in cash equal to the aggregate payments made by the Company towards Executive’s medical and dental benefits during the three hundred sixty-five (365) day period immediately prior to the effective date of Executive’s termination. The Separation Payments will be paid, subject to applicable tax withholdings and other required withholdings, in equal installments beginning with the first Company payroll date after the effective date of termination of employment and ending twelve (12) months thereafter; provided, however, the Executive’s right to receive any Separation Payments is conditioned upon both (x) the Executive signing and delivering to the Company, by the 30th day after the Executive’s termination of employment, a general release in a form acceptable to the Company (the “Release”) and (y) the Executive not revoking the Release within thirty (30) days of the execution and delivery thereof to the Company (the “Revocation Period”). Accordingly, any Separation Payments due prior to the execution and delivery of the Release will not be paid until the first payroll date following the expiration of the Revocation Period. In addition, (A) in the event that the timing of termination enables the Executive to choose to deliver the executed Release on a date that causes the commencement of the Separation Payments to occur in the taxable year following the year of termination, then the Separation Payments shall automatically commence beginning with the first payroll period of such following taxable year, regardless of when the Executive delivers the executed Release, and (B) if any class of stock of the Company is publicly traded at the time of the
termination of employment, then any Separation Payments that would otherwise be made during the six-month period following the termination will instead be delayed and made with the first payroll period following such six-month period to the extent required for compliance with Section 409A. In the event that the Executive commits a material breach of this Agreement, the Release, or the Employee Confidentiality Agreement, the Company may discontinue making any Separation Payments under this paragraph. For purposes hereof, the term “Pro Rata Bonus” means an amount equal to the product of (x) the Target Bonus Amount for the year in which the Executive’s employment terminates, and (y) a fraction, the numerator of which is the number of days the Executive was employed by the Company during the year of termination and the denominator of which is the number of days in such year.
7.Restrictive Covenants.
a.Noncompetition and Nonsolicitation. The Executive recognizes and acknowledges that, by virtue of accepting employment with the Company, the Executive will acquire valuable training and knowledge, enhance the Executive’s professional skills and experience, and learn proprietary trade secrets and confidential information of the Company. In consideration of the foregoing, the Executive agrees that while he is in the employ of the Company and for a twenty four (24) month period after the date of termination of the Executive’s employment, he shall not, except on behalf of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company, engage in any of the following anywhere in the world:
i.engage or invest in; own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of; be employed by, associated with, or in any manner connected with; lend the Executive’s name or any similar name to; lend the Executive’s credit to; or render services or advice to, any business which competes with the Company or is engaged in or carries on any Competitive Business (as defined below) (provided that the foregoing shall not prohibit the Executive from owning the securities of corporations which are listed on a national securities exchange or traded in the national over-the-counter market in an amount which shall not exceed 3% of the outstanding shares of any such corporation, so long as the Executive does not actively participate in the business of such corporation); or
ii.attempt in any manner to intentionally solicit from any Business Associate (as defined below) business which is the same as, or substantially similar to that performed by the Company or to persuade any Business Associate to cease to do business with the Company or to reduce the amount of business which any such Business Associate has customarily done or is reasonably expected to do with the Company, whether or not the relationship between the Company and such Business Associate was originally established in whole or in part through his efforts.
As used in this Section 7, the term “Company” shall mean and include any Related Entities, and the term “Business Associate” shall mean any supplier, vendor, contractor, distributor, or customer of the Company. The term “Competitive Business” means any business that offers, develops, markets, or sells internet security awareness training services or content (or related educational products) or internet security compliance management products or services.
b.Remedies. If the Executive commits a breach, or the Company has reasonable grounds to believe that the Executive is about to commit a breach, of any of the provisions of this Section 7, the Company shall have the right to have the provisions of this Agreement specifically enforced without being required to post bond or other security in excess of $5,000 in value and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach.
c.Enforcement. The parties acknowledge that the type and periods of restriction imposed in the provisions of this Section 7 above are fair and reasonable and are reasonably required for the protection of the legitimate interests of the Company and the confidential information, proprietary property and goodwill associated with the business of the Company; and that the time, scope, geographic area, line of business and other provisions of this Section 7 have been specifically negotiated by sophisticated parties and are given as an integral part of the transactions contemplated by this Agreement, it being understood that the customers and Business Associates of the Company may be located anywhere in the world and accordingly it is reasonable that the restrictive covenants set forth herein are not limited by narrow geographic area but generally by the location of such potential customers and Business Associates. If any of the covenants in Section 7 above, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The temporal duration of any the covenants contained in this Section 7 shall not expire, and shall be tolled, during any period that the Executive is in violation of any such covenant, and all such covenants shall automatically be extended by the period of the Executive’s violation thereof. The existence of any claim or cause of action which the Executive may have against the Company shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement and shall be pursued through separate court action by the Executive.
d.Non-Disparagement. Subject to Section 7(e) below, Executive agrees to not make any statements, written or oral, while employed by the Company and thereafter, which would be reasonably likely to disparage or damage the Company or its Related Entities or the personal or professional reputation of any present or former employees, officers or members of the managing or directorial boards or committees of the Company or its Related Entities; provided that the Executive will respond accurately and fully to any question, inquiry or request for information when required by legal process.
e.No Interference. Notwithstanding any other provision of this Agreement, nothing in this Agreement shall prohibit the Executive from confidentially or otherwise communicating or filing a charge or complaint with a governmental agency or regulatory entity; participating in a governmental agency or regulatory entity investigation; or giving
truthful testimony or disclosures to a governmental agency or regulatory entity, or if properly subpoenaed or otherwise required to do so under applicable law. Furthermore, the U.S. Defend Trade Secrets Act of 2016 provides that: (a) an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; and (b) an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal, and (B) does not disclose the trade secret, except pursuant to court order. Nothing in this Agreement prohibits or creates liability for any such protected conduct.
8.Employee Confidentiality Agreement. The Executive has previously executed and delivered to the Company an At Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement, dated January 8, 2016 (as may be amended from time to time, the “Employee Confidentiality Agreement”). The Executive agrees and acknowledges that the Employee Confidentiality Agreement shall continue to remain in full force and effect (subject to Section 7(e) above) and that the obligations therein shall be in addition to the obligations set forth in this Agreement, provided that in the event of any direct conflict between the terms of the Employee Confidentiality Agreement and this Agreement, the provisions of this Agreement shall control.
9.Enforceability.
The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party’s right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision of this Agreement be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself.
10.Assignment; Binding Effect.
This Agreement is personal in its nature and neither party shall assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other; provided however, that the Company may assign this Agreement and its rights and obligations hereunder to any transferee of all or substantially all of the Company’s business (whether by merger, consolidation, sale of stock or assets, or otherwise) without the Executive’s consent. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.
11.Modification.
This Agreement may not be orally canceled, changed, modified, amended, or waived and no cancellation, change, modification, amendment or waiver shall be effective or binding, unless in writing and signed by the parties to this Agreement. Any such cancellation, change, modification, amendment or waiver shall be effective only in the specific instance and for the purpose for which given.
12.Severability; Survival.
In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall
nevertheless be binding upon the parties with the same effect as though the invalid or unenforceable part had been severed and deleted. The respective rights and obligations of the parties hereunder shall survive the termination of the Executive’s employment to the extent necessary to effect the intended preservation of such rights and obligations. Without limitation, the provisions of Sections 7, 8, 9, 15, 21 and 22 shall survive the termination of the Executive’s employment with the Company and shall continue to be enforceable at all times thereafter.
13.Key Person Insurance.
The Executive agrees that the Company shall have the right, but not the obligation, to obtain key person insurance on the Executive with the Company as the sole beneficiary thereof. The Executive shall (a) cooperate fully in obtaining such insurance; (b) sign any necessary consents, applications and other related forms or documents; and (c) take any reasonably required medical examinations.
14.Notices.
Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand; or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered U.S. mail; or (c) on the next business day, if sent by prepaid overnight courier service, and in each case, addressed as follows:
If to the Executive, to the address set forth below the Executive’s signature on the signature page hereto.
If to the Company:
KnowBe4, Inc.
33 North Garden Ave., Suite 1200
Clearwater, FL 33755
Attention: Board of Directors
Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner herein provided for giving notice.
15.Applicable Law and Jurisdiction.
a.Applicable Law. All questions concerning the construction, interpretation and validity of this Agreement, and all matters relating hereto, shall be governed by and construed and enforced in accordance with the laws of the State of Florida, without giving effect to any choice or conflict of law provision or rule (whether in the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida.
b.Disputes. Except for actions by the Company for equitable relief (which may be brought in any court that has jurisdiction), any dispute, controversy or claim arising out of or related to this Agreement or any breach of this Agreement shall be submitted to and decided by binding arbitration in accordance with the arbitration provisions of the Employee Confidentiality Agreement, with any such arbitration proceeding to be conducted in Pinellas County, Florida. Any arbitral award determination shall be final and binding upon the parties.
16.No Conflict.
The Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this Agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement. The Executive further agrees not to use or disclose in the course of the Executive’s employment with the Company any confidential information or trade secrets of any other person.
17.Entire Agreement.
This Agreement (together with the Employee Confidentiality Agreement) represents the entire agreement between and among the Company and the Executive with respect to the subject matter hereof, and all prior agreements, plans and arrangements (including any previously signed version of this Agreement that Executive may have executed) relating to the employment of the Executive by the Company are nullified and superseded hereby.
18.Headings.
The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
19.Withholding.
The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
20.Counterparts.
This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
21.No Strict Construction.
The language used in this Agreement will be deemed to be the language chosen by the Executive and the Company to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsperson will be applied against either the Executive or the Company.
22.Notification of New Employer.
In the event that the Executive is no longer an employee of the Company, the Executive consents to notification by the Company to the Executive’s new employer or its agents regarding the Company’s rights and the Executive’s obligations under this Agreement.
23.Section 409A.
The parties intend for this Agreement to conform in all respects to the requirements under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”).
Accordingly, the parties intend for this Agreement to be interpreted, construed, administered and applied in a manner as shall meet and comply with the requirements of Section 409A, and the Board may amend this Agreement in its discretion so as to comply with any such requirement. Any reference in this Agreement to Section 409A, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A and regulations (proposed, temporary or final) issued by the United States Secretary of the Treasury under or interpreting Section 409A. Notwithstanding any other provision of this Agreement, neither the Company nor any of its subsidiaries or affiliates nor any individual acting as a director, officer, employee, agent or other representative of the Company or of a subsidiary or affiliate shall be liable to the Executive or any other person for any claim, loss, liability or expense arising out of any interest, penalties or additional taxes due by the Executive or any other person as a result of this Agreement or the administration thereof not satisfying any of the requirements of Section 409A. The Executive represents and warrants that he has reviewed or will review with his own tax advisors the federal, state, local and employment tax consequences of entering into this Agreement, including, without limitation, under Section 409A, and, with respect to such matters, he relies solely on such advisors. If the Executive is a “specified employee” (as determined by the Company under Section 409A) on the date of the Executive’s separation from service, if and to the extent that any payments payable upon such separation from service under this Agreement constitute deferred compensation within the meaning of Section 409A, each such severance payment shall be paid on the later of (a) the date scheduled to be paid under Section 6 hereof, or (b) the first business day after the date that is six (6) months after the date of the Executive’s separation from service. Each installment under this Agreement shall be regarded as a separate “payment” for purposes of Section 409A.
24.Section 280(G).
Notwithstanding any other provision of this Agreement, or any other agreement, plan, or arrangement to the contrary, if any portion of any payment or benefit under this Agreement, or under any other agreement, plan, or arrangement (in the aggregate, “Total Payments”), would constitute an “excess parachute payment” under Section 280G of the Code, and would, but for this Section 24, result in the imposition on the Executive of an excise tax under Section 4999 of the Code (the “Excise Tax”), then the Total Payments to be made to the Executive shall either be (a) delivered in full, or (b) delivered in a reduced amount that is $1.00 less than the amount that would cause any portion of such Total Payments to be subject to the Excise Tax, whichever of the foregoing results in the receipt by the Executive of the greatest benefit on an after-tax basis (taking into account the Excise Tax, as well as the applicable federal, state, and local income and employment taxes, for which the Executive shall be deemed to pay at the highest marginal rate for the applicable calendar year). To the extent the foregoing reduction applies, then any such payment or benefit shall be reduced or eliminated by applying the following principles, in order: (1) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (2) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (3) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Section 409A of the Code, then the reduction shall be made pro rata among the payment or benefits (on the basis of the relative present value of the parachute payments). The determination of whether the Excise Tax or the foregoing reduction will apply will be made by independent tax counsel selected and paid by the Company (which may be regular counsel of the Company).
[Signatures on Following Page]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
|
|
|
|
|
|
|
|
COMPANY
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
By:
|
/s/ Erika Lance (Mar 4, 2020)
|
|
Name:
|
Erika Lance
|
|
Title:
|
Senior Vice President of People Operations
|
|
|
|
|
EXECUTIVE
|
|
|
|
|
/s/ Sjoerd Sjouwerman (Mar 4, 2020)
|
|
Sjoerd Sjouwerman, individually
|
|
|
|
|
Address:
|
|
144 Willadel Drive, Belleair, Florida 33756
|
|
Belleair, FL 33756
|
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of February 26, 2020 (the “Effective Date”), by and between KNOWBE4, INC., a Delaware corporation (the “Company”), and LARS LETONOFF, an individual residing in the State of Florida (the “Executive”).
WITNESSETH:
WHEREAS, the Company desires to employ the Executive as the Company’s Co- President and Chief Revenue Officer, and the Executive desires to accept such employment, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Executive agree as follows:
1.Employment.
The Company agrees to employ the Executive during the Term specified in Section 2 below, and the Executive agrees to accept such employment, upon the terms and conditions hereinafter set forth.
2.Term.
Subject to the terms and conditions of this Agreement, the Executive’s employment by the Company shall commence on the Effective Date and shall continue in effect until terminated in accordance with Section 6 of this Agreement (the “Term”). The Executive acknowledges, subject to the provisions of Section 6 of this Agreement, that the Executive’s employment with the Company is on an at-will basis, and the Company may therefore terminate the Executive’s employment, with or without cause, at any time and for any reason upon the terms and conditions specified in Section 6 hereof.
3.Duties and Responsibilities.
a.Position. During the Term, the Executive shall have the positions of Co- President and Chief Revenue Officer of the Company, and in connection therewith, the Executive shall perform such duties and responsibilities and have such authority as is commonly incident to such offices, as well as such other duties and responsibilities as shall be determined from time to time by the Company’s Chief Executive Officer (the “CEO”) or Board of Directors (the “Board”) and are generally consistent with such offices. The Executive shall report directly to the CEO.
b.Full-Time Employment. The Executive’s employment by the Company shall be full-time, and during the Term, the Executive agrees to devote substantially all of his business time and attention to the performance of the Executive's duties hereunder and will not engage in any other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Chief Executive Officer or the Board of Directors. Notwithstanding the foregoing, the Executive will be permitted to act or serve as a director, trustee, committee member, or principal of any type of civic or charitable organization as long as such activities are disclosed in writing to the Company and are consistent with the
Company’s conflict-of-interest policies and other policies and do not interfere with the performance of his duties hereunder.
c.Related Entities. To the extent that the Company shall have any parent company, subsidiaries, affiliated corporations, partnerships, or joint ventures (collectively, “Related Entities”), the Executive shall perform his duties hereunder to promote these Related Entities and to promote and protect their respective interests to the same extent as the interests of the Company without additional compensation.
4.Compensation.
a.Base Salary. As compensation for his services hereunder and in consideration of the restrictive covenants set forth below, during the Term, the Company shall pay the Executive an initial base salary (the “Base Salary”) of Four Hundred Thousand Dollars ($400,000.00) per annum, payable in installments in accordance with the Company’s normal payroll schedule. The Base Salary will be reviewed annually and may be adjusted upward, but not downward, in the Company’s sole discretion. The Base Salary set forth in this paragraph shall be effective as of January 1, 2020 notwithstanding the Effective Date.
b.Performance-Based Bonuses. The Executive will be eligible to participate in any annual performance-based cash bonus plan as may be established from time to time in the discretion of the Company’s Board of Directors (or a duly authorized committee thereof). The target bonus amount for the Executive’s participation in such plan will be One Hundred Percent (100%) of the Executive’s Base Salary as then in effect (the “Target Bonus Amount”), provided that nothing shall preclude the Board from granting a bonus above the Target Bonus Amount. The receipt of a bonus under such plan shall be contingent upon achievement of the Company’s performance goals as determined by the Board of Directors, successful individual Executive performance as evaluated by the Board of Directors, and approval of the Board of Directors and satisfaction of such other conditions as the Board of Directors may establish.
c.Discretionary Bonuses. In addition, the Executive may from time to time receive additional discretionary bonuses to the extent determined by the Board of Directors (or an authorized committee thereof) in its sole discretion. Any bonus paid to the Executive is entirely discretionary, and there is no contractual entitlement to receive it and it will not count as part of the Executive’s contractual remuneration or salary for pension purposes or otherwise. Executive’s eligibility for payment of any such bonus, as well as the timing and amount of payment, if any, will be determined by the Board of Directors of the Company in its sole discretion.
d.Option Grant. On February 26, 2020, the Company will grant to the Executive an option to purchase up to 8,709 shares of the Company common stock at an exercise price equal to the per-share fair market value of the Company’s common stock on the date of grant (as determined by a qualified independent valuation company) pursuant to, and subject to the terms (including vesting terms) of the Company’s standard form of Stock Option Award Agreement. Such option grant shall be made under and subject to the terms and conditions of the Company’s 2016 Equity Incentive Plan (the “2016 Equity Plan”). Upon a Change of Control (as defined in the 2016 Equity Plan) or upon the closing of an underwritten initial public offering of the Company’s common stock (an “IPO”), whichever occurs first, and notwithstanding anything in any stock option award agreement to the contrary, all unvested stock options held by the Executive will upon the closing of such Change of Control or IPO, as applicable, become immediately vested and thereafter exercisable in accordance with the terms
of the applicable stock option award agreements and the Company’s 2016 Equity Incentive Plan (or the applicable successor thereto).
e.Certain Commissions. In addition to the compensation provided above, Executive will continue to receive, from and after the Effective Date, any commissions payable with respect to sales that were booked by the Company on or prior to December 31, 2019, to the extent that the Executive would have been entitled to such commissions under the Company’s commission plan (as applicable to Executive) as in effect immediately prior to the Effective Date. The amounts payable pursuant to this paragraph will be paid to the Executive regardless of whether he continues to be employed by the Company on the date on which such commissions are paid or payable.
f.Tax Matters. All payments of Base Salary and other compensation, if any, will be subject to any required tax or other legally required withholdings by the Company.
g.Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any compensation paid to the Executive pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
5.Expenses; Benefits.
a.Expense Reimbursement. The Company agrees to pay or to reimburse the Executive during the Term for all reasonable, ordinary and necessary business or entertainment expenses, substantiated by receipts or other written documentation provided to the Company, incurred in the performance of the Executive’s services hereunder in accordance with the standard expense reimbursement policies or practices of the Company as may be in effect from time to time.
b.Vacation. Executive shall be entitled to vacation time in accordance with the Company’s standard vacation policy for its senior executives as in effect from time to time.
c.Benefits. During the Term, the Executive shall be eligible to participate in and receive benefits under such pension, life insurance, health/medical/dental/vision insurance, disability insurance and other benefits plans, if any, which the Company may in its discretion from time to time make available to its comparable-level employees generally.
6.Termination.
a.Termination by the Company for Cause. The Company may terminate the Executive’s employment at any time for Cause (as defined below) upon written notice to the Executive. In the event of a termination for Cause, the Company shall be relieved of all its obligations to the Executive provided for by this Agreement as of the effective date of termination, and all employment-related payments to the Executive hereunder shall immediately cease and terminate as of such date, except that the Executive shall be entitled to
any accrued but unpaid Base Salary up to and including the effective date of termination. As used in this Agreement, “Cause” shall mean the following:
i.the Executive's willful failure to perform his duties (other than any such failure resulting from incapacity due to physical or mental illness);
ii.the Executive’s failure to follow any lawful instruction or policy of the Company consistent with the Executive’s position and duties as defined under this Agreement (including any request to cooperate with an investigation by or with respect to the Company);
iii.gross negligence, willful misconduct, or illegal conduct by the Executive that materially impairs the performance of the Executive’s duties or that is materially injurious to the Company;
iv.the Executive’s (A) commission of any fraudulent act relating to the Company or his employment or (B) breach of his duty of loyalty to the Company involving personal dishonesty by the Executive and intended to result in personal enrichment of the Executive (or the Executive’s family or friend(s)) at the expense of the Company;
v.misappropriation of funds, theft, or embezzlement by the Executive of Company funds or property;
vi.conviction of the Executive (including by a plea of guilty or nolo contendere) of any felony, or any crime that involves theft, fraud, perjury, or moral turpitude;
vii.any material breach of the Executive’s obligations under (A) this Agreement, (B) any other agreement between the Executive and the Company, or (C) any written policy of the Company; or
viii.the Executive deliberately falsifies any work records, personnel records or other records of the Company;
provided, however, that in the case of any of the events described in clauses (i), (ii), or(vii) above, such event shall not constitute Cause hereunder unless and until there is given to Executive by the Company a written notice which sets forth the specific respects in which it believes that Executive’s conduct constitutes Cause hereunder, which conduct is not cured within thirty (30) days after written notice thereof to the reasonable satisfaction of the Company.
For purposes of foregoing clauses (i) though (viii), the term “Company” shall include Related Entities.
b.Termination by the Company Without Cause. In addition to the other termination provisions of this Agreement, the Company may terminate the Executive’s employment at any time without cause and for any reason (a “Termination Without Cause”). In the event of a Termination Without Cause, (i) the Executive shall be entitled to his accrued but unpaid Base Salary up to and including the effective date of termination and (ii) the Executive shall be entitled to the severance compensation specified in Section 6(e) below.
c.Resignation by the Executive.
i.The Executive may resign and terminate the Executive’s employment hereunder at any time and for any reason by delivering written notice to the Company in accordance with Section 14 of this Agreement (an “Executive Termination Notice”) at least three (3) months prior to the Executive’s last day of employment (such three-month period being referred to as the “Executive Notice Period”). Upon the delivery of an Executive Termination Notice, the Company may, in its sole discretion, waive the Executive Notice Period in whole or in part upon written notice to the Executive, in which event the last day of employment shall be specified in the notice delivered by the Company. Upon the delivery of an Executive Termination Notice, the Company shall be relieved of all its obligations to the Executive provided for by this Agreement other than the payment of Base Salary, the commissions payable under Section 4(e), and benefits under Section 5 hereof through the last day of the Executive’s employment, upon which all employment-related payments to the Executive hereunder shall immediately cease and terminate (except that the Executive shall be entitled to his accrued but unpaid Base Salary up to and including his last day of employment).
ii.The Executive shall have the right to resign his employment for “Good Reason” if (i) there is a material adverse change or material diminution in the Executive’s duties, responsibilities, functions or title with the Company as a result of an explicit decision or action by the Board, or (ii) the Company commits a material breach of this Agreement. The Executive cannot terminate his employment for Good Reason unless he has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within fifteen (15) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances (and has failed to cure such circumstances within such period). If the Company has not, within such thirty (30) day period, cured the circumstances providing ground for termination for Good Reason and Executive does not terminate his employment for Good Reason within ten (10) days after the expiration of the Company’s cure period in the preceding sentence, the Executive will be deemed to have waived his right to terminate for Good Reason with respect to such grounds. The Executive acknowledges that the Board of Directors has flexibility under Section 3(a) to assign the Executive a broad range of responsibilities and duties that are consistent with his duties as Co-President and Chief Revenue Officer and to make changes in the Executive’s responsibilities in a manner that is materially consistent with the duties described under Section 3(a), and such assignments and change will not constitute “Good Reason.”
d.Death or Disability. The Executive’s employment hereunder shall automatically terminate upon the Executive’s death, and his estate shall be entitled to receive accrued but unpaid compensation through the date of termination. If, during the Term, the Executive becomes permanently physically or mentally disabled in the determination of a physician appointed or selected by the Company, or if due to any physical or mental condition the Executive becomes unable for a period of more than sixty (60) days during any six (6) month period to perform the Executive’s duties hereunder (with or without reasonable accommodation) as determined by a physician selected by the Company, the Company may, at
its option, terminate the Executive’s employment upon not less than thirty (30) days written notice. In the event of a termination pursuant to the preceding sentence, the Executive shall be entitled to his accrued but unpaid Base Salary up to and including the effective date of termination.
e.Severance Compensation. In the event of either (i) a Termination Without Cause by the Company or (ii) a termination for Good Reason by the Executive in accordance with Section 6(c)(ii) above, the Executive shall be entitled to receive separation pay in the form of equal installment payments (“Separation Payments”) which are in the aggregate equal to the sum of (i) twelve (12) months of the Executive’s Base Salary (as in effect at the time of termination of employment) plus (ii) any earned but unpaid annual bonus with respect to any completed fiscal year immediately preceding the effective date of Executive’s termination plus (iii) the Pro Rata Bonus (as defined below), and (iv) an additional amount in cash equal to the aggregate payments made by the Company towards Executive’s medical and dental benefits during the three hundred sixty-five (365) day period immediately prior to the effective date of Executive’s termination. The Separation Payments will be paid, subject to applicable tax withholdings and other required withholdings, in equal installments beginning with the first Company payroll date after the effective date of termination of employment and ending twelve (12) months thereafter; provided, however, the Executive’s right to receive any Separation Payments is conditioned upon both (x) the Executive signing and delivering to the Company, by the 30th day after the Executive’s termination of employment, a general release in a form acceptable to the Company (the “Release”) and (y) the Executive not revoking the Release within thirty (30) days of the execution and delivery thereof (the “Revocation Period”). Accordingly, any Separation Payments due prior to the execution and delivery of the Release will not be paid until the first payroll date following the expiration of the Revocation Period. In addition, (A) in the event that the timing of termination enables the Executive to choose to deliver the executed Release on a date that causes the commencement of the Separation Payments to occur in the taxable year following the year of termination, then the Separation Payments shall automatically commence beginning with the first payroll period of such following taxable year, regardless of when the Executive delivers the executed Release, and (B) if any class of stock of the Company is publicly traded at the time of the termination of employment, then any Separation Payments that would otherwise be made during the six-month period following the termination will instead be delayed and made with the first payroll period following such six-month period to the extent required for compliance with Section 409A. In the event that the Executive commits a material breach of this Agreement, the Release, or the Employee Confidentiality Agreement, the Company may discontinue making any Separation Payments under this paragraph. For purposes hereof, the term “Pro Rata Bonus” means an amount equal to the product of (x) the Target Bonus Amount for the year in which the Executive’s employment terminates, and (y) a fraction, the numerator of which is the number of days the Executive was employed by the Company during the year of termination and the denominator of which is the number of days in such year.
7.Restrictive Covenants.
a.Noncompetition and Nonsolicitation. The Executive recognizes and acknowledges that, by virtue of accepting employment with the Company, the Executive will acquire valuable training and knowledge, enhance the Executive’s professional skills and experience, and learn proprietary trade secrets and confidential information of the Company. In consideration of the foregoing, the Executive agrees that while he is in the employ of the Company and for a twenty four (24) month period after the date of termination of the
Executive’s employment, he shall not, except on behalf of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company and regardless of who effected the termination, engage in any of the following anywhere in the world:
i.engage or invest in; own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of; be employed by, associated with, or in any manner connected with; lend the Executive’s name or any similar name to; lend the Executive’s credit to; or render services or advice to, any business which competes with the Company or is engaged in or carries on any Competitive Business (as defined below) (provided that the foregoing shall not prohibit the Executive from owning the securities of corporations which are listed on a national securities exchange or traded in the national over-the-counter market in an amount which shall not exceed 3% of the outstanding shares of any such corporation, so long as the Executive does not actively participate in the business of such corporation); or
ii.attempt in any manner to intentionally solicit from any Business Associate (as defined below) business which is the same as, or substantially similar to that performed by the Company or to persuade any Business Associate to cease to do business with the Company or to reduce the amount of business which any such Business Associate has customarily done or is reasonably expected to do with the Company, whether or not the relationship between the Company and such Business Associate was originally established in whole or in part through his efforts.
As used in this Section 7, the term “Company” shall mean and include any Related Entities, and the term “Business Associate” shall mean any supplier, vendor, contractor, distributor, or customer of the Company. The term “Competitive Business” means any business that offers, develops, markets, or sells internet security awareness training services or content (or related educational products) or internet security compliance management products or services.
b.Remedies. If the Executive commits a breach, or the Company has reasonable grounds to believe that the Executive is about to commit a breach, of any of the provisions of this Section 7, the Company shall have the right to have the provisions of this Agreement specifically enforced without being required to post bond or other security in excess of $5,000 in value and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach.
c.Enforcement. The parties acknowledge that the type and periods of restriction imposed in the provisions of this Section 7 above are fair and reasonable and are reasonably required for the protection of the legitimate interests of the Company and the confidential information, proprietary property and goodwill associated with the business of the Company; and that the time, scope, geographic area, line of business and other provisions of this Section 7 have been specifically negotiated by sophisticated parties and are given as an integral part of the transactions contemplated by this Agreement, it being understood that the customers and Business Associates of the Company may be located anywhere in the world and accordingly it
is reasonable that the restrictive covenants set forth herein are not limited by narrow geographic area but generally by the location of such potential customers and Business Associates. If any of the covenants in Section 7 above, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The temporal duration of any the covenants contained in this Section 7 shall not expire, and shall be tolled, during any period that the Executive is in violation of any such covenant, and all such covenants shall automatically be extended by the period of the Executive’s violation thereof. The existence of any claim or cause of action which the Executive may have against the Company shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement and shall be pursued through separate court action by the Executive.
d.Non-Disparagement. Subject to Section 7(e) below, Executive agrees to not make any statements, written or oral, while employed by the Company and thereafter, which would be reasonably likely to disparage or damage the Company or its Related Entities or the personal or professional reputation of any present or former employees, officers or members of the managing or directorial boards or committees of the Company or its Related Entities; provided that the Executive will respond accurately and fully to any question, inquiry or request for information when required by legal process.
e.No Interference. Notwithstanding any other provision of this Agreement, nothing in this Agreement shall prohibit the Executive from confidentially or otherwise communicating or filing a charge or complaint with a governmental agency or regulatory entity; participating in a governmental agency or regulatory entity investigation; or giving truthful testimony or disclosures to a governmental agency or regulatory entity, or if properly subpoenaed or otherwise required to do so under applicable law. Furthermore, the U.S. Defend Trade Secrets Act of 2016 provides that: (a) an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; and (b) an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal, and (B) does not disclose the trade secret, except pursuant to court order. Nothing in this Agreement prohibits or creates liability for any such protected conduct.
8.Executive Confidentiality Agreement. The Executive has previously executed and delivered to the Company an At Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement, dated January 11, 2016 (as may be amended from time to time, the “Executive Confidentiality Agreement”). The Executive agrees and acknowledges that the Executive Confidentiality Agreement shall continue to remain in full force and effect and (subject to Section 7(e) above) that the
obligations therein shall be in addition to the obligations set forth in this Agreement, provided that in the event of any direct conflict between the terms of the Executive Confidentiality Agreement and this Agreement, the provisions of this Agreement shall control.
9.Enforceability.
The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party’s right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision of this Agreement be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself.
10.Assignment; Binding Effect.
This Agreement is personal in its nature and neither party shall assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other; provided however, that the Company may assign this Agreement and its rights and obligations hereunder to any transferee of all or substantially all of the Company’s business (whether by merger, consolidation, sale of stock, sale of assets, or otherwise) without the Executive’s consent. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.
11.Modification.
This Agreement may not be orally canceled, changed, modified, amended, or waived and no cancellation, change, modification, amendment or waiver shall be effective or binding, unless in writing and signed by the parties to this Agreement. Any such cancellation, change, modification, amendment or waiver shall be effective only in the specific instance and for the purpose for which given.
12.Severability; Survival.
In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the invalid or unenforceable part had been severed and deleted. If any covenant in this Agreement should be deemed invalid, illegal or unenforceable, because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. The respective rights and obligations of the parties hereunder shall survive the termination of the Executive’s employment to the extent necessary to effect the intended preservation of such rights and obligations. Without limitation, the provisions of Sections 7, 8, 9, 15, 21 and 22 shall survive the termination of the Executive’s employment with the Company and shall continue to be enforceable at all times thereafter.
13.Key Person Insurance.
The Executive agrees that the Company shall have the right, but not the obligation, to obtain key person insurance on the Executive with the Company as the sole beneficiary thereof. The Executive shall (a) cooperate fully in obtaining such insurance; (b) sign any necessary consents, applications and other related forms or documents; and (c) take any reasonably required medical examinations.
14.Notices.
Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand; or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered U.S. mail; or (c) on the next business day, if sent by prepaid overnight courier service, and in each case, addressed as follows:
If to the Executive, to the address set forth below the Executive’s signature on the signature page hereto.
If to the Company:
KnowBe4, Inc.
Attn: Legal Department
33 North Garden Ave., Suite 1200
Clearwater, FL 33755
Attention: General Counsel
Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner herein provided for giving notice.
15.Applicable Law and Jurisdiction.
a.Applicable Law. All questions concerning the construction, interpretation and validity of this Agreement, and all matters relating hereto, shall be governed by and construed and enforced in accordance with the laws of the State of Florida, without giving effect to any choice or conflict of law provision or rule (whether in the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida.
b.Disputes. Except for actions by the Company for equitable relief (which may be brought in any court that has jurisdiction), any dispute, controversy or claim arising out of or related to this Agreement or any breach of this Agreement shall be submitted to and decided by binding arbitration in accordance with the arbitration provisions of the Executive Confidentiality Agreement, with any such arbitration proceeding to be conducted in Pinellas County, Florida. Any arbitral award determination shall be final and binding upon the parties.
16.No Conflict.
The Executive represents and warrants that he/she is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this Agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement. The Executive further agrees not to use or disclose in the course of the Executive’s employment with the Company any confidential information or trade secrets of any other person.
17.Entire Agreement.
This Agreement (together with the Executive Confidentiality Agreement) represents the entire agreement between and among the Company and the Executive with respect to the subject matter hereof, and all prior agreements, plans and arrangements (including any previously signed version of this
Agreement that Executive may have executed) relating to the employment of the Executive by the Company are nullified and superseded hereby.
18.Headings.
The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
19.Withholding.
The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
20.Counterparts.
This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
21.No Strict Construction.
The language used in this Agreement will be deemed to be the language chosen by the Executive and the Company to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsperson will be applied against either the Executive or the Company.
22.Notification of New Employer.
In the event that the Executive is no longer an employee of the Company, the Executive consents to notification by the Company to the Executive’s new employer or its agents regarding the Company’s rights and the Executive’s obligations under this Agreement.
23.Section 409A.
The parties intend for this Agreement to conform in all respects to the requirements under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the parties intend for this Agreement to be interpreted, construed, administered and applied in a manner as shall meet and comply with the requirements of Section 409A, and the Board may amend this Agreement in its discretion so as to comply with any such requirement. Any reference in this Agreement to Section 409A, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A and regulations (proposed, temporary or final) issued by the United States Secretary of the Treasury under or interpreting Section 409A. Notwithstanding any other provision of this Agreement, neither the Company nor any of its subsidiaries or affiliates nor any individual acting as a director, officer, employee, agent or other representative of the Company or of a subsidiary or affiliate shall be liable to the Executive or any other person for any claim, loss, liability or expense arising out of any interest, penalties or additional taxes due by the Executive or any other person as a result of this Agreement or the administration thereof not satisfying any of the requirements of Section 409A. The
Executive represents and warrants that he/she has reviewed or will review with his own tax advisors the federal, state, local and employment tax consequences of entering into this Agreement, including, without limitation, under Section 409A, and, with respect to such matters, he relies solely on such advisors. If the Executive is a “specified employee” (as determined by the Company under Section 409A) on the date of the Executive’s separation from service, if and to the extent that any payments payable upon such separation from service under this Agreement constitute deferred compensation within the meaning of Section 409A, each such severance payment shall be paid on the later of (a) the date scheduled to be paid under Section 6 hereof, or (b) the first business day after the date that is six (6) months after the date of the Executive’s separation from service. Each installment under this Agreement shall be regarded as a separate “payment” for purposes of Section 409A.
24.Section 280(G).
Notwithstanding any other provision of this Agreement, or any other agreement, plan, or arrangement to the contrary, if any portion of any payment or benefit under this Agreement, or under any other agreement, plan, or arrangement (in the aggregate, “Total Payments”), would constitute an “excess parachute payment” under Section 280G of the Code, and would, but for this Section 24, result in the imposition on the Executive of an excise tax under Section 4999 of the Code (the “Excise Tax”), then the Total Payments to be made to the Executive shall either be (a) delivered in full, or (b) delivered in a reduced amount that is $1.00 less than the amount that would cause any portion of such Total Payments to be subject to the Excise Tax, whichever of the foregoing results in the receipt by the Executive of the greatest benefit on an after-tax basis (taking into account the Excise Tax, as well as the applicable federal, state, and local income and employment taxes, for which the Executive shall be deemed to pay at the highest marginal rate for the applicable calendar year). To the extent the foregoing reduction applies, then any such payment or benefit shall be reduced or eliminated by applying the following principles, in order: (1) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (2) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (3) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Section 409A of the Code, then the reduction shall be made pro rata among the payment or benefits (on the basis of the relative present value of the parachute payments). The determination of whether the Excise Tax or the foregoing reduction will apply will be made by independent tax counsel selected and paid by the Company (which may be regular counsel of the Company).
[Signatures on Following Page]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
|
|
|
|
|
|
|
|
COMPANY
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman (Mar 4, 2020)
|
|
Name:
|
Sjoerd Sjouwerman
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
EXECUTIVE
|
|
|
|
|
/s/ Lars Letonoff (Mar 4, 2020)
|
|
Lars Letonoff, individually
|
|
|
|
|
Address:
|
|
1537 Main Street
|
|
Safety Harbor, Florida 34695
|
ADDENDUM TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Addendum to Executive Employment Agreement (the “Addendum”) is made and entered into by and between KnowBe4, Inc., a Delaware company (the “Company”) and Lars Letonoff (“Executive” and together with the Company, the “Parties”), effective as of date signed below. The Addendum supplements the Parties’ Executive Employment Agreement dated February 26, 2020 (the “Employment Agreement”).
1.Liquidity Event Payment.
(a)General. Subject to the provisions of Section 2(b), Executive will be eligible to receive a restricted stock unit award covering a number of shares having a Value equal to $5,000,000 (the “Liquidity RSU”) upon a Liquidity Event (as defined below) that is an IPO, subject to Executive’s continued employment through the Liquidity Event. If the Liquidity Event is a Change in Control or a SPAC Transaction, then Executive will receive $5,000,000 in cash (the “Cash Bonus”), subject to Executive’s continued employment through the Liquidity Event. For the avoidance of doubt, Executive shall only be eligible for either the Liquidity RSU or the Cash Bonus; in no cases, both.
(b)Timing. If earned, the Liquidity RSU will be granted fully-vested on the date of a Liquidity Event under the Company’s then-current equity incentive plan. Executive will be permitted to sell 100% of shares vesting upon the Liquidity Event. In the case of a Change in Control or a SPAC Transaction, the Cash Bonus will be payable upon the such transaction, reduced by regular withholdings.
(c)Value. For purposes of this Addendum, a share subject to a Liquidity RSUs has a “Value” equal to: (i) in the case of an IPO, initial price to the public as set forth in the final prospectus included within the first registration statement that is filed by the Company and declared effective pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, with respect to any class of the Company’s securities; or (ii) a Change in Control, the price per share payable to Company common stockholders in the transaction; or (iii) a SPAC Transaction, the valuation per share of Company common stock at the closing of the SPAC Transaction.
For illustrative purposes, in the case of an IPO, where the initial price to the public as set forth in the final prospectus is $18 per share, then the Liquidity RSU will cover 277,778 shares (which is $5 million divided by $18, rounded up).
2.Definitions.
(a)“Change in Control” means the occurrence of any of the following events: the acquisition by any one person, or more than one person acting as a group (a “Person”), for the first time of ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time and will not constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s
incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(b)“Code” means the Internal Revenue Code of 1986, as amended.
(c)“IPO” means the first sale or resale of the Company’s common stock (or other common equity securities of the Company) to the general public in connection with an underwritten public offering or on the trading day that trading commences in connection with a direct listing, in each case (1) pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, (2) immediately after which such securities (i.e., the shares or other common equity securities of the Company) are registered on a national securities exchange (as defined under then-applicable United States federal securities laws and regulations), and (3) such transaction resulted in the Company’s pre-money equity valuation of at least $2 billion.
(d)“Liquidity Event” means the first to occur of a Change in Control, an IPO, or a SPAC Transaction.
(e)“SPAC Transaction” the closing of a transaction contemplated by a business combination agreement between the Company and a special purpose acquisition company that results in the surviving corporation’s common stock being registered and traded on a national securities exchange and such transaction resulted in the Company’s pre-money equity valuation of at least $2 billion.
3.Section 409A. The foregoing provisions are intended to comply with, or be exempt from, the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) so that none of the payments and benefits to be provided under this Addendum will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply or be exempt. The Parties agree to work together in good faith to consider amendments to this Addendum and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A. In no event will the Company reimburse Executive for any taxes that may be imposed on Executive as a result of Section 409A.
4.Additional Provisions.
(a)Severability; Governing Law; Entire Agreement. If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Addendum will continue in full force and effect without said provision. This Addendum will be governed by the laws of the State of Florida (with the exception of its conflict of laws provisions). This Addendum constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, including, but not limited to the Liquidity Bonus Agreement with the Company and Executive dated October 9, 2020.
(b)No Employment. This Addendum does not constitute a contract of employment, service or consultancy.
(c)Administration; Amendment. This Addendum shall be interpreted and administered by the Company’s Board of Directors (and the Board of Directors of any successor to the Company), whose actions shall be final and binding on Executive. The Company may at any time amend, alter, suspend or terminate this Addendum; provided, however, that any amendment, alteration, suspension or termination of
this Addendum will not impair Executive’s rights and obligations under this Addendum, unless agreed to in writing by Executive or as may be required by any applicable law.
IN WITNESS WHEREOF, each of the Parties has executed this Addendum, in the case of the Company by its duly authorized officer, as of the day and year first set forth below.
|
|
|
|
|
|
|
|
|
|
|
COMPANY
|
KNOWBE4, INC.
|
|
|
|
|
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
Date:
|
March 17, 2021
|
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
By:
|
/s/ Lars Letonoff
|
|
|
|
|
|
|
Date:
|
March 17, 2021
|
FIRST AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS FIRST AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of February 26, 2020 (the “Effective Date”), by and between KNOWBE4, INC., a Delaware corporation (the “Company”), and SHRIKRISHNA VENKATARAMAN, an individual (the “Executive”). This Agreement amends, restates, and supersedes in its entirety that certain Executive Employment Agreement, dated April 5, 2018, as amended by Amendment No. 1 to Executive Employment Agreement dated August 14, 2019 (collectively, the “Prior Employment Agreement”), between the Executive and the Company.
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Prior Employment Agreement, Executive was hired as the Chief Financial Officer of the Company.
WHEREAS, the Company and the Executive desire to amend and restate the Prior Employment Agreement in the manner set forth herein in order to, among other things, make certain changes to the Executive's title and compensation as originally specified in the Prior Employment Agreement.
WHEREAS, the Company desires to employ the Executive as the Company's Co-President and Chief Financial Officer, and the Executive desires to accept such employment, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Executive agree as follows:
1.Employment.
The Company agrees to employ the Executive during the Term specified in Section 2 below, and the Executive agrees to accept such employment, upon the terms and conditions hereinafter set forth.
2.Term.
Subject to the terms and conditions of this Agreement, the Executive's employment by the Company shall commence on the Effective Date and shall continue in effect until terminated in accordance with Section 6 of this Agreement (the “Term”). The Executive acknowledges, subject to the provisions of Section 6 of this Agreement, that the Executive's employment with the Company is on an at-will basis, and the Company may therefore terminate the Executive's employment, with or without cause, at any time and for any reason.
3.Duties and Responsibilities.
a.Position. During the Term, the Executive shall have the positions of Co- President and Chief Financial Officer of the Company, and in connection therewith, the Executive shall perform such duties and responsibilities and have such authority as is commonly incident to such offices, as well as such other duties and responsibilities as shall be determined from time to time by the Company's Chief Executive Officer (the “CEO”) or Board of Directors (the “Board”) and are generally consistent with such offices. The Executive shall report directly to the CEO.
b.Full-Time Employment. The Executive's employment by the Company shall be full-time, and during the Term, the Executive agrees to devote substantially all of his business time and attention to the performance of the Executive's duties hereunder and will not engage in any other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the CEO. Notwithstanding the foregoing, the Executive will be permitted to act or serve as a director, trustee, committee member, or principal of any type of civic or charitable organization as long as such activities are disclosed in writing to the Company and are consistent with the Company's conflict-of-interest policies and other policies and do not interfere with the performance of his duties hereunder. The Executive represents that he has made the Company aware of any agreement to which he is a party or by which he is bound (including without limitation any non-compete or non-solicitation agreements or similar agreements) that might interfere with his ability to perform the above-described duties on behalf of the Company. At all times, the Executive agrees that the Executive has read and will abide by, and prospectively will read and abide by, any employee handbook, policy, or practice that the Company or Related Entities has or hereafter adopts with respect to its employees generally. The Executive covenants that he will not enter into any agreement that restricts his ability to perform under this Agreement. The Executive's principal place of employment shall be the Company's principal executive office in Clearwater, Florida, subject to travel requirements incident to the performance of his duties and responsibilities hereunder; provided, however, that Executive will not be required to relocate his primary residence from his current home in New Jersey and may commute to and from the Company's offices on a weekly basis, arriving Monday mornings and departing after business hours on Fridays (subject to alternative business travel incident to performance of employment duties hereunder).
c.Related Entities. To the extent that the Company shall have any parent company, subsidiaries, affiliated corporations, partnerships, or joint ventures (collectively, “Related Entities”), the Executive shall perform the above-described duties to promote these Related Entities and to promote and protect their respective interests to the same extent as the interests of the Company without additional compensation.
4.Compensation.
a.Base Salary. As compensation for his services hereunder and in consideration of the restrictive covenants set forth below, during the Term, the Company shall pay the Executive a base salary (the “Base Salary”) of Five Hundred Fourteen Thousand Dollars ($514,000.00) per annum, payable in installments in accordance with the Company's normal payroll schedule. The Base Salary may be adjusted upward, but not downward, in the sole discretion of the Board or by any Compensation Committee (or similar committee) of the Board. The Base Salary set forth in this paragraph shall be effective as of January 1, 2020 notwithstanding the Effective Date.
b.Performance-Based Bonuses. The Executive will be eligible to participate in any annual performance-based cash bonus plan as may be established from time to time in the discretion of the Board (or a duly authorized committee thereof). The target bonus amount for the Executive's participation in such plan will be One Hundred Percent (100%) of the Executive's Base Salary as then in effect (the “Target Bonus Amount”), provided that nothing shall preclude the Board from granting a bonus above the Target Bonus Amount. The receipt of a bonus under such plan shall be contingent upon achievement of the Company's performance goals as determined by the Board of Directors, successful individual Executive performance as
evaluated by the Board of Directors, and approval of the Board of Directors and satisfaction of such other conditions as the Board of Directors may establish.
c.Discretionary Bonuses. In addition, the Executive may from time to time receive additional discretionary bonuses to the extent determined by the Board of Directors (or an authorized committee thereof) in its sole discretion. Any bonus paid to the Executive is entirely discretionary, and there is no contractual entitlement to receive it and it will not count as part of the Executive's contractual remuneration or salary for pension purposes or otherwise. Executive's eligibility for payment of any such bonus, as well as the timing and amount of payment, if any, will be determined by the Board of Directors of the Company in its sole discretion.
d.Stock Option Grants.
i.The Prior Employment Agreement provided for the grant by the Company to the Executive of an option (the “Initial Option”) to purchase an aggregate of 42,345 shares of Company common stock at an exercise price equal to the per-share fair market value of the Company's common stock on the date of grant (as determined by a qualified independent valuation company) under and subject to the terms and conditions of the Company's 2016 Equity Incentive Plan (the “2016 Equity Plan”). The Company and Executive agree and confirm that the Initial Option was granted to Executive on Executive's first day of employment with the Company, which was April 5, 2018 (the “Employment Start Date”). The Prior Employment Agreement further provided that, at the discretion of the Board (or a Compensation Committee thereof), the Company may also grant to Executive on each of the first two anniversaries of the Employment Start Date during the Term an additional option to purchase up to 6,351 shares (such number to be subject to adjustment for stock dividends, stock splits, reverse stock splits, and the like) of Company common stock under the 2016 Equity Plan (or any successor thereto), with an exercise price equal to the fair market value of a share of Company's common stock on the grant date, and with such vesting schedules and other terms as are determined by the Board (the “Additional Option Grants”). The Company and Executive confirm and agree that the first Additional Option Grant has been made by the Company, and the Company and the Executive agree that the Executive will become eligible for the second Additional Option Grant, to be granted at the discretion of the Board (or a Compensation Committee thereof), on April 5, 2020.
ii.In addition to the foregoing, on the Effective Date, the Company will grant to the Executive an additional option to purchase up to 8,709 shares of the Company common stock at an exercise price equal to the per-share fair market value of the Company's common stock on the date of grant (as determined by a qualified independent valuation company) pursuant to, and subject to the terms (including vesting terms) of the Company's standard form of Stock Option Award Agreement. Such option grant shall be made under and subject to the terms and conditions of the 2016 Equity Incentive Plan.
iii.Upon a Change of Control (as defined in the 2016 Equity Plan) or upon the closing of an underwritten initial public offering of the Company's common stock (an “IPO”), whichever occurs first, and notwithstanding anything in any stock option award agreement to the contrary, all unvested stock options held by the Executive will upon the closing of such Change of Control or IPO, as applicable, become immediately vested and
thereafter exercisable in accordance with the terms of the applicable stock option award agreements and the Company's 2016 Equity Incentive Plan (or the applicable successor thereto).
iv.In the event that a Change of Control (as defined in the 2016 Equity Plan) occurs on or before April 5, 2020, then at the discretion of the Board, the Board may grant a cash bonus that would be in lieu of the second Additional Option Grant that the Board could have otherwise made pursuant to Section 4(d)(i) (the “Second Year Bonus”). The Second Year Bonus may be up to an amount, as determined by the Board, equal to (A) the non-contingent amount payable with respect to a share of Company common stock in the Change of Control transaction (whether payable in cash, securities, or other property) minus the exercise price per share (as of the closing date of the Change of Control) of the options included in the first Additional Option Grant, multiplied by (B) the number of shares included in the first Additional Option Grant as of the date of the closing of the Change of Control Transaction.
e.Tax Matters. All payments of Base Salary and other compensation, if any, will be subject to any required tax or other legally required withholdings by the Company.
f.Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid to the Executive pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
5.Expenses; Benefits.
a.Expense Reimbursement. The Company agrees to pay or to reimburse the Executive during the Term for all reasonable, ordinary and necessary business or entertainment expenses, substantiated by receipts or other written documentation provided to the Company, incurred in the performance of the Executive's services hereunder in accordance with the standard expense reimbursement policies or practices of the Company as may be in effect from time to time.
b.Vacation. Executive shall be entitled to vacation time in accordance with the Company's standard vacation policy for its senior executives as in effect from time to time.
c.Benefits. During the Term, the Executive shall be eligible to participate in and receive benefits under such pension, life insurance, health/medical/dental/vision insurance, disability insurance and other benefits plans, if any, which the Company may from time to time make available to its other senior executives who report to the CEO.
d.Attorneys' Fee Reimbursement. The Company shall reimburse the Executive for his attorneys' fees incurred in connection with the review, negotiation, and execution of this Agreement, subject to a maximum aggregate reimbursement of $25,000 pursuant to this paragraph and subject to the Executive providing the Company with reasonable documentation or invoices verifying the amounts paid or incurred.
e.Commuting and Lodging Expenses. For so long as the Executive elects to keep his primary residence in New Jersey, Executive will be reimbursed for reasonable coach air fare between New Jersey/New York and Tampa, Florida, with a maximum reimbursement of one round-trip flight every week. The Company will also provide the Executive with use of any corporate apartment maintained by the Company in the Tampa Bay area for purposes of Executive's lodging while working in Clearwater, and if the Company does not maintain a corporate apartment, then Company shall reimburse the Executive for the reasonable cost of a mutually agreed upon extended-stay hotel or other lodging. Any reimbursement under this paragraph shall be subject to legally required tax and other withholdings, if any.
6.Termination.
a.Termination by the Company for Cause. The Company may terminate the Executive’s employment at any time for Cause (as defined below) upon written notice to the Executive. In the event of a termination for Cause, the Company shall be relieved of all its obligations to the Executive provided for by this Agreement as of the effective date of termination, and all employment-related payments to the Executive hereunder shall immediately cease and terminate as of such date, except that the Executive shall be entitled to any accrued but unpaid Base Salary up to and including the effective date of termination. As used in this Agreement, “Cause” shall mean the following:
i.the Executive's willful failure to perform his duties (other than any such failure resulting from incapacity due to physical or mental illness);
ii.the Executive’s failure to follow any lawful instruction or policy of the CEO or Board consistent with the Executive’s position and duties as defined under this Agreement (including any request to cooperate with an investigation by or with respect to the Company);
iii.gross negligence, willful misconduct, or illegal conduct by the Executive that materially impairs the performance of the Executive’s duties or that is materially injurious to the Company;
iv.the Executive’s (A) commission of any fraudulent act relating to the Company or his employment or (B) breach of his duty of loyalty to the Company involving personal dishonesty by the Executive and intended to result in personal enrichment of the Executive (or the Executive’s family or friend(s)) at the expense of the Company;
v.misappropriation of funds, theft or embezzlement by the Executive of Company funds or property;
vi.conviction of the Executive (including by a plea of guilty or nolo contendere) of any felony, or any crime that involves theft, fraud, perjury, or moral turpitude;
vii.any material breach of the Executive’s obligations under (A) this Agreement, (B) any other agreement between the Executive and the Company, or (C) any written policy of the Company; or
viii.the Executive deliberately falsifies any work records, personnel records or other records of the Company;
provided, however, that in the case of any of the events described in clauses (i), (ii), or (vii) above, such event shall not constitute Cause hereunder unless and until there is given to Executive by the Company a written notice which sets forth the specific respects in which it believes that Executive’s conduct constitutes Cause hereunder, which conduct is not cured within ten (10) days after written notice thereof.
b.Termination by the Company Without Cause. Notwithstanding the Term of this Agreement set forth in Section 2 above, the Executive's employment with the Company will be on an at-will basis, and, therefore, in addition to the other termination provisions of this Agreement, the Company may terminate the Executive's employment at any time without cause and for any reason (a “Termination Without Cause”). In the event of a Termination Without Cause, (i) the Executive shall be entitled to his accrued but unpaid Base Salary up to and including the effective date of termination, and (ii) the Executive shall be entitled to the severance compensation specified in Section 6(e) below. For the purposes of foregoing clauses (i) through (viii), the term “Company” shall include Related Entities.
c.Resignation by the Executive.
i.The Executive may resign and terminate the Executive's employment hereunder at any time and for any reason by delivering written notice to the Company in accordance with Section 14 of this Agreement (an “Executive Termination Notice”) at least three (3) months prior to the Executive's last day of employment (such three-month period being referred to as the “Executive Notice Period”). Upon the delivery of an Executive Termination Notice, the Company may, in its sole discretion, waive the Executive Notice Period in whole or in part upon written notice to the Executive, in which event the last day of employment shall be specified in the notice delivered by the Company. Upon the delivery of an Executive Termination Notice, the Company shall be relieved of all its obligations to the Executive provided for by this Agreement other than the payment of Base Salary and benefits under Section 5 hereof through the last day of the Executive's employment, upon which all employment-related payments to the Executive hereunder shall immediately cease and terminate (except that the Executive shall be entitled to his accrued but unpaid Base Salary up to and including his last day of employment).
ii.The Executive shall have the right to resign his employment for “Good Reason” if any of the following occur without the Executive's written consent: (i) the Company requires the Executive to relocate his primary residence to Tampa Bay, Florida from his current residence in New Jersey, (ii) there is a material adverse change or material diminution in the Executive's functions, duties, responsibilities, functions, or status with the Company resulting in the Executive no longer reporting directly to the Chief Executive Officer of the Company (or, following a Change of Control, to the Chief Executive Officer of the controlling entity of the Company), or (iii) the Company commits a material breach of this Agreement. The Executive cannot terminate his employment for Good Reason unless he has provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within fifteen (15) days of the initial existence of such grounds and the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances (and has failed to cure such circumstances within such period). If the Company has not, within such thirty (30) day period, cured the circumstances providing ground for termination for Good Reason and Executive does not terminate his employment for Good Reason within ten (10) days after the expiration of the Company's
cure period in the preceding sentence, the Executive will be deemed to have waived his right to terminate for Good Reason with respect to such grounds. The Executive acknowledges that the Board of Directors has flexibility under Section 3(a) to assign the Executive a broad range of responsibilities and duties that are consistent with his duties as Co President and Chief Financial Officer and to make changes in the Executive's responsibilities in a manner that is materially consistent with the duties described under Section 3(a), and such assignments and change will not constitute “Good Reason.”
d.Death or Disability. The Executive's employment hereunder shall automatically terminate upon the Executive's death, and his estate shall be entitled to receive accrued but unpaid compensation through the date of termination. If, during the Term of this Agreement, the Executive becomes permanently physically or mentally disabled in the determination of a physician appointed or selected by the Company, or, if due to any physical or mental condition, the Executive becomes unable for a period of more than sixty (60) days during any six (6) month period to perform the Executive's duties hereunder (with or without reasonable accommodation) as determined by a physician selected by the Company, the Company may, at its option, terminate the Executive's employment upon not less than thirty (30) days written notice. In the event of a termination pursuant to the preceding sentence, the Executive shall be entitled to his accrued but unpaid Base Salary up to and including the effective date of termination.
e.Severance Compensation. In the event of either (i) a Termination Without Cause by the Company or (ii) a termination for Good Reason by the Executive in accordance with Section 6(c)(ii) above, the Executive shall be entitled to receive separation pay in the form of equal installment payments (“Separation Payments”) which are in the aggregate equal to the sum of (i) twelve (12) months of the Executive's Base Salary (as in effect at the time of termination of employment) plus (ii) any earned but unpaid annual bonus with respect to any completed fiscal year immediately preceding the effective date of Executive's termination, plus (iii) the Pro Rata Bonus (as defined below), and (iv) an additional amount in cash equal to the aggregate payments made by the Company towards Executive's medical and dental benefits during the three hundred sixty-five (365) day period immediately prior to the effective date of Executive's termination. The Separation Payments will be paid, subject to applicable tax withholdings and other required withholdings, in equal installments beginning with the first Company payroll date after the effective date of termination of employment and ending twelve (12) months thereafter; provided, however, the Executive's right to receive any Separation Payments is conditioned upon both (x) the Executive signing and delivering to the Company, by the 30th day after the Executive's termination of employment, a general release in a form acceptable to the Company (the “Release”) and (y) the Executive not revoking the Release within thirty (30) days of the execution and delivery thereof (the “Revocation Period”). Accordingly, any Separation Payments due prior to the execution and delivery of the Release will not be paid until the first payroll date following the expiration of the Revocation Period. In addition, (A) in the event that the timing of termination enables the Executive to choose to deliver the executed Release on a date that causes the commencement of the Separation Payments to occur in the taxable year following the year of termination, then the Separation Payments shall automatically commence beginning with the first payroll period of such following taxable year, regardless of when the Executive delivers the executed Release, and (B) if any class of stock of the Company is publicly traded at the time of the termination of employment, then any Separation Payments that would otherwise be made during the six-month period following the termination will instead be delayed and made with the first payroll period
following such six-month period to the extent required for compliance with Section 409A. In the event that the Executive commits a material breach of this Agreement, the Release, or the Employee Confidentiality Agreement, the Company may discontinue making any Separation Payments under this paragraph. For purposes hereof, the term “Pro Rata Bonus” means an amount equal to the product of (x) the Target Bonus Amount for the year in which the Executive's employment terminates, and (y) a fraction, the numerator of which is the number of days the Executive was employed by the Company during the year of termination and the denominator of which is the number of days in such year.
f.Effect of Termination upon Options. In the event that Executive's employment is terminated in a Termination Without Cause by the Company, in a Termination for Good Reason by the Executive, or pursuant to death or disability pursuant to Section 6(d) above, any stock options held by Executive at the time of such termination will be treated in accordance with the terms of the applicable Stock Option Award Agreement.
7.Restrictive Covenants.
a.Noncompetition and Nonsolicitation. The Executive recognizes and acknowledges that, by virtue of accepting employment with the Company, the Executive will acquire valuable training and knowledge, enhance the Executive's professional skills and experience and learn proprietary trade secrets and confidential information of the Company. In consideration of the foregoing, the Executive agrees that, while he is in the employ of the Company and for a twelve (12) month period after the date of termination or expiration of the Executive's employment, he shall not, except on behalf of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company, engage in any of the following anywhere in the world:
i.engage or invest in; own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of; be employed by, associated with, or in any manner connected with; lend the Executive's name or any similar name to; lend the Executive's credit to; or render services or advice to, any business which competes with the Company or is engaged in or carries on any Competitive Business (as defined below) (provided that the foregoing shall not prohibit the Executive from owning the securities of corporations which are listed on a national securities exchange or traded in the national over-the-counter market in an amount which shall not exceed 3% of the outstanding shares of any such corporation, so long as the Executive does not actively participate in the business of such corporation); or
ii.attempt in any manner to intentionally solicit from any Business Associate (as defined below) business which is the same as, or substantially similar to that performed by the Company or to persuade any Business Associate to cease to do business with the Company or to reduce the amount of business which any such Business Associate has customarily done or is reasonably expected to do with the Company, whether or not the relationship between the Company and such Business Associate was originally established in whole or in part through his efforts.
As used in this Section 7, the term “Company” shall mean and include any Related Entities, and the term “Business Associate” shall mean any supplier, vendor, contractor, distributor, or customer of the Company. The term “Competitive Business” means any business that offers, develops, markets or sells internet security awareness training services or content (or related educational products) or security compliance management products or services.
b.Remedies. If the Executive commits a breach, or the Company has reasonable grounds to believe that the Executive is about to commit a breach, of any of the provisions of this Section 7, the Company shall have the right to have the provisions of this Agreement specifically enforced without being required to post bond or other security in excess of $5,000 in value and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach.
c.Enforcement. The parties acknowledge that the type and periods of restriction imposed in the provisions of Section 7 above are fair and reasonable and are reasonably required for the protection of the legitimate interests of the Company and the confidential information, proprietary property and goodwill associated with the business of the Company; and that the time, scope, geographic area, line of business and other provisions of this Section 7 have been specifically negotiated by sophisticated parties and are given as an integral part of the transactions contemplated by this Agreement, it being understood that the customers and Business Associates of the Company may be located anywhere in the world and accordingly it is reasonable that the restrictive covenants set forth herein are not limited by narrow geographic area but generally by the location of such potential customers and Business Associates. If any of the covenants in Section 7 above, or any part thereof: is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The temporal duration of any the covenants contained in this Section 7 shall not expire, and shall be tolled, during any period that the Executive is in violation of any such covenant, and all such covenants shall automatically be extended by the period of the Executive's violation thereof. The existence of any claim or cause of action which the Executive may have against the Company shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement and shall be pursued through separate court action by the Executive.
d.No Interference. Notwithstanding any other prov1s1on of this Agreement, nothing in this Agreement shall prohibit the Executive from confidentially or otherwise communicating or filing a charge or complaint with a governmental agency or regulatory entity; participating in a governmental agency or regulatory entity investigation; or giving truthful testimony or disclosures to a governmental agency or regulatory entity, or if properly subpoenaed or otherwise required to do so under applicable law. Furthermore, the U.S. Defend Trade Secrets Act of 2016 provides that: (a) an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or
other proceeding, if such filing is made under seal; and (b) an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal, and (B) does not disclose the trade secret, except pursuant to court order. Nothing in this Agreement prohibits or creates liability for any such protected conduct.
8.Confidentiality and Non-Disparagement.
a.Employee Confidentiality Agreement. The Executive has previously executed and delivered to the Company an At Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement, dated on or around April 5, 2018 (as may be amended from time to time, the “Employee Confidentiality Agreement”). The Executive agrees and acknowledges that the Employee Confidentiality Agreement shall continue to remain in full force and effect (subject to Section 7(d) above) and that the obligations therein shall be in addition to the obligations set forth in this Agreement, provided that in the event of any direct conflict between the terms of the Employee Confidentiality Agreement and this Agreement, the provisions of this Agreement shall control.
b.Nondisparagement. Subject to Section 7(d) above, the parties agree to treat each other respectfully and professionally and at no time during or after the Term disparage the other party and the other party's officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided that both the Executive and Company will respond accurately and fully to any question, inquiry or request for information when required by the legal process.
9.Enforceability.
The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party's right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision of this Agreement be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself
10.Assignment; Binding Effect.
This Agreement is personal in its nature and neither party shall assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other; provided however, that the Company may assign this Agreement and its rights and obligations hereunder to any transferee of all or substantially all of the Company's business (whether by merger, consolidation, sale of stock or assets or otherwise) without the Executive's consent. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.
11.Modification.
This Agreement may not be orally canceled, changed, modified, amended or waived and no cancellation, change, modification, amendment or waiver shall be effective or binding, unless in writing and signed by the parties to this Agreement. Any such cancellation, change, modification, amendment or waiver shall be effective only in the specific instance and for the purpose for which given.
12.Severability; Survival.
In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the invalid or unenforceable part had been severed and deleted. The respective rights and obligations of the parties hereunder shall survive the termination of the Executive’s employment to the extent necessary to effect the intended preservation of such rights and obligations. Without limitation, the provisions of Sections 7, 8, 9, 15, 21 and 22 shall survive the termination of the Executive’s employment with the Company and shall continue to be enforceable at all times thereafter.
13.Key Person Insurance.
The Executive agrees that the Company shall have the right, but not the obligation, to obtain key person insurance on the Executive with the Company as the sole beneficiary thereof. The Executive shall (a) cooperate fully in obtaining such insurance; (b) sign any necessary consents, applications and other related forms or documents; and (c) take any reasonably required medical examinations.
14.Notices.
Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand; or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered mail; or (c) on the next business day, if sent by prepaid overnight courier service, and in each case, addressed as follows:
If to the Executive, to the address set forth below the Executive’s signature on the signature page hereto.
If to the Company:
33 North Garden Ave., Suite 1200
Clearwater, FL 33755
Attention: Chief Executive Officer
Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner herein provided for giving notice.
15.Applicable Law and Jurisdiction.
a.Applicable Law. All questions concerning the construction, interpretation and validity of this Agreement, and all matters relating hereto, shall be governed by and construed and enforced in accordance with the laws of the State of Florida, without giving effect to any choice or conflict of law provision or rule (whether in the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida.
b.Disputes. Except for actions by the Company for equitable relief (which may be brought in any court that has jurisdiction), any dispute, controversy or claim arising out of or related to this Agreement or any breach of this Agreement shall be submitted to and decided by binding arbitration in accordance with the arbitration provisions of the Employee
Confidentiality Agreement. Any arbitral award determination shall be final and binding upon the parties.
16.No Conflict.
The Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this Agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement. The Executive further agrees not to use or disclose in the course of the Executive’s employment with the Company any confidential information or trade secrets of any other person.
17.Entire Agreement.
This Agreement (together with the Employee Confidentiality Agreement) represents the entire agreement between and among the Company and the Executive with respect to the subject matter hereof, and all prior agreements, plans and arrangements (including any previously signed version of this Agreement that Executive may have executed) relating to the employment of the Executive by the Company are nullified and superseded hereby.
18.Headings.
The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
19.Withholding.
The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
20.Counterparts.
This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
21.No Strict Construction.
The language used in this Agreement will be deemed to be the language chosen by the Executive and the Company to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsperson will be applied against either the Executive or the Company.
22.Notification of New Employer.
In the event that the Executive is no longer an employee of the Company, the Executive consents to notification by the Company to the Executive's new employer or its agents regarding the employer's rights and the Executive's obligations under this Agreement.
23.Section 409A.
The parties intend for this Agreement to conform in all respects to the requirements under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the parties intend for this Agreement to be interpreted, construed, administered and applied in a manner as shall meet and comply with the requirements of Section 409A, and the Board may amend this Agreement in its discretion so as to comply with any such requirement. Any reference in this Agreement to Section 409A, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A and regulations (proposed, temporary or final) issued by the United States Secretary of the Treasury under or interpreting Section 409A. Notwithstanding any other provision of this Agreement, neither the Company nor any of its subsidiaries or affiliates nor any individual acting as a director, officer, employee, agent or other representative of the Company or of a subsidiary or affiliate shall be liable to the Executive or any other person for any claim, loss, liability or expense arising out of any interest, penalties or additional taxes due by the Executive or any other person as a result of this Agreement or the administration thereof not satisfying any of the requirements of Section 409A. The Executive represents and warrants that he has reviewed or will review with his own tax advisors the federal, state, local and employment tax consequences of entering into this Agreement, including, without limitation, under Section 409A, and, with respect to such matters, he relies solely on such advisors. If the Executive is a "specified employee" (as determined by the Company under Section 409A) on the date of the Executive's separation from service, if and to the extent that any payments payable upon such separation from service under this Agreement constitute deferred compensation within the meaning of Section 409A, each such severance payment shall be paid on the later of (a) the date scheduled to be paid under Section 6 hereof, or (b) the first business day after the date that is six (6) months after the date of the Executive's separation from service. Each installment under this Agreement shall be regarded as a separate "payment" for purposes of Section 409A.
24.Section 280(G).
Notwithstanding any other provision of this Agreement, or any other agreement, plan, or arrangement to the contrary, if any portion of any payment or benefit under this Agreement, or under any other agreement, plan, or arrangement (in the aggregate, “Total Payments”), would constitute an "excess parachute payment" under Section 280G of the Code, and would, but for this Section 24, result in the imposition on the Executive of an excise tax under Section 4999 of the Code (the “Excise Tax”), then the Total Payments to be made to the Executive shall either be (a) delivered in full, or (b) delivered in a reduced amount that is $1.00 less than the amount that would cause any portion of such Total Payments to be subject to the Excise Tax, whichever of the foregoing results in the receipt by the Executive of the greatest benefit on an after-tax basis (taking into account the Excise Tax, as well as the applicable federal, state, and local income and employment taxes, for which the Executive shall be deemed to pay at the highest marginal rate for the applicable calendar year). To the extent the foregoing reduction applies, then any such payment or benefit shall be reduced or eliminated by applying the following principles, in order: (1) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (2) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (3) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Section 409A of the Code, then the reduction shall be made pro rata among the payment or benefits (on the basis of the relative present value of the parachute payments). The determination of
whether the Excise Tax or the foregoing reduction will apply will be made by independent tax counsel selected and paid by the Company (which may be regular counsel of the Company).
[Signatures on Following Page]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
|
|
|
|
|
|
|
|
|
|
|
COMPANY
|
|
|
|
|
|
|
KNOWBE4, INC.
|
|
|
|
|
|
|
By:
|
/s/ Sjoerd Sjouwerman (Mar 5, 2020)
|
|
|
Name:
|
Sjoerd Sjouwerman
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
|
|
EXECUTIVE
|
|
|
|
|
|
|
/s/ Shrikrishna Venkataraman (Mar 5, 2020)
|
|
|
Shrikrishna Venkataraman, individually
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDENDUM TO
FIRST AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
This Addendum to First Amended and Restated Executive Employment Agreement (the “Addendum”) is made and entered into by and between KnowBe4, Inc., a Delaware company (the “Company”) and Krish Venkataraman (“Executive” and together with the Company, the “Parties”), effective as of date signed below. The Addendum supplements the Parties’ First Amended and Restated Executive Employment Agreement dated February 26, 2020 (the “Employment Agreement”).
1.Liquidity Event Payment.
(a)General. Subject to the provisions of Section 2(b), Executive will be eligible to receive a restricted stock unit award covering a number of shares having a Value equal to $10,000,000 (the “Liquidity RSU”) upon a Liquidity Event (as defined below) that is an IPO, subject to Executive’s continued employment through the Liquidity Event. If the Liquidity Event is a Change in Control or a SPAC Transaction, then Executive will receive $10,000,000 in cash (the “Cash Bonus”), subject to Executive’s continued employment through the Liquidity Event. For the avoidance of doubt, Executive shall only be eligible for either the Liquidity RSU or the Cash Bonus; in no cases, both.
(b)Timing. If earned, the Liquidity RSU will be granted fully-vested on the date of a Liquidity Event under the Company’s then-current equity incentive plan. Executive will be permitted to sell shares vesting upon the Liquidity Event to satisfy tax withholding obligations. In the case of a Change in Control or a SPAC Transaction, the Cash Bonus will be payable upon the such transaction, reduced by regular withholdings.
(c)Value. For purposes of this Addendum, a share subject to a Liquidity RSUs has a “Value” equal to: (i) in the case of an IPO, initial price to the public as set forth in the final prospectus included within the first registration statement that is filed by the Company and declared effective pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, with respect to any class of the Company’s securities; or (ii) a Change in Control, the price per share payable to Company common stockholders in the transaction; or (iii) a SPAC Transaction, the valuation per share of Company common stock at the closing of the SPAC Transaction.
For illustrative purposes, in the case of an IPO, where the initial price to the public as set forth in the final prospectus is $18 per share, then the Liquidity RSU will cover 555,556 shares (which is $10 million divided by $18, rounded up).
2.Definitions.
(a)“Change in Control” means the occurrence of any of the following events: the acquisition by any one person, or more than one person acting as a group (a “Person”), for the first time of ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time and will not
constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(b)“Code” means the Internal Revenue Code of 1986, as amended.
(c)“IPO” means the first sale or resale of the Company’s common stock (or other common equity securities of the Company) to the general public in connection with an underwritten public offering or on the trading day that trading commences in connection with a direct listing, in each case (1) pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, (2) immediately after which such securities (i.e., the shares or other common equity securities of the Company) are registered on a national securities exchange (as defined under then-applicable United States federal securities laws and regulations), and (3) such transaction resulted in the Company’s pre-money equity valuation of at least $2 billion.
(d)“Liquidity Event” means the first to occur of a Change in Control, an IPO, or a SPAC Transaction.
(e)“SPAC Transaction” the closing of a transaction contemplated by a business combination agreement between the Company and a special purpose acquisition company that results in the surviving corporation’s common stock being registered and traded on a national securities exchange and such transaction resulted in the Company’s pre-money equity valuation of at least $2 billion.
3.Section 409A. The foregoing provisions are intended to comply with, or be exempt from, the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) so that none of the payments and benefits to be provided under this Addendum will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply or be exempt. The Parties agree to work together in good faith to consider amendments to this Addendum and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A. In no event will the Company reimburse Executive for any taxes that may be imposed on Executive as a result of Section 409A.
4.Additional Provisions.
(a)Severability; Governing Law; Entire Agreement. If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Addendum will continue in full force and effect without said provision. This Addendum will be governed by the laws of the State of Florida (with the exception of its conflict of laws provisions). This Addendum constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, including, but not limited to the Liquidity Bonus Agreement with the Company and Executive dated October 6, 2020 and the previous version of this Addendum dated February 18, 2021.
(b)No Employment. This Addendum does not constitute a contract of employment, service or consultancy.
(c)Administration; Amendment. This Addendum shall be interpreted and administered by the Company’s Board of Directors (and the Board of Directors of any successor to the Company), whose actions shall be final and binding on Executive. The Company may at any time amend, alter, suspend or terminate this Addendum; provided, however, that any amendment, alteration, suspension or termination of
this Addendum will not impair Executive’s rights and obligations under this Addendum, unless agreed to in writing by Executive or as may be required by any applicable law.
IN WITNESS WHEREOF, each of the Parties has executed this Addendum, in the case of the Company by its duly authorized officer, as of the day and year first set forth below.
|
|
|
|
|
|
|
|
|
|
|
COMPANY
|
KNOWBE4, INC.
|
|
|
|
|
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
Date:
|
March 17, 2021
|
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
By:
|
/s/ Krish Venkataraman
|
|
|
|
|
|
|
Date:
|
March 17, 2021
|
KNOWBE4, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this “Agreement”) is dated as of [insert date], and is between KnowBe4, Inc., a Delaware corporation (the “Company”), and [insert name of indemnitee] (“Indemnitee”).
RECITALS
A. Indemnitee’s service to the Company substantially benefits the Company.
B. Individuals are reluctant to serve as directors or officers of corporations or in certain other capacities unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service.
C. Indemnitee does not regard the protection currently provided by applicable law, the Company’s governing documents and any insurance as adequate under the present circumstances, and Indemnitee may not be willing to serve as a director or officer without additional protection.
D. In order to induce Indemnitee to continue to provide services to the Company, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, Indemnitee as permitted by applicable law.
E. This Agreement is a supplement to and in furtherance of the indemnification provided in the Company’s certificate of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or abrogate any rights of Indemnitee thereunder.
The parties therefore agree as follows:
1.Definitions.
(a)A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i)Acquisition of Stock by Third Party. Any Person (as defined below) becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities;
(ii)Change in Board Composition. During any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Company’s board of directors, and any new directors (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 1(a)(i), 1(a)(iii) or 1(a)(iv)) whose election by the board of directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Company’s board of directors;
(iii)Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
(iv)Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and
(v)Other Events. Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement.
For purposes of this Section 1(a), the following terms shall have the following meanings:
(1)“Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended; provided, however, that “Person” shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(2)“Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended; provided, however, that “Beneficial Owner” shall exclude any Person otherwise becoming a Beneficial Owner by reason of (i) the stockholders of the Company approving a merger of the Company with another entity or (ii) the Company’s board of directors approving a sale of securities by the Company to such Person.
(b)“Corporate Status” describes the status of a person who is or was a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise.
(c)“DGCL” means the General Corporation Law of the State of Delaware.
(d)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e)“Enterprise” means the Company and any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary.
(f)“Expenses” include all reasonable and actually incurred attorneys’ fees, retainers, court costs, transcript costs, fees and costs of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a
Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond or other appeal bond or their equivalent, and (ii) for purposes of Section 12(d), Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g)“Independent Counsel” means a law firm, or a partner or member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than as Independent Counsel with respect to matters concerning Indemnitee under this Agreement, or other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
(h)“Proceeding” means any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, including any appeal therefrom and including without limitation any such Proceeding pending as of the date of this Agreement, in which Indemnitee was, is or will be involved as a party, a potential party, a non-party witness or otherwise by reason of (i) the fact that Indemnitee is or was a director or officer of the Company, (ii) any action taken by Indemnitee or any action or inaction on Indemnitee’s part while acting as a director or officer of the Company, or (iii) the fact that he or she is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement.
(i)Reference to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.
2.Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 2 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
3.Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged by a court of competent jurisdiction to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court of Chancery or such other court shall deem proper.
4.Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the extent that Indemnitee is a party to or a participant in and is successful (on the merits or otherwise) in defense of any Proceeding or any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith. For purposes of this section, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
5.Indemnification for Expenses of a Witness. To the extent that Indemnitee is, by reason of his or her Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified to the extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.
6.Additional Indemnification.
(a)Notwithstanding any limitation in Sections 2, 3 or 4, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the Proceeding or any claim, issue or matter therein.
(b)For purposes of Section 6(a), the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to:
(i)the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and
(ii)the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
7.Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any Proceeding):
(a)for which payment has actually been made to or on behalf of Indemnitee under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(b)for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(c)for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(d)initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Company’s board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (iii) otherwise authorized in Section 12(d) or (iv) otherwise required by applicable law; or
(e)if prohibited by applicable law.
8.Advances of Expenses. The Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding prior to its final disposition, and such advancement shall be made as soon as reasonably practicable, but in any event no later than 90 days, after the receipt by the Company of a written statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice). Advances shall be unsecured and interest free and made without regard to Indemnitee’s ability to repay such advances. Indemnitee hereby undertakes to repay any advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 8 shall not apply to the extent advancement is prohibited by law and shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is not permitted under this Agreement, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 7(b) or 7(c) prior to a determination that Indemnitee is not entitled to be indemnified by the Company.
9.Procedures for Notification and Defense of Claim.
(a)Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of notice thereof. The written notification to the Company
shall include, in reasonable detail, a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.
(b)If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect that may be applicable to the Proceeding, the Company shall give prompt notice of the commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all commercially-reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
(c)In the event the Company may be obligated to make any indemnity in connection with a Proceeding, the Company shall be entitled to assume the defense of such Proceeding with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, conditioned or delayed, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee for any fees or expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. Notwithstanding the Company’s assumption of the defense of any such Proceeding, the Company shall be obligated to pay the fees and expenses of Indemnitee’s separate counsel to the extent (i) the employment of separate counsel by Indemnitee is authorized by the Company, (ii) counsel for the Company or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense such that Indemnitee needs to be separately represented, (iii) the Company is not financially or legally able to perform its indemnification obligations or (iv) the Company shall not have retained, or shall not continue to retain, counsel to defend such Proceeding. The Company shall have the right to conduct such defense as it sees fit in its sole discretion. Regardless of any provision in this Agreement, Indemnitee shall have the right to employ counsel in any Proceeding at Indemnitee’s personal expense. The Company shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(d)Indemnitee shall give the Company such information and cooperation in connection with the Proceeding as may be reasonably appropriate.
(e)The Company shall not be liable to indemnify Indemnitee for any settlement of any Proceeding (or any part thereof) without the Company’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.
(f)The Company shall not settle any Proceeding (or any part thereof) in a manner that imposes any penalty or liability on Indemnitee without Indemnitee’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.
10.Procedures upon Application for Indemnification.
(a)To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. Any delay in providing the request
will not relieve the Company from its obligations under this Agreement, except to the extent such failure is prejudicial.
(b)Upon written request by Indemnitee for indemnification pursuant to Section 10(a), a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Company’s board of directors, a copy of which shall be delivered to Indemnitee or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Company’s board of directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Company’s board of directors, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Company’s board of directors, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Company’s board of directors, by the stockholders of the Company. If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the person, persons or entity making the determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company, to the extent permitted by applicable law.
(c)In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(b), the Independent Counsel shall be selected as provided in this Section 10(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Company’s board of directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Company’s board of directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof and (ii) the final disposition of the Proceeding, the parties have not agreed upon an Independent Counsel, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(d)The Company agrees to pay the reasonable fees and expenses of any Independent Counsel.
11.Presumptions and Effect of Certain Proceedings.
(a)In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption.
(b)The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c)Neither the knowledge, actions nor failure to act of any other director, officer, agent or employee of the Enterprise shall be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
12.Remedies of Indemnitee.
(a)Subject to Section 12(e), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 or 12(d) of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10 of this Agreement within 90 days after the later of the receipt by the Company of the request for indemnification or the final disposition of the Proceeding, (iv) payment of indemnification pursuant to this Agreement is not made (A) within ten days after a determination has been made that Indemnitee is entitled to indemnification or (B) with respect to indemnification pursuant to Sections 4, 5 and 12(d) of this Agreement, within 30 days after receipt by the Company of a written request therefor, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration with respect to his or her entitlement to such indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 4 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration in accordance with this Agreement.
(b)Neither (i) the failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders that Indemnitee has not met the applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.
(c)To the fullest extent not prohibited by law, the Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. If a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statements not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d)To the extent not prohibited by law, the Company shall indemnify Indemnitee against all Expenses that are incurred by Indemnitee in connection with any action for indemnification or advancement of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company to the extent Indemnitee is successful in such action, and, if requested by Indemnitee, shall (as soon as reasonably practicable, but in any event no later than 90 days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee, subject to the provisions of Section 8.
(e)Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.
13.Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and transactions giving rise to such Proceeding; and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such events and transactions.
14.Non-exclusivity. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the Company’s certificate of incorporation or bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s certificate of incorporation and bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change, subject to the restrictions expressly set forth herein or therein. Except as expressly set forth herein, no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Except as expressly set forth herein, the assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
15.[Primary Responsibility. The Company acknowledges that Indemnitee has certain rights to indemnification and advancement of expenses provided by [insert name of fund] [and certain affiliates thereof] ([collectively,] the “Secondary Indemnitor[s]”). The Company agrees that, as between the Company and the Secondary Indemnitor[s], the Company is primarily responsible for amounts required to be indemnified or advanced under the Company’s certificate of incorporation or bylaws or this Agreement and any obligation of the Secondary Indemnitor[s] to provide indemnification or advancement for the same amounts is secondary to those Company obligations. [[To the extent not in contravention of any insurance policy or policies providing liability [or other] insurance for [the Company or] any director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, the][The] Company waives any right of contribution or subrogation against the Secondary Indemnitor[s] with respect to the liabilities for which the Company is primarily responsible under this Section 15.] In the event of any payment by the Secondary Indemnitor[s] of amounts otherwise required to be indemnified or advanced by the Company under the Company’s certificate of incorporation or bylaws or this Agreement, the Secondary Indemnitor[s] shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee for indemnification or advancement of expenses under the Company’s certificate of incorporation or bylaws or this Agreement [or, to the extent such subrogation is unavailable and contribution is found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid]; provided, however, that the foregoing sentence will be deemed void if and to the extent that it would violate any applicable insurance policy. The Secondary Indemnitor[s] [are][is an] express third-party [beneficiaries][beneficiary] of the terms of this Section 15.]
16.No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment for such amounts under any insurance policy, contract, agreement or otherwise.
17.Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or fiduciaries of the Company or any other Enterprise, Indemnitee shall be covered by such policy or policies to the same extent as the most favorably-insured persons under such policy or policies in a comparable position.
18.Subrogation. In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
19.Services to the Company. Indemnitee agrees to serve as a director or officer of the Company or, at the request of the Company, as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of another Enterprise, for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation or is removed from such position. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that any employment with the Company (or any of its subsidiaries or any Enterprise) is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, with or without notice, except as may be otherwise expressly provided in any executed, written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), any existing formal severance policies adopted by the Company’s board of directors or, with respect to service as a director or officer of the Company, the Company’s certificate of incorporation or bylaws or the DGCL. No such document shall be subject to any oral modification thereof.
20.Duration. This Agreement shall continue until and terminate upon the later of (a) ten years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as applicable; or (b) one year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto.
21.Successors. This Agreement shall be binding upon the Company and its successors and assigns, including any direct or indirect successor, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s heirs, executors and administrators. [The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.]
22.Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
23.Enforcement. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.
24.Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Company’s certificate of incorporation and bylaws and applicable law.
25.Modification and Waiver. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by the parties hereto. No amendment, alteration or repeal of this Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. No waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision of this Agreement nor shall any waiver constitute a continuing waiver.
26.Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand, messenger or courier service addressed:
(a)if to Indemnitee, to Indemnitee’s address, facsimile number or electronic mail address as shown on the signature page of this Agreement or in the Company’s records, as may be updated in accordance with the provisions hereof; or
(b)if to the Company, to the attention of the Chief Executive Officer or Chief Financial Officer of the Company at 33 N Garden Ave, Clearwater, FL 33755, or at such other current address as the Company shall have furnished to Indemnitee, with a copy (which shall not constitute notice) to Megan Baier, Wilson Sonsini Goodrich & Rosati, P.C., 1301 Avenue of the Americas, 40th Floor, New York, NY 10019-6022.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via facsimile, upon confirmation of facsimile transfer or, if sent via electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day.
27.Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court of Chancery, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent
to submit to the exclusive jurisdiction of the Delaware Court of Chancery for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801, as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court of Chancery, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court of Chancery has been brought in an improper or inconvenient forum.
28.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
29.Captions. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
(signature page follows)
The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.
|
|
|
|
|
KNOEBE4, INC
|
|
|
|
(Signature)
|
|
|
|
(Print name)
|
|
|
|
(Title)
|
|
|
|
[INSERT INDEMNITEE NAME]
|
|
|
|
(Signature)
|
|
|
|
(Print name)
|
|
|
|
(Street Address)
|
|
(City, State and ZIP)
|
LEASE AGREEMENT
By and Between
WILDER CORPORATION OF DELAWARE
and
KNOWBE4, LLC
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
No.
|
Description
|
Page
|
|
1
|
Premises
|
4
|
|
2
|
Term
|
4
|
|
3
|
Rent
|
4
|
|
4
|
Additional Rent
|
5
|
|
5
|
Late Charge
|
5
|
|
6
|
Partial Payment
|
5
|
|
7
|
Construction of this Agreement
|
5
|
|
8
|
Use of Premises
|
5
|
|
9
|
Definitions
|
6
|
|
10
|
Repairs by Landlord
|
6
|
|
11
|
Repairs by Tenant
|
6
|
|
12
|
Alterations and Improvements
|
8
|
|
13
|
Operating Expenses
|
8
|
|
14
|
Landlord's Failure to Give Possession
|
11
|
|
15
|
Acceptance and Waiver
|
11
|
|
16
|
Signs and Vending Machines
|
11
|
|
17
|
Carding
|
11
|
|
18
|
Removal of Fixtures
|
11
|
|
19
|
Entering Premises
|
12
|
|
20
|
Services of Landlord
|
12
|
|
21
|
Indemnities
|
13
|
|
22
|
Insurance and Waiver of Subrogation
|
13
|
|
23
|
Governmental Requirements
|
15
|
|
24
|
Abandonment of Premises
|
15
|
|
25
|
Assignment and Subletting
|
15
|
|
26
|
Default
|
16
|
|
27
|
Landlord's Remedies
|
17
|
|
28
|
Destruction or Damage
|
19
|
|
29
|
Eminent Domain
|
20
|
|
30
|
Services of Landlord,
|
20
|
|
31
|
Rights of Mortgage
|
20
|
|
32
|
Tenant's Estoppel
|
21
|
|
33
|
Attorneys' Fees and Homestead
|
22
|
|
34
|
Parking
|
22
|
|
35
|
Storage
|
22
|
|
36
|
Waste Disposal
|
22
|
|
37
|
Surrender of Premises
|
22
|
|
38
|
Cleaning of Premises
|
23
|
|
39
|
No Estate in Land
|
23
|
|
40
|
Cumulative Rights
|
23
|
|
41
|
Paragraph Titles
|
23
|
|
42
|
Damage or Theft of Personal Property
|
23
|
|
43
|
Holding Over
|
23
|
|
44
|
Security Deposit
|
24
|
|
45
|
Leasehold Improvements
|
24
|
|
46
|
Rules and Regulations
|
24
|
|
47
|
Quiet Enjoyment
|
24
|
|
48
|
Entire Agreement.'
|
24
|
|
49
|
Limitation of Liability
|
25
|
|
50
|
Submission Agreement
|
25
|
|
51
|
Authority 25
|
25
|
|
52
|
Relocation of Premises
|
25
|
|
53
|
Broker Disclosure
|
25
|
|
54
|
Landlord's Lien
|
25
|
|
55
|
Special Stipulations
|
26
|
|
56
|
Radon Gas
|
26
|
|
57
|
Force Majeure
|
26
|
|
58
|
Right of First Refusal
|
26
|
Exhibits:
AFloor Plan showing Premises
BRules and Regulations
CWork Letter, if any
DSign Addendum
THIS LEASE AGREEMENT (this "Lease") is made and entered as of May 4 2015 by and between Wilder Corporation of Delaware, a Delaware Corporation ("Landlord") whose address is 2536 Countryside Blvd., Suite 250, Clearwater, FL. 33763 and KnowBe4, LLC ("Tenant") whose address is 33 North Garden Avenue, Suite 1200, Clearwater, FL 33755.
WITNESSETH
WHEREAS, Landlord is the owner of certain real property located in Pinellas County, City of Clearwater, Florida, (hereinafter referred to as the "Land");
WHEREAS, there exists an office building commonly known as Clearwater Tower (the "Building") on the Land (the Land and the Building being sometimes referred to collectively herein as the ''Property"); and
WHEREAS, Tenant desires to lease space in the Building from Landlord, and Landlord is willing to lease space in the Building to Tenant, upon the terms, conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises, the mutual benefits to be derived hereby, the payment by Tenant of the Rent reserved herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1.PREMISES. Landlord does hereby rent and lease to Tenant and Tenant does hereby rent and lease from Landlord the following described space (hereinafter called the "Premises").
an agreed approximate 15,526 rentable square feet of space designated as Suite# 1200 located on the Twelfth floor of the Building, said Premises to be located as shown on the drawing attached hereto as Exhibit A and made a part hereof by reference.
2.TERM. Tenant hereby takes and accepts the Premises from Landlord upon the terms and conditions contained in this Lease and as suited for the use intended by Tenant, TO HAVE AND TO HOLD the same for a period of time (the "Term") commencing on July 1, 2015 (the "Commencement Date") and terminating sixty (60) full calendar months thereafter (the "Expiration Date"), unless sooner terminated or extended as hereinafter provided. The term "Lease Year", as used herein, shall mean each and every twelve (12) month period during the Term, with the first such twelve (12) month period commencing on the Commencement Date; provided, however, if the Commencement Date occurs other than on the first day of a calendar month the first Lease Year shall be that partial month plus the first full twelve (12) months thereafter.
3.RENT. Tenant shall pay to Landlord, at 2536 Countryside Boulevard, Suite 250, Clearwater, FL 33763 or at such place as Landlord shall designate in writing to Tenant from time to time, monthly base rental ("Base Rent") in accordance with the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TERM
|
|
PER SQ FT
|
|
MONTHLY BASE RENT
|
|
7/1/2015
|
-
|
6/30/2016
|
|
$16.00
|
|
$10,350.67 *
|
|
7/1/2016
|
-
|
6/30/2018
|
|
$16.50
|
|
$21,348.25
|
|
7/1/2018
|
-
|
6/30/2020
|
|
$17.00
|
|
$21,995.17
|
* monthly base rent has been adjusted to reflect six (6) months free rent amortized over the first year of the Lease
together with seven percent (7%) (or such other rate as may be hereafter imposed by law, ruling, regulation or ordinance) sales tax on all Base Rent, Additional Rent (as hereinafter defined) and all other rental and other payments, which shall be remitted to Landlord contemporaneously with each payment to Landlord upon which such tax is due, payable promptly in equal monthly installments on the first day of each calendar month, in advance, in legal tender of the United States of America, without abatement, demand, deduction or offset whatsoever, except as expressly provided herein. A prorated monthly installment based on a thirty-day month shall be paid in advance for any fraction of a month if the Term shall begin on any day except the first day thereof or shall be terminated on any day other than the last day of any month.
4.ADDITIONAL RENT. Tenant shall pay, as additional rent hereunder, all other sums due from Tenant to Landlord under this Lease (hereinafter referred to as "Additional Rent") (the term "Rent", as used herein, means all Base Rent and Additional Rent payable hereunder from Tenant to Landlord). In addition to the foregoing, Tenant shall pay and be liable for all rental, sales, use and inventory taxes or other similar taxes, if any, on the amounts payable by Tenant hereunder levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid Landlord by Tenant under the terms of this Lease. Such payment shall be made by Tenant directly to such governmental body if billed to Tenant, or if billed to Landlord, such payment shall constitute Additional Rent hereunder and shall be paid concurrently with the payment of the Base Rent, Additional Rent, or such other charge upon which tax is based, all as set forth herein.
5.LATE CHARGE. Other remedies for non-payment of Rent notwithstanding, if any monthly installment of Base Rent or Additional Rent is not received by Landlord on or before the date due, or if any payment due Landlord by Tenant which does not have a schedule due date is not received by Landlord on or before the tenth (10th ) business day following the date Tenant was invoiced, a late charge of five percent (5%) of such past due amount shall be immediately due and payable as Additional Rent and interest shall accrue from the date past due until paid at the lower of eighteen percent (l8%) per annum or the highest rate permitted by applicable law.
6.PARTIAL PAYMENT. No payment by Tenant or acceptance by Landlord of an amount less than the Rent herein stipulated shall be deemed a waiver of any other Rent due. No partial payment or endorsement on any check or any letter accompanying such payment of Rent shall be deemed an accord and satisfaction, but Landlord may accept such payment without prejudice to Landlord's right to collect the balance of any Rent due under the terms of this Lease or any late charge assessed against Tenant hereunder, and may apply the same against Tenant's de1inquent obligations hereunder in such order and manner as Landlord may determine in its sole discretion.
7.CONSTRUCTION OF THIS AGREEMENT. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant of its obligations hereunder and no custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof Time is of the essence of this Lease.
8.USE OF PREMISES.
(a)Tenant shall use and occupy the Premises for general office purposes of a type customary for first-class office buildings and for no other purpose. The Premises shall not be used for any illega1 purpose, nor in violation of any valid regulation of any governmental body, nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the
insurance or increase the rate of insurance on the Premises or the Building, nor in any manner inconsistent with the first-class nature of the building.
(b)Tenant shall not cause or permit the receipt, storage, use, location or handling on the Property (including the Building and Premises) of any product, material or merchandise which is explosive, highly flammable, or a "hazardous or toxic material," as that term is hereafter defined. "Hazardous or toxic material" shall include all materials or substances which have been determined to be hazardous to health or the environment, including, without limitation hazardous waste (as defined in the Resource Conservation and Recovery Act); hazardous substances (as defined in the Comprehensive Emergency Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act); gasoline or any other petroleum product or by-product or other hydrocarbon derivative; toxic substances, (as defined by the Toxic Substances Control Act); insecticides, fungicides or substances determined to be hazardous under the Occupational Safety and Health Act or regulations promulgated thereunder. Notwithstanding the foregoing, Tenant shall not be in breach of this provision as a result of the presence in the Premises of de minimis amounts of hazardous or toxic materials which are in compliance with all applicable laws, ordinances and regulations and are customarily present in a general office use (e.g., copying machine chemicals and kitchen cleansers).
9.DEFINITIONS. "Landlord," as used in this Lease, shall include the party named in the first paragraph hereof, its representatives, assigns and successors in title to the Premises. "Tenant" shall include the party named in the first paragraph hereof, its heirs and representatives, and, if this Lease shall be validly assigned or sublet, shall also include Tenant's assignees or subtenants, as to the Premises, or portion thereof, covered by such assignment or sublease. "Landlord" and "Tenant" include male and female, singular and plural, corporation, partnership, limited liability company (and the officers, members, partners, employees or agents of any such entities) or individual, as may fit the particular parties.
10.REPAIRS BY LANDLORD. Tenant, by taking possession of the Premises, shall accept and shall be held to have accepted the premises as suitable for the use intended by this Lease. Landlord shall not be required, after possession of the Premises has been delivered to Tenant, to make any repairs or improvement to the Premise, except as set forth in this Lease. Except for damage caused by casualty and condemnation (which shall be governed by Section 28 and 29 below), and subject to normal wear and tear, Landlord shall maintain in good repair the exterior walls, roof, common areas, foundation, structural portions and the central portions of the Building mechanical, electrical, plumbing and HVAC systems (i.e., only those portions of central distribution, but not the branches which serve only one tenant's space), provided such repairs are not occasioned by Tenant, Tenant's invitees or anyone in the employ or control of Tenant.
11.REPAIRS BY TENANT.
(a)Tenant shall, at its own cost and expense, maintain the Premises in good and clean condition consistent with a first class office building, including all necessary repairs and replacements. Tenant shall further, at its own cost and expense, repair or restore any damage or injury to all or any part of the Building or the rest of the Property caused by Tenant or Tenant's agents, employees, invitees, licensees, visitors or contractor, including, but not limited to, any repairs or replacements necessitated by (i) the construction or installation of improvement to the Premises by or on behalf of Tenant, (ii) the installation, use or operation of Tenant1 s property, or (iii) the moving of any property into or out of the Premise; provided, however, if Tenant fails to make such repairs or replacements promptly, Landlord may, at its option, make sure repairs or replacements and the costs of such repairs or replacements shall be charged
to Tenant as Additional Rent and shall become due and payable by Tenant with the monthly installment of Base Rent next due hereunder.
(b)Tenant agrees that it will make full and prompt payment of all sums necessary to pay for the cost of all repairs, alterations, improvement, changes or other work done by the Tenant to the Premise, and further agrees to indemnify and save harmless the Landlord from and against any and all such costs and liabilities incurred by Tenant and against any and all mechanics', materialmen's or laborers' liens arising out of or from such work or the cost thereof which may be asserted, claimed or charged against the leased building and premises. Notwithstanding anything appearing in this Lease, the interest of the Landlord in the Premises shall not be subject to liens for improvements or work made or done by the Tenant, whether or not same shall be made or done in accordance with an agreement between Landlord and Tenant, and it is agreed that in no event shall the Landlord or the interest of the Landlord in any of· the Premises be liable for or subjected to any mechanics', materialmen's or laborers' liens for improvements or work made or done by the Tenant, and this lease expressly prohibits the subjecting of the interest of the Landlord in the leased premises to any mechanics', materialmen's or laborers' liens for improvements made by the Tenant or for which the Tenant is responsible for payment under the terms of this Lease, and all persons dealing with Tenant are put on notice of these provision. In the event such a lien is filed against the interest of the Landlord in the Premises on account of or growing out of any improvement or work made or done by the Tenant, or any person claiming by, through or under the Tenant, or for improvement or work the cost of which is the responsibility of the Tenant, then Tenant agrees to have such notice or claim of lien canceled and discharged of record as a claim against the interest of Landlord in the premises (either by payment and satisfaction or by removal by transfer to bond or deposit as permitted by law) within ten (10) days after notice to Tenant by Landlord and, in the event Tenant fails to do so, Tenant shall be considered in default under this Lease with like effect as if Tenant shall have failed to pay a rental payment when due and within any applicable grace period provided for payment of same. TENANT SHALL, UPON THE REQUEST OF LANDLORD, EXECUTE AND DELIVER TO LANDLORD A SHORT FORM OF THIS LEASE IN RECORDABLE FORM, WHICH SHORT FORM LEASE SHALL SET FORTH OR SUMMARIZE THE PROVISION OF THIS PARAGRAPH AND SHALL CONTAIN A SUMMARY OF SUCH OTHER TERMS AND CONDITIONS OF THIS LEASE AS LANDLORD SHALL REQUIRE. TENANT ACKNOWLEDGES AND AGREES THAT LANDLORD MAY, AT ITS OPTION, RECORD A NOTICE PURSUANT TO SECTION 713.10 OF THE FLORIDA STATUTES IN ORDER TO FURTHER ESTABLISH THAT LANDLORD'S INTEREST IN THE PREMISES, THE BUILDING AND THE LAND SHALL NOT BE SUBJECT OF LIENS FOR IMPROVEMENTS MADE BY OR FOR TENANT.
(c)NOTICE OF LIEN PROHIBITION: THE TENANT HEREIN SHALL NOT HAVE ANY AUTHORITY TO CREATE ANY LIENS FOR LABOR OR MATERIAL ON THE LANDLORD'S INTEREST IN THE LAND, BUILDING OR THE PREMISES AND ALL PERSONS CONTRACTING WITH THE TENANT FOR THE DESTRUCTION OR REMOVAL OF ANY FACILITIES OF OTHER IMPROVEMENT OR FOR I'HE ERECTION , INSTALLATION, ALTERATION, OR REPAIR OF ANY FACILITIES OR OTHER IMPROVEMENT ON OR ABOUT THE PREMISES, AND ALL MATERIALMEN, CONTRACTORS, MECHANICS, AND LABORERS, ARE HEREBY CHARGED WITH NOTICE THAT THEY MUST LOOK ONLY TO THE TENANT AND THE TENANT'S INTEREST IN THE PREMISES TO SECURE THE PAYMENT OF ANY BILL FOR WORK DONE, LABOR PERFORMED OR MATERIAL FURNISHED AT THE, REQUEST OR INSTRUCTION OF TENANT. TENANT ACKNOWLEDGED THAT PURSUANT TO SECTION 713.10 FLORIDA STATUTES TENANT MUST NOTIFY ANY CONTRACTOR MAKING ANY IMPROVEMENT OR PERFORMING ANY WORK UPON THE PREMISES AT THE REQUEST OR ON BEHALF OF TENANT, OF THE FOREGOING PROVISIONS IN THIS LEASE AND THAT A KNOWING OR WILLFUL FAILURE OF TENANT TO PROVIDE SUCH NOTICE TO THE CONTRACTOR SHALL RENDER THE CONTRACT BETWEEN THE TENANT AND THE CONTRACTOR VOIDABLE AT THE OPTION OF THE CONTRACTOR. IN ADDITION, TENANT ACKNOWLEDGES THAT FAILURE OF TENANT TO COMPLY WITH ANY OF THE FOREGOING PROVISIONS SHALL CONSTITUTE A MATERIAL DEFAULT BY TENANT UNDER THIS LEASE
ENTITLING LANDLORD AT LANDLORD'S OPTION, TO EXERCISE ANY AND ALL REMEDIES AVAILABLE TO IT UNDER THIS LEASE AND APPLICABLE LAW.
12.ALTERATIONS AND IMPROVEMENTS. Except for minor, decorative alterations which do not affect the Building structure or systems, are not visible from outside the Premises and do not cost in excess of $10,000.00 in the aggregate, Tenant shall not make or allow to be made any alterations, physical additions or improvements in or to the Premises without first obtaining in writing Landlord's written consent for such alterations or additions, which consent may be granted or withheld in the sole, unfettered discretion of Landlord (if the alterations will affect the Building structure or systems or will be visible from outside the Premises), but which consent shall not be unreasonably withheld (if the alterations will not affect the Building structure or systems and will not be visible from outside the Premises). Upon Landlord's request, Tenant will furnish Landlord plans and specifications for any proposed alterations, additions or improvement and shall reimburse Landlord for its reasonable cost to review such plans. Any alterations, physical additions or improvements shall at once become the Property of Landlord; provided, however, Landlord, at its option, may require Tenant to remove any alterations, additions or improvements in order to restore the Premises to the condition existing on the Commencement Date. All costs of any such alterations, addition or improvement shall be borne by Tenant. All alterations, additions or improvements must be made in a good, first-class, workmanlike manner and in a manner that does not disturb other tenants (i.e., any loud work must be performed during non-business hours) and Tenant must maintain appropriate liability and builder's risk insurance throughout the construction. Tenant does hereby indemnify and hold landlord harmless from and against all claims for damages or death of persons or damage or destruction of property arising our of the performance of any such alterations, additions or improvements made by or on behalf of Tenant. Under no circumstances shall Landlord be required to pay, during the Term of this Lease and any extensions or renewals thereof, any ad valorem or Property tax on such alterations, additions, improvements or repairs. Repairs which are to be performed by contractors or workmen other than Landlord's contractors or workmen, any such contractors or workmen must first be approved, in writing, by Landlord. Landlord agrees to assign to Tenant any rights it may have against the contractor of the Premises with respect to any work performed by said contractor in connection with improvement made by Landlord at the request of Tenant.
13.OPERATING EXPENSES.
(a)Tenant agrees to reimburse Landlord throughout the Term, as Additional Rent hereunder, for "Tenant's Share" (as defined herein below) of the annual "Operating Expenses" (as defined herein below) in excess of the amount of the base year of 2015 per rentable square foot per calendar year (hereinafter called the "Base Rate"). The term "Tenant's Share" shall mean the percentage determined by dividing the rentable square footage of the Premises by the rentable square footage of the Building. If tenant does not lease the Premises during the entire full calendar year in which the Term commences or ends, Tenant's Share of excess Operating Expenses for the applicable calendar year shall be appropriately prorated.
(b)"Operating Expenses" as used herein shall mean all those expenses of operating servicing, managing, maintaining and repairing the Property, the Building and all related common areas, in a manner deemed by Landlord reasonable and appropriate and in the best interest of the tenants of the Building. Operating Expenses shall include, without limitation, the following:
(1)All taxes and assessments, whether general or special, applicable to the Property and the Building, and all related common areas, which shall include real and personal
property ad valorem taxes, and any and all costs and expenses incurred by Landlord in seeking a reduction of any such taxes and assessments. However, Tenant shall not be obligated for taxes on the net income from the operation of the Building, unless there is imposed in the future a tax on rental income on the Building in lieu of the real property ad valorem taxes, in which event such tax shall be deemed an Operating Expense.
(2)Insurance premiums and deductible amounts, including, without limitation, for commercial general liability, "all risks" property, rent loss and other coverage's carried by Landlord on the Building and the Property.
(3)Utility charges, including, without limitation, water, power, heating, lighting, ventilation, sanitary sewer and air conditioning, but not including those utility charges actually paid by tenant or other tenants of the Building.
(4)Janitorial and maintenance expenses, including:
(i)Janitorial services and janitorial supplies and other materials used in the operation and maintenance of the Building.
(ii)The cost of maintenance and service agreements on equipment, window cleaning, grounds maintenance, pest control, security, trash and snow removal, and other similar services or agreements.
(5)Management fees (or a charge equal to fair market management fees if Landlord provides its own management services)
(6)The costs, including interest, amortized over its useful life as reasonably determined by Landlord, of any capital improvement made to the Building or the Property, by or on behalf of Landlord after the date of this Lease which is required under any governmental law or regulation (or any judicial interpretation thereof) that was not applicable to the Building or the Property as of the date of this Lease, and of the acquisition and installation of any device or equipment designed to improve the operating efficiency of any system within the Building or the Property or acquired to improve the safety of the Building or the Property; The cost of any replacement by Landlord of landscaping, glazing, common area carpet and common area wall coverings.
(7)All services, supplies, repairs, replacements or other expenses directly and reasonably associated with servicing, maintaining, managing and operating the Building, the common areas or any other part of the Property, including, but not limited to, the Building lobby and other common use areas and vehicular and pedestrian traffic areas.
(8)Wages and salaries of Landlord's employees (not above the level of Building Manager) engaged in the maintenance, operation, repair and services of the Building, including taxes, insurance and customary fringe benefits.
(9)Legal and accounting costs.
(10)Costs to maintain and repair the Building and Property.
(11)Landscaping and security costs unless Landlord hires a third party to provide such services pursuant to a service contract and the cost of that service contract is already included in Operating Expenses as described above.
(12)The Building's allocated share (as reasonably determined by Landlord) of certain expenses which are incurred on a project-wide basis including, without limitation, costs in connection with (i) landscaping, (ii) utility and road repairs, (iii) security, (iv) signage installation, replacement and repair and (v) taxes or assessments which are not assessed against a particular building or the parcel on which it is located.
(c)Landlord shall, on or before the Commencement Date and within a reasonable time following the end of each calendar year, provide Tenant a statement of the estimated monthly installments of Tenant's Share of excess Operating Expenses increases which will be due for the remainder of the calendar year in which the Commencement Date occurs or for the upcoming calendar year, as the case may be. Estimated monthly installments shall be paid based upon the most recent statement thereof (even if such statement pertains to a prior calendar year) until such time as an updated statement is delivered by Landlord. As soon as practicable after December 31 of each calendar year during the Term of this Lease, Landlord shall furnish to Tenant an itemized statement of the Operating Expenses within the Building for the calendar year then ended. Upon reasonable prior written request given not later than thirty (30) days following the date Landlord's statement is delivered to Tenant, Landlord will provide Tenant detailed documentation to support the itemized statement. If Tenant does not notify Landlord of any objection to Landlord's itemized statement within thirty (30) days of Landlord's delivery thereof, Tenant shall be deemed to have accepted such statement as true and correct and shall be deemed to have waived any right to dispute the excess operating expenses due pursuant to that statement.
(i)Tenant shall pay to Landlord, together with its monthly payment of Base Rent as provided in Section 3 and 4 hereinabove, as Additional Rent hereunder, the estimated monthly installment of Tenant's Share of the excess Operating Expenses for the calendar year in question. At the end of any calendar year if Tenant has paid to Landlord an amount in excess of Tenant's Share of excess Operating Expenses for such calendar year, Landlord shall reimburse to Tenant any such excess amount (or shall apply any such excess amount to any amount then owing to Landlord hereunder, and if none, to the next due installment or installments of Additional Rent due hereunder, at the option of Landlord). At the end of any calendar year if Tenant has paid to Landlord less than Tenant' s Share of excess Operating Expenses for such calendar year, Tenant shall pay to Landlord any such deficiency within thirty (30) days after Tenant receives the annual statement.
(ii)For the calendar year in which this Lease terminates, and is not extended or renewed, the provisions of this Section shall apply, but Tenant's Share for such calendar year shall be subject to a pro rata adjustment based upon the number of days prior to the expiration of the Term of this Lease. Tenant shall make monthly estimated payments of the prorata portion of Tenant's Share for such calendar year (in the manner provided above) and when the actual prorated Tenant's Share for calendar year is determined Landlord shall send a statement to Tenant and if such statements reveals that Tenant's estimated payments for the prorated Tenant's Share for such calendar year exceeded the actual prorated Tenant's Share for such calendar year, Landlord shall include a check for the amount along with
the statement. If the statement reveals that Tenant's estimated payments for the prorated Tenant's Share for such calendar year were less than the actual prorated Tenant's Share for such calendar year, Tenant shall pay the shortfall to Landlord within thirty (30) days of the date Tenant receives Landlord's statement.
(iii)If the Building is less than ninety-five percent (95%) occupied throughout any calendar year of the Term, then the actual Operating Expenses for the calendar year in question shall be increased to the amount of Operating Expenses which Landlord reasonably determines would have been incurred during that calendar year if the Building had been fully occupied throughout such calendar year.
14.LANDLORD'S FAILURE TO GIVE POSSESSION. Landlord shall not be liable for damages to Tenant for failure to deliver possession of the Premises to Tenant if such failure is due to no material fault of Landlord, to the failure of any construction or remodeling of the Premises by Tenant to be completed or to the failure of any previous tenant to vacate the Premises. Landlord will use reasonable efforts to give possession to the Tenant at the scheduled Commencement Date of the Term. If failure to do so is caused by the act of any previous tenant holding over, Landlord agrees to transfer to Tenant the right to prosecute in its own name any cause of action which Landlord may have against such tenant holding over, Tenant to hold for himself any recovery in such action, except for any amount due Landlord as Rent hereunder.
15.ACCEPTANCE AND WAIVER. Landlord shall not be liable to the Tenant, its agents, employees, guests or invitees (and, if Tenant is a corporation, its officers, agents, employees, guests, or invitees) for any damage caused to any of them due to the Building or any part or appurtenances thereof being improperly constructed or being or becoming out of repair, or arising from the leaking of gas, water, sewer or steam pipes, or from electricity, and Tenant, by moving into the Premises and taking possession thereof, shall accept, subject to completion of any punch list items, and shall be deemed to have accepted, subject to completion of any punch list items, the Premises as suitable for the purposes for which the same are leased, and shall accept and shall be deemed to have accepted the Building and every appurtenance thereof and Tenant by said act waives any and all defects therein; provided, however, that this Paragraph shall not apply to any damages or injury caused by or resulting from the gross negligence or willful misconduct of Landlord.
16.SIGNS AND VENDING MACHINES. Tenant shall not paint or place signs, placards, or other advertisements of any character upon the windows or inside walls of the Premises except with the prior written consent of Landlord, and Tenant shall place no signs upon the outside walls, common areas or the roof of the Premises. Tenant shall not place or maintain any coin operated vending machines within the Premises or the Building without written consent of the Landlord.
17.CARDING. Landlord may card the Premises "For Rent" or any other appropriate sign at any time within one hundred eighty (180) days prior to the expiration, cancellation or termination of this Lease for any reason and during such one hundred eighty (180) day period may exhibit the Premises to prospective tenants of the Premises or to prospective tenants of the Premises or to prospective mortgages of the Property.
18.REMOVAL OF FIXTURES. If not in default hereunder, Tenant may, prior to the expiration of the Term, remove any trade fixtures and equipment which it has placed in the Premises which can be removed without significant damage to the Premises; provided, however, that Tenant shall repair all
damage to the Premises caused by such removal. The foregoing obligation to repair shall survive the expiration or earlier termination of this Lease.
19.ENTERING PREMISES. Landlord may enter the Premises at reasonable hours provided that Landlord's entry shall not unreasonably interrupt Tenant's business operations and that prior notice is given when reasonably possible (and, if in the opinion of Landlord any emergency exists, at any time and without notice): (a) to make repairs, perform maintenance and provide other services described in Section 20 below (no prior notice is required to provide routine services) which Landlord is obligated to make to the Premises or the Building pursuant to the terms of this Lease or to the other premises within the Building pursuant to the Leases of other tenants; (b) to inspect the Premises to see that Tenant is complying with all of the terms and conditions of this Lease and with the rules and regulations hereof; (c) to remove from the Premises any articles or signs kept or exhibited therein in violation of the terms hereof; (d) to run pipes, conduits, ducts, wiring, cabling or any other mechanical, electrical, plumbing or HVAC equipment through the areas behind the walls, below the floors or above the drop ceilings; and (e) to exercise any other right to perform any other obligation that Landlord has under this Lease. Landlord shall be allowed to take all material into and upon the Premises that my be required to make any repairs, improvements and addition, or any alterations, without in any way being deemed or held guilty of trespass and without constituting a constructive eviction of Tenant. The Rent reserved herein shall not abate while said repairs, alterations or additions are being made and Tenant shall not be entitled to maintain a set-off or counterclaim for damages against by reason of loss from interruption to the business of Tenant because of the prosecution of any such work. All such repairs, decoration, additions and improvement shall be done during ordinary business hours, or, if any such work is at the request of Tenant to be done during any other hours, the Tenant shall pay all overtime and other extra costs.
20.SERVICES OF LANDLORD.
(a)The normal business hours of the Building shall be from 8:00 AM to 6:00 PM on Monday through Friday, and 8:00 AM to 1:00 PM on Saturday, exclusive of national holidays. Landlord shall furnish the following services during normal business hours of the Building except as noted:
(i)Elevator service for passenger and delivery needs.
(ii)Heat and air conditioning at a temperature of approximately 72 to 76 degrees Fahrenheit, using Landlord's commercially reasonable efforts and subject to governmental regulations, Building rules and regulations and routine repair, maintenance and replacement.
(iii)Cold running water for all restrooms and lavatories.
(iv)Soap, paper towels, and toilet tissue for public restrooms.
(v)Janitorial service, which includes sanitizing, dusting, cleaning, mopping, vacuuming and removal of trash not requiring special handling, five days a week.
(vi)Electrical and mechanical maintenance services are provided five days a week.
(vii)Electric power, for small desk top types of machines, or hand held devices, such as typewriters, adding machines and recording machines.
(viii)Electric lighting, at a level of at least 80 foot candles at desk height except in corridor or storage areas, and including the replacement of Building standard lamps and ballasts as needed.
(ix)Repairs and maintenance as described in Section 10 of this Lease.
(x)General management, including supervision, inspections, record keeping, accounting, leasing and related management functions.
(b)The services provided in subparagraph (a) above, and the amount of Rent prescribed herein, are predicted on and are in anticipation of certain factors as follows:
(i)Air conditioning design is based on sustained outside temperatures being no higher than 92 degrees Fahrenheit and no lower than 22 degrees Fahrenheit with sustained occupancy of the Premises by no more than one person per 250 square feet of floor area and electric power for lighting and outlets not in excess of a total of 4 watts per rentable square foot of the Premises at 100% connected load.
(ii)Tenant shall have no right to any services in excess of those provided herein. If Tenant uses services in an amount or for a period in excess of that provided for herein, then Landlord reserves the right to: charge Tenant as Additional Rent hereunder a reasonable sum as reimbursement for the direct cost of such added services; charge Tenant for the cost of any additional equipment or facilities or modification thereto, necessary to provide the additional services; and/or discontinue providing such excess services to Tenant. The overtime air conditioning rate is billed at $35.00 per hour.
(c)Landlord shall not be liable for any damages directly or indirectly resulting from the interruption in any services described above, nor shall any such interruption entitle Tenant to any abatement of Rent or any right to terminate this Lease. Landlord shall use all reasonable efforts to furnish uninterrupted services as required above.
*Landlord shall commit to respond to any air conditioning outages as soon as reasonably possible.
21.INDEMNITIES. Tenant does hereby indemnify and save harmless Landlord against all claims for damages to persons or Property which are caused anywhere in the Building or on the property caused by the negligence or willful misconduct of Tenant, its agents or employees or which occur in the Premises (or arise out of actions taking place in the Premises) unless such damage is caused by the negligence or willful misconduct of Landlord, its agents, or employees. The indemnities set forth hereinabove shall include the obligation to pay reasonable expenses incurred by the indemnified party, including, without limitation, reasonable, actually incurred attorney's fees. The indemnities contained herein do not override the waivers contained in Section 22(d) below.
22.INSURANCE AND WAIVER OF SUBROGATION.
(a)Tenant further covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense, the following types of insurance, in the amount specified and in the form hereinafter provided for:
(i)Liability Insurance in the Commercial General Liability form (or reasonable equivalent thereto) covering the Premises and Tenant's use thereof against claims for personal injury or death, property
damage and product liability occurring upon, in or about the Premises, such insurance to be written on an occurrence basis (not a claims made basis), to be in combined single limits amounts not less than $1,000,000 and to have general aggregate limits of not less than $2,000,000 for each policy year. The insurance coverage required under this Section 22(a)(i) shall, in addition, extend to any liability of Tenant arising out of the indemnities provided for in Section 21 and, if necessary, the policy shall contain a contractual endorsement to that effect. The general aggregate limits under the Commercial General Liability insurance policy or policies must apply separately to the Premises and to Tenant's use thereof (and not to any other location or use of Tenant) and such policy shall contain an endorsement to that effect. The certificate of insurance evidencing the Commercial General Liability form of policy shall specify all endorsements required herein and shall specify on the face thereof that the limits of such policy applies separately to the Premises.
(ii)Insurance covering all of the items included in Tenant's leasehold improvement, heating, ventilating and air conditioning equipment maintained by Tenant, trade fixtures, merchandise and personal property from time to time in, on or upon the Premises, and alterations, additions, or changes made by Tenant pursuant to Section 12, in an amount not less than one hundred percent (100%) of their full replacement value from time to time during the Term, providing protection against perils included within the standard form of "all-risks" fire and casualty insurance policy, together with insurance against sprinkler damage, vandalism and malicious mischief. Any policy proceeds from such insurance shall be held in trust by Tenant's insurance company for the repair, construction and restoration or replacement of the property damage or destroyed unless this Lease shall cease and terminate under the provision of Section 28 of this Lease.
(iii)Worker's Compensation and Employer's Liability insurance affording statutory coverage and containing statutory limits with the Employer's Liability portion thereof to have minimum limits of $500,000.00.
(iv)Business Interruption Insurance equal to not less than fifty percent (50%) of the estimated gross earning (as defined in the standard form of business interruption insurance policy) of Tenant at the Premises which insurance shall be issued on an "all risks" basis (or its equivalent).
(b)All policies of the insurance provided for in Section 22(a) shall be issued in form acceptable to Landlord by insurance companies with a rating and financial size of not less than A-X in the most current available "Best's Insurance Reports", and licensed to do business in the state in which Landlords Building is located. Each and every such policy:
(i)shall name Landlord as an additional insured (as well as any mortgagee of Landlord and any other party reasonably designated by Landlord) and the coverage in (ii) shall also name Landlord as loss payee.
(ii)shall (and a certificate thereof shall be delivered to Landlord at or prior to the execution of the Lease) be delivered to each of Landlord and any such other parties in interest within thirty (30) days after delivery of possession of the Premises to Tenant and thereafter within thirty (30) days prior to the expiration of each such policy, and, as often as any such policy shall expire or terminate. Renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent;
(iii)shall contain a provision that the insurer will give to Landlord and such other parties in interest at least thirty (30) days notice in writing in advance of any material change, cancellation,
termination or lapse, or the effective date of any reduction in the amount of insurance; and
(iv)shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry.
(c)Any insurance provided for in Section 22(a) may be maintained by means of a policy or policies of blanket insurance, covering additional items or location or insureds, provided, however, that:
(i)Landlord and any other parties in interest from time to time designated by Landlord to Tenant shall be named as an additional insured thereunder as its interest may appear;
(ii)the coverage afforded Landlord and any such other parties in interest will not be reduced or diminished by reason of the use of such blanket policy of insurance;
(iii)any such policy or policies (except any covering the risks referred to in Section 22(a) shall specify therein (or Tenant shall furnish Landlord with a written statement from the insurers under such policy specifying) the amount of the total insurance allocated to the Tenant's improvements and property more specifically detailed in Section 22(a); and
(iv)the requirements set forth in this Section 22 are otherwise satisfied.
(d)Notwithstanding anything to the contrary set forth herein above, Landlord and Tenant do hereby waive any and all claims against one another for damage to or destruction of real or personal property to the extent such damage or destruction can be covered by "all risks" property insurance of the type described in Section 22(a)(ii) above. Each party shall also be responsible for the payment of any deductible amounts required to be paid under the applicable "all risks" fire and casualty insurance carried by the party whose property is damaged. These waivers shall apply if the damage would have been covered by a customary "all risk" insurance policy, even if the party fails to obtain such coverage.The intent of this provision is that each party shall look solely to its insurance with respect to property damage or destruction which can be covered by "all risks" insurance of the type described in Section 22(a)(ii).
23.GOVERNMENTAL REQUIREMENTS. Tenant shall, at its own expense, promptly comply with all or public authority made Premises. requirements of any legally constituted governmental necessary by reason of Tenant's occupancy of the Premises.
24.ABANDONMENT OF PREMISES. Tenant agrees not to abandon the Premises during the Term of this Lease. If Tenant does abandon the Premises for more than ninety (90) days, Landlord may terminate this Lease, by written notice to Tenant at any time prior to Tenant reoccupying the Premises, but such termination shall not entitle Landlord to pursue any other remedies unless an uncured Event of Default then exists, in which case Landlord may pursue any and all remedies provided by this Lease, at law or in equity.
25.ASSIGNMENT AND SUBLETTING. Tenant may not, without the prior written consent of Landlord, which consent may be withheld by Landlord in its sole, unfettered discretion, assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the individual, any transfer of a majority or controlling interest in Tenant (Whether by stock transfer, merger, operation of law or otherwise) shall be considered an assignment for purposes of this paragraph and shall require Landlord's prior written consent. Consent to one assignment or sublease shall not
destroy or waive this provision, and all later assignments and subleases shall likewise be made only upon the prior written consent of Landlord. Subtenants or assignees shall become liable to Landlord for all obligations of Tenant hereunder, without relieving Tenant's liability hereunder and, in the event of any default by Tenant under this Lease, Landlord may, at its option, but without any obligation to do so, elect to treat such sublease or assignment as a direct Lease with Landlord and collect rent directly from the subtenant. In addition, upon any request by Tenant for Landlord's consent to an assignment or sublease, Landlord may elect to terminate this Lease and recapture all of the premises (in the event of an assignment request) or the applicable portion of the Premises (in the event of a subleasing request); provided, however, if Landlord notifies Tenant that Landlord elects to exercise this recapture right, Tenant may, within five (5) business days of its receipt of Landlord's notice, notify Landlord that Tenant withdraws its request to sublease or assign, in which case Tenant shall continue to lease all of the Premises, subject to the terms of this Lease and Landlord's recapture notice shall be null and void. If Tenant desires to assign or sublease, Tenant must provide written notice to Landlord describing the proposed transaction in detail and providing all documentation (including detailed financial information for the proposed assignee or subtenant) reasonably necessary to let Landlord evaluate the proposed transaction. Landlord shall notify Tenant within twenty (20) days of its receipt of such notice whether Landlord elects to exercise its recapture right and, if not, whether Landlord consents to the requested assignment or sublease. If Landlord fails to respond within such twenty (20) day period, Landlord will be deemed not to have elected to recapture and not to have consented to the assignment or sublease. If Landlord does consent to any assignment or sublease request and the assignee or subtenant pays to Tenant an amount in excess of the Rent due under this lease (after deducting Tenant's reasonable, actual expenses in obtaining such assignment or sublease, amortized in equal monthly installments over then remainder of the Term), Tenant shall pay 75% of such excess to Landlord as and when the monthly payments are received by Tenant.
26.DEFAULT. The occurrence of any one or more of the following shall constitute an event of default (an "Event of Default") hereunder:
(i)If Tenant shall default in the payment of Rent herein provided as and when due; or
(ii)If Tenant shall be in default in performing any of the terms or provisions of this Lease other than the provision requiring the payment of Rent, and fails to cure such default within ten (10) days after the date of receipt of written notice of such default from Landlord; or
(iii)If Tenant or any guarantor hereof is adjudicated bankrupt or insolvent; or if Tenant or any guarantor hereof shall become insolvent, shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; or is a permanent receiver is appointed for Tenant's or any such guarantor's property and such receivers is not removed within sixty (60) days thereafter Tenant to obtain such removal; or if, whether voluntarily or involuntarily, Tenant or any such guarantor takes advantage of any bankruptcy or other debtor relief proceedings under any present or future law; or if there shall be filed against Tenant or any such guarantor a petition in bankruptcy or insolvency or a similar proceeding; or if Tenant's effects should be levied upon or attached under process against Tenant which is not satisfied or dissolved within thirty (30) days; or
(iv)If Tenant shall do or permit to be done anything which creates a lien upon the Premises or any other part of the Property; or
(v)If Tenant shall violate the provision of Section 25 of this Lease by the attempted making of an unpermitted assignment, sublease or transfer of stock or interest in the ownership of Tenant; or
(vi)If Tenant shall fail to maintain in force all policies of insurance required by this Lease.
Any notice provided in this Paragraph may be given by Landlord, Landlord's attorney or any agent of Landlord.
27.LANDLORD'S REMEDIES.
(a)Upon the occurrence of an Event of Default as defined in Paragraph 26 above, Landlord shall have the option to do and perform any one or more of the following, in addition to, and not in limitation of, any other remedy or right permitted or allowed by law or in equity or by the provisions of this Lease:
(i)terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord and, if Tenant fails to so surrender possession of the Premises, Landlord shall have the right, without prejudice to any other remedy which Landlord may have for possession or arrearages in Rent, to enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, with or without process of law and by force if necessary, without being liable for prosecution or any claim of damages therefore and upon such termination recover from Tenant liquidated damages calculated as hereinafter provided in subparagraph 27(b);
(ii)without terminating this Lease, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, with or without process of law and by force if necessary, without being liable for prosecution of any claim for damages therefore and, if Landlord so elects, relet the Premises on such terms as Landlord deems advisable and receive the rent therefore, Tenant hereby agreeing to pay to Landlord on demand any deficiency that may arise by reason of such reletting plus the costs of such reletting;
(iii)enter the Premises, by force if necessary, without terminating this Lease or being liable for prosecution or for any claim of damages therefore, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for any and all expenses, including, without limitation, all attorneys' fees and court costs which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant for such action, whether caused by the negligence of Landlord or otherwise; or
(iv)without terminating this Lease, declare immediately due and payable the present value (calculated using a reasonable discount rate) of all Base Rent and Additional Rent due and coming due under this Lease for the entire remaining Term (as if by the terms of this Lease they were payable in advance), together with the cost of recovering and reletting the Premises (including, without limitation, attorney's fees and expenses) and all other expenses incurred by Landlord in connection with the Premises as of the date this provision is invoked by Landlord, plus interest thereon, and Landlord may immediately proceed to distrain, collect, or bring action for such sum, or may file a proof of claim in any bankruptcy or insolvency proceedings to enforce payment
thereof, provided, however, that such payment shall not be deemed a penalty or liquidated damages, but shall merely constitute payment in advance of all Rent payable hereunder throughout the term, and provided further, however, that upon receiving such payment, Tenant shall be entitled either to remain in possession of the Premises (subject to the performance of all other covenants, duties and obligations hereunder) or to receive from Landlord all rents received by Landlord from other assignees, tenants and subtenants on account of said Premises during the remainder of the Term (provided that the monies to which Tenant shall so become entitled shall in no event exceed the entire amount actually paid by Tenant to Landlord pursuant to this item (iv)), less all costs, expenses and attorney's fees of Landlord incurred in connection with the reletting of the Premises.
(b)If this Lease is terminated by Landlord as a result of the occurrence of an Event of Default, Landlord shall have the right, at Landlord's election, to recover from Tenant all damages incurred by reason of such Tenant's default including, without limitation, a sum equal to (1) the then present value (calculated using a reasonable discount rate) of the excess, if any, of the total Base Rent and Additional Rent and all other sums which would have been payable hereunder by Tenant for the period commencing with the day following the date of such termination and ending with the scheduled expiration date of the Term, minus the aggregate reasonable rental value of the Premises for the same period (reasonably determined by Landlord as set forth below), plus (2) the costs of recovering the Premises and all other reasonable expenses incurred by Landlord due to Tenant's default, including, without limitation, attorneys' fees and expenses, plus (3) the unpaid Base Rent and Additional Rent or any other sums due by Tenant under this Lease as of the date of such termination, with interest thereon. In determining the aggregate reasonable rental value pursuant to item (1) above, the parties hereby agree that the following factors shall be considered by Landlord as of the time Landlord seeks to enforce such remedy: (A) the length of time remaining in the Term; (B) the then current market conditions in the general area in which the Building is located; and (C) the rental rates then being obtained for space of similar type and size in similar type buildings in the general area in which the Building is located. Tenant agrees to pay the aforesaid amounts at once at the address of Landlord set forth in the preamble on page 1 of this Lease; provided, however, that such payment shall not constitute a penalty or forfeiture but shall constitute liquidated damages for Tenant's failure to comply with the terms and provision of this Lease (Landlord and Tenant agreeing that Landlord's actual damages in such event would be impossible to ascertain and that the amount set forth above is a reasonable estimate thereof).
(c)Pursuit by Landlord of any of the foregoing remedies shall not preclude pursuit of any other remedy herein provided or any other remedy provided by law or in equity, nor shall pursuit by Landlord of any remedy herein provided constitute: (i) an election of remedies thereby excluding the later election of an alternate remedy, (ii) forfeiture or waiver of any Base Rent, Additional Rent or other rentals, charges or assessments payable by Tenant to Landlord hereunder, or (iii) forfeiture or waiver of any damages accruing to Landlord by reason of the violation of any of the terms, covenants, warranties and provisions herein contained. No action taken by or on behalf of Landlord shall be construed to be an acceptance or a surrender of this Lease. The forbearance of Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall not be deemed or construed to constitute a waiver of such default. No waiver of any breach of the covenants, warranties, agreements, provisions or conditions contained in this Lease shall be construed as a waiver of said covenant, warranty, provision, agreement or condition or of any subsequent breach thereof. In determining the amount of loss or damage which Landlord may suffer by reason of termination of this Lease or the deficiency arising by reason of any
reletting of the Premises by Landlord as above provided, allowance shall be made for all expenses of repossession and any repairs or remodeling undertaken by Landlord following repossession. Tenant hereby agrees to pay to Landlord all costs and expenses incurred by Landlord in the enforcement of this Lease, including, without limitation, all fees and expenses of all attorneys employed by Landlord to effect collection of any sums due hereunder or to enforce any right or remedy of Landlord.
(d)If during the Term a Trustee is appointed for Tenant in any proceeding arising under Title 11 of the United States Code Relating to Bankruptcy, as amended, such Trustee shall have the right to assume Tenant's right and obligations under this Lease only if the Trustee: (i) promptly (no later than sixty (60) days following the filing of any motion or application to assume Tenant's obligation under this Lease) cures or provides adequate assurance that the Trustee will promptly cure any default under this Lease; (ii) compensates or provides adequate assurance that the Trustee will promptly compensate Landlord for any actual pecuniary loss (including, without limitation, rental and all other sums due from Tenant, and all resulting attorney's fees and costs incurred in connection with Tenant's bankruptcy proceedings) incurred by Landlord as a result of Tenant's default under this Lease; and (iii) provides adequate assurance of future performances under this Lease by the proposed assignee. Adequate assurance of future performance by the proposed assignee shall include, at a minimum, that: (a) any proposed assignee of this Lease shall deliver to Landlord a security deposit in an amount equal to at least three (3) months' Base Rent accruing under this Lease and (b) any proposed assignee shall provide to Landlord a current and accurate financial statement, the proposed assignee to have a net worth equal to at least one year's Base Rent accruing under this Lease, or, in the alternative, the proposed assignee shall provide a guarantor of such proposed assignee's obligations under this Lease, which guarantor shall provide Landlord with an audited financial statement meeting the requirements of (b) here in above and shall execute and deliver to Landlord a guaranty agreement in form and substance acceptable to Landlord.
28.DESTRUCTION OR DAMAGE.
(a)If the Building or the Premises are totally destroyed by storm, fire earthquake, or other casualty, or damaged to the extent that, in Landlord's reasonable opinion the damage cannot be restored within one hundred eighty (180) days of the date Landlord provides Tenant written notice of Landlord's reasonable estimate of the time necessary to restore the damage, or if the damage is not covered by standard "all risks" property insurance, or if the Landlord's lender requires that the insurance proceeds be applied to its loan, Landlord shall have the right to terminate this Lease effective as of the date for such destruction or damage by written notice to Tenant on or before thirty (30) days following Landlord's notice described in the next sentence and Rent shall be accounted for as between Landlord and Tenant as of that date. Landlord shall provide Tenant with notice within sixty (60) days following the date of the damage of the estimated time needed to restore, whether the loss is covered by Landlord's insurance coverage and whether or not Landlord's lender requires the insurance proceeds be applied to its loan.
(b)If the Premises are damaged by any such casualty or casualties but Landlord is not entitled to or does not terminate this Lease as provided in subparagraph (a) above, this Lease shall remain in full force and effect, Landlord shall notify Tenant in writing within sixty (60) days of the date of the damage that the damage will be restored (and will include Landlord's good faith estimate of the date the restoration will be complete), in which case Rent shall abate as to any portion of the Premises which is not usable, and Landlord shall restore the Premises to substantially the same condition as before the damage occurred as soon as practicable, whereupon full Rent shall
recommence: However, Landlord shall not be responsible for the restoration of any tenant improvements which were not originally completed by the Landlord.
29.EMINENT DOMAIN. If the whole of the Building or Premises, or such portion thereof as will make the Building or Premises unusable in the reasonable judgment of Landlord for their intended purposes, is condemned or taken by any legally constituted authority for any public use or purpose, then in either of said events, Landlord may terminate this Lease by written notice to Tenant and the Term hereby granted shall cease from that time when possession thereof is taken by condemning authorities, and Rent shall be accounted for as between Landlord and Tenant as of that date. If a portion of the Building or Premises is so taken, but not such amount as will make the Premises unusable in the reasonable judgment of Landlord for the purposes herein lease, or if Landlord elects not to terminate this Lease, this Lease shall continue in full force and effect and the Rent shall be reduced pro-rata in proportion to the amount of the Premises so taken. Tenant shall have no right or claim to any part of any award made to or received by Landlord for such condemnation or taking, and all awards for such condemnation or taking shall be made solely to Landlord. Tenant shall, however, have the right to pursue any separate award that does not reduce the award to which Landlord is entitled.
30.SERVICE NOTICE.
(a)Any notice which is required or permitted to be given by either party under this Lease shall be in writing and must be given only by certified mail, return receipt requested, by hand delivery or by nationally recognized overnight courier service at the addresses set forth below. Any such notice shall be deemed given on the date sent or deposited for delivery in accordance with one of the permitted methods described above. The time period for responding to any such notice shall begin on the date the notice is actually received, but refusal to accept delivery or inability to accomplish delivery because the party can no longer be found at the then current address, shall be deemed receipt. Either party may change its notice address by notice to the other party in accordance with the terms of this Section. The initial notice addresses for each party are set forth in the preamble on page 1 of this Lease.
(b)Except as otherwise provided by law, Tenant hereby appoints as its agent to receive service of all dispossessory or distraint proceedings and notices thereunder, and all notices required under this Lease, the person, from time to time, in charge of or occupying the Premises at the time of such proceeding or notice; and if no person be in charge or occupying the Premises, then such service of notice may be made by attaching the same to the front entrance of the Premises.
31.RIGHTS OF MORTGAGEES.
(a)Tenant agrees that this Lease shall be subject and subordinate (i) to any mortgage, deed to secure debt or other security interest now encumbering the Property and to all advances which may be hereafter made, to the full extent of all debts and charges secured thereby and to all renewals or extensions of any part thereof, and to any mortgage, deed to secure debt or other security interest which any owner of the Property may hereafter, at any time, elect to place on the Property; (ii) to any assignment of Landlord's interest in the leases and rents from the Building or Property which includes the Lease which now exists or which any owner of the Property may hereafter, at any time, elect to place on the Property; and (iii) to any Uniform Commercial Code Financing Statement covering the personal property rights of Landlord or any owner of the Property which now exists or any owner of the Property may hereafter, at any time, elect to place on the foregoing personal property (all of the foregoing instruments set forth in (i), (ii)
and (iii) above being hereafter collectively referred to as "Security Documents"). Tenant agrees upon request of the holder of any Security Documents ("Holder") to hereafter execute any documents which the counsel for Landlord or Holder may deem necessary to evidence the subordination of the Lease to the Security Documents. If Tenant fails to execute any such requested documents, Landlord or Holder is hereby empowered to execute such documents in the name of Tenant evidencing such subordination, as the act and deed of Tenant, and this authority is hereby declared to be coupled with an interest and not revocable.
(b)In the event of a foreclosure pursuant to any Security Documents, Tenant shall at the election of the Landlord, thereafter remain bound pursuant to the terms of this Lease as if a new and identical Lease between the purchaser at such foreclosure ("Purchaser"), as Landlord, and Tenant, as tenant, had been entered into for the remainder of the Term hereof and Tenant shall attorn to the Purchaser upon such foreclosure sale and shall recognize such Purchaser as the Landlord under the Lease. Such attornment shall be effective and self-operative without the execution of any further instrument on the part of any of the parties hereto. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of Landlord or of Holder, any instrument or certificate that may be necessary or appropriate in any such foreclosure proceeding or otherwise to evidence such attornment.
(c)If the Holder of any Security Document or the Purchaser upon the foreclosure of any of the Security Documents shall succeed to the interest of Landlord under the Lease, such Holder or Purchaser shall have the same remedies, by entry, action or otherwise for the non-performance of any agreement contained in the Lease, for the recovery of Rent or for any other default or event of default hereunder that Landlord had or would have had if any such Holder or Purchaser had not succeeded to the interest of Landlord. Any such Holder or Purchaser which succeeds to the interest of Landlord hereunder, shall not be (a) liable for any act or omission of any prior Landlord (including Landlord); or (b) subject to any offsets or defense which Tenant might have against any prior Landlord (including Landlord); or (c) bound by any Rent which Tenant might have paid for more than the current month to any prior Landlord (including Landlord); or (d) bound by any amendment or modification of the Lease made without its consent.
(d)Tenant hereby acknowledges that if the interest of Landlord hereunder is covered by assignment of Landlord's interest in Lease, Tenant shall pay all Rent due and payable under the Lease directly to the Holder of the assignment of Landlord's interest in Lease upon notification of the exercise of the rights thereunder by the Holder thereof.
(e)Notwithstanding anything to the contrary set forth in this Section, the Holder of any Security Documents shall have the right, at any time, to elect to make this Lease superior and prior to its Security Document. No documentation, other than written notice to Tenant, shall be required to evidence that the Lease has been made superior and prior to such Security Documents, but Tenant hereby agrees to execute any documents reasonably requested by Landlord or Holder to acknowledge that the Lease has been made superior and prior to the Security Documents.
32.TENANT'S ESTOPPEL. Tenant shall, from time to time, upon not less than ten (10) days prior written request by Landlord, execute, acknowledge and deliver to Landlord a written statement certifying that this Lease is unmodified and in full force and effect, (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), the dates to which Tenant has paid, that Tenant is not in default hereunder and has no off-sets or defense against Landlord under this Lease, and whether or not to the best of Tenant's knowledge
Landlord is in default hereunder (and if so, specifying the nature of the default), it being intended that any such statement delivered pursuant to this Paragraph may be relied upon by a prospective purchaser of Landlord's interest or by a mortgagee of Landlord's interest or assignee of any mortgage or security deed upon Landlord's interest in the Property of any part thereof.
33.ATTORNEY'S FEES AND HOMESTEAD. If Landlord exercises any of the remedies provided to Landlord under this Lease as a result of Tenant's failure to comply with its obligations, or if Landlord brings any action to enforce its rights under this Lease, Tenant shall be obligated to reimburse Landlord, on demand, for all costs and expenses, including reasonable attorney's fees and court costs, incurred in connection therewith. Tenant waives all homestead rights and exemptions which he may have under any law against any obligations owing under this Lease and Tenant hereby assigns to Landlord his homestead exemption.
34.PARKING. Tenant shall have the right to use sixty (60) reserved parking spaces in the parking garage at no charge. Tenant acknowledges and agrees it shall make its own arrangements to obtain sufficient parking for its employees, agents and invitees. In the event that Tenant enters into an agreement with any party for any parking (including, without limitation, parking in the parking garage facilities serving the Building), Tenant shall look solely to such party with respect to all matters concerning such parking. Landlord reserves the right to build improvements upon, reduce the size of, relocate, reconfigure, eliminate, and/or make alterations or additions to any then existing parking garage or other facilities at any time.
35.STORAGE. If Landlord makes available to Tenant any storage space outside the Premises, anything stored therein shall be wholly at the risk of Tenant, and Landlord shall have no responsibility of any character with respect thereto.
36.WASTE DISPOSAL.
(a)All normal trash and waste (i.e., waste that does not require special handling pursuant to subparagraph (b) below) shall be disposed of through the janitorial service to be provided by Landlord as set forth herein above.
(b)Tenant shall be responsible for the removal and disposal of any waste deemed by any governmental authority having jurisdiction over the matter to be hazardous or infectious waste or waste requiring special handling, such removal and disposal to be in accordance with any and all applicable governmental rules, regulations, codes, orders or requirements. Tenant agrees to separate and mark appropriately all waste to be removed and disposed of through the janitorial service pursuant to (a) above and hazardous, infectious or special waste to be removed and disposed of by Tenant pursuant to this subparagraph (b). Tenant hereby indemnifies and holds harmless Landlord and its officers, directors, shareholders, members, partners, employees, agents, contractors, successors and assigns from and against any loss, claims, demands, damage or injury Landlord or any of them may suffer or sustain as a result of Tenant's failure to comply with the provisions of this subparagraph (b).
37.SURRENDER OF PREMISES. Whenever under the terms hereof Landlord is entitled to possession of the Premises, Tenant at once shall surrender the Premises and the keys thereto to Landlord in the same condition as on the Commencement Date hereof, natural wear and tear only excepted, and Tenant shall remove all of its personalty therefrom and shall, if directed to do so by Landlord, remove all improvements and restore the Premises to its original
condition prior to the construction of any improvements which have been made therein by or on behalf of Tenant, including any improvements made prior to the Commencement Date. Landlord may forthwith re-enter the Premises and repossess itself thereof and remove all persons and effects therefrom, using such force as may be necessary without being guilty of forcible entry, detainer, trespass or other tort. Tenant's obligations to observe or perform these covenants shall survive the expiration or other termination of the Term of this Lease. If the last day of the Term of this Lease or any renewal falls on Sunday or a legal holiday, this Lease shall expire on the business day immediately preceding.
38.CLEANING PREMISES. Upon vacating the Premises, Tenant, agrees to clean the Premises thoroughly or to pay Landlord for the cleaning necessary to restore the Premises to a "broom-clean" condition, regardless of whether any security deposit has been forfeited.
39.NO ESTATE IN LAND. This Lease shall create the relationship of landlord and tenant between Landlord and Tenant; no estate shall pass out of Landlord; Tenant's rights hereunder are not subject to levy or sale and not assignable by Tenant except with Landlord's consent as set forth hereinabove.
40.CUMULATIVE RIGHTS. All rights, powers and privileges conferred hereunder upon Landlord shall be cumulative but not restrictive of those given by law or in equity.
41.PARAGRAPH TITLES; SEVERABILITY. The paragraph titles used herein are not to be considered a substantive part of this Lease, but merely descriptive aids to identify the paragraph to which they refer. Use of the masculine gender includes the feminine and neuter and vice versa, where necessary to impart contextual continuity. If any paragraph or provisions herein are held invalid by a court of competent jurisdiction, all other paragraphs or severable provisions of this Lease shall not be affected thereby, but shall remain in full force and effect.
42.DAMAGE OR THEFT OF PERSONAL PROPERTY. All personal property brought into the Premises shall be at the risk of Tenant only, and Landlord shall not be liable for the theft thereof or any damage thereto occasioned by any acts of co-tenants or other occupants of the Building, or any other person, except, with respect to damage to the Premises, as may be occasioned by the grossly negligent or willful act of the Landlord, its employees and agents.
43.HOLDING OVER. In the event Tenant remains in possession of the Premises after the expiration of the term hereof, or of any renewal term, with Landlord's written consent, Tenant shall be a tenant at will and such tenancy shall be subject to all provisions hereof, except that the monthly rental shall be at the higher of double the monthly Base Rent payable hereunder upon such expiration of the Term hereof, or of any renewal term, or double the then current fair market rental value of the Premises as the same would be adjusted pursuant to the provision of Section 3 hereof. In the event Tenant remains in possession of the Premises after the expiration of the Term hereof, or any renewal term, without Landlord's written consent, Tenant shall be a tenant at sufferance and may be evicted by landlord without any notice, but Tenant shall be obligated to pay rent for such period that Tenant holds over without written consent at the same rate provided in the previous sentence and shall also be liable for any and all other damages Landlord suffers as a result of such holdover including, without limitation, the loss of a prospective tenant for such space. There shall be no renewal of this Lease by operation of law or otherwise, Nothing in this Section shall be construed as a consent by Landlord for any holding over by Tenant after the expiration of the Term hereof, or any renewal term.
44.SECURITY DEPOSIT. Tenant shall pay Landlord the sum of $10,350.67 (hereinafter referred to as "Security Deposit") as evidence of good faith on the part of Tenant in the fulfillment of the terms of this Lease, which shall be held by the Landlord during the Term. Under no circumstances will Tenant be entitled to any interest on the Security Deposit. The Security Deposit may be used by Landlord, at its discretion, to apply to any amount owing to Landlord hereunder, or to pay the expenses of repairing any damage to the Premises, except natural wear and tear occurring from normal use of the Premises, which exists on the day Tenant vacates the Premises but this right shall not be construed to limit Landlord's right to recover additional sums from Tenant for damages to the Premises. In addition to any other rights available to Landlord hereunder, the Security Deposit shall be forfeited in the event Tenant fails to continually occupy the Premises as Tenant for the full original Term, or if this Lease should for any reason whatsoever be terminated prior to the normal expiration date of the original Term. If there are no payments to be made from the Security Deposit as set out in this Paragraph, or if there is any balance of the Security Deposit remaining after all payments have been made, the Security Deposit, or such balance thereof remaining, will be refunded to the Tenant within thirty (30) days after fulfillment by Tenant of all obligations hereunder. In no event shall Tenant be entitled to apply the Security Deposit to any Rent payment due hereunder. In the event of an act of bankruptcy by or insolvency of Tenant, or the appointment of a receiver for Tenant or a general assignment for the benefit of Tenant's creditors, then the Security Deposit shall be deemed immediately and automatically assigned to, and shall be considered to property of Landlord. The right to retain the Security Deposit shall be in addition and not alternative to Landlord's other remedies under this Lease or as may be provided by law and shall not be affected by summary proceedings or other proceedings to recover possession of the Premises. Upon sale or conveyance of the Building, Landlord may transfer or assign the Security Deposit to any new owner of the Premises, and upon such transfer all liability of Landlord for the Security Deposit shall terminate, Landlord shall be entitled to coomingle the Security Deposit with its other funds.
45.LEASEHOLD IMPROVEMENTS. The Work Letter, if any, shall be attached hereto as an Exhibit and is hereby made a part of this Lease, and its provisions shall control in the event of a conflict with the provisions contained in this Lease.
46.RULES AND REGULATIONS. The rules and regulations in regard to the Building, annexed hereto as Exhibit B or separately furnished to tenant (referred to throughout this Lease as the "Rules and Regulations"), and all reasonable rules and regulations which Landlord may hereafter, from time to time, adopt and promulgate for the government and management of the Building and common areas are hereby made a material part of this Lease and shall, during the Term, be in all things and at all times observed and performed by Tenant, its agents, employees or invitees.
47.QUIET ENJOYMENT. Tenant, upon payment in full of the required Rent and full performance of the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises throughout the Term. Landlord shall not be responsible for the acts or omissions of any other tenant, lessee or third party that may interfere with Tenant's use and enjoyment of the premises.
48.ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties and no representation, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect.
49.LIMITATION OF LIABILITY. Landlord's obligations and liability with respect to this Lease shall be limited solely to Landlord's interest in the Building, as such interest is constituted from time to time, and neither Landlord nor any partner of affiliate of Landlord, nor any officer, director, shareholder, member, or partner of Landlord or any partner or affiliate of Landlord, shall have any personal liability whatsoever with respect to this Lease.
50.SUBMISSION AGREEMENT. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to acquire a right of entry or an officer to lease. This Lease is not binding of effective until execution by and delivery to both Landlord and Tenant.
51.AUTHORITY. If Tenant executes this Lease as a corporation, Limited Partnership, limited liability company or any other type of entity, each of the persons executing this Lease on behalf of Tenant does hereby personally represent and warrant that Tenant is a duly organized and validly existing corporation, limited partnership, limited liability company or any other types of entity, that Tenant is qualified to do business in the state in which the Premises are located, that Tenant has full right, power and authority to enter into this Lease, and that each person signing on behalf of Tenant is authorized to do so. In the event any such representation and warranty is false, all persons who execute this Lease shall be individually, jointly and severally liable as Tenant. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Tenant confirming the foregoing representations and warranties.
52.RELOCATION OF PREMISES. At any time or from time to time during the Term or any renewal thereof, Landlord shall have the unrestricted right to relocate Tenant from the Premises to any other office space in the Building having a view comparable to that of the original Premises and located on the fourth (4th) floor or higher of the Building. Landlord shall provide Tenant at least ninety (90) days prior written notice of any such relocation and Landlord shall reimburse Tenant for all reasonable expenses incurred by Tenant in connection with such relocation including moving expenses, telecommunications and data cabling and hookup and the cost of reasonable supply of replacement stationery. Landlord shall, at its sole expense, renovate or construct improvements in the relocation space that are substantially similar to those in the Premises. Following any such relocation, Landlord and Tenant shall enter into an amendment to this Lease to reflect that the Premises consists of the relocation space. All other terms and conditions of the Lease shall remain unchanged following such relocation.
53.BROKER DISCLOSURE. Landlord represents that it has dealt with no broker. Landlord agrees that, if any broker makes a claim for a commission based upon the actions of Landlord, Landlord shall indemnify, defend and hold Tenant harmless from any such claim. Tenant represent that it has dealt with no broker. Tenant agrees that, if any broker makes a claim for a commission based upon the actions of Tenant, Tenant shall indemnify, defend and hold Landlord harmless from any such claim.
54.LANDLORD'S LIEN. Notwithstanding any other provision hereof to the contrary, Tenant does hereby grant to Landlord, and Landlord shall have at all times, a security interest in and a valid first lien upon all of the personal property and trade fixtures of Tenant situated in and upon the Premises to secure the obligations of Tenant for all Base Rent, Additional Rent and other sums to become due hereunder and the performance by Tenant of each and all of Tenant's other covenants and obligations hereunder. The security interest and lien granted herein may be foreclosed in the manner and form provided by law for the foreclosure of chattel mortgages or in any other manner provided or permitted by law.
55.SPECIAL STIPULATIONS. Special Stipulations, if any, are set forth below. In the event of a conflict between the Special Stipulations and the other terms of this Lease, the Special Stipulations shall control.
NONE
56.RADON GAS. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient qualities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed Federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit.
57.FORCE MAJEURE. In the event of a strike, lockout, labor trouble, civil commotion, an act of God, or any other event beyond Landlord's control (a "force majeure event") which results in the Landlord being unable to timely perform its obligations hereunder, so long as Landlord diligently proceeds to perform such obligations after the end of the force majeure event, Landlord shall not be in breach hereunder, this Lease shall not terminate, and Tenant's obligation to pay any Base Rent, additional rent, or any other charges and sums due and payable shall not be excused.
58.Right of First Refusal. Provided that no event of Default by Tenant is continuing beyond any applicable notice or cure periods, Tenant shall have the Right of First Refusal on the 10th and the 11th floor of the Building. If Tenant exercises its Right of First Refusal, the rental rate shall be at the rate currently existing for the Premises. Landlord shall provide Tenant notice of a bona fide offer and Tenant shall have five (5) business days to respond. No response shall be a declination.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals, the day and year first above written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WITNESSES:
|
|
LANDLORD:
|
|
|
|
|
|
|
|
|
|
|
|
Wilder Corporation of Delaware, a
Delaware Corporation
|
|
|
|
|
By:
|
/s/ Mary Carotenuto
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
Mary Carotenuto
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
Ex VP
|
|
|
|
|
|
|
|
|
|
WITNESSES:
|
|
TENANT:
|
|
|
|
|
|
|
|
|
|
|
|
KNOWBE4, LLC
|
|
|
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
CEO
|
|
EXHIBIT A
FLOOR PLAN OF PREMISES
EXHIBIT B
RULES AND REGULATION
1.The sidewalks, entry passages, corridors, halls, elevators and stairways shall not be obstructed or used for any purpose other than those of ingress and egress. The floors, skylights and windows that reflect or admit light into any place in the Building shall not be covered or obstructed. The water closets and other water apparatus shall not be used for any other purpose than those which they were constructed and no sweepings, rubbish or other obstructing substances shall be thrown therein.
2.No advertisement or other notice shall be inscribed, painted or affixed on any part of the outside or inside of the Building, except upon the doors, and of such order, size and style, and at such places as shall be designated by Landlord. Interior signs on doors will be ordered for tenants by Landlord, the cost thereof to be charged to and paid for by tenants.
3.No tenant shall do or permit to be done in its Premises, or bring or keep anything therein, which shall in any way increase the rate of fire insurance on the Building, or on the property kept therein, or obstruct or interfere with the rights of other tenants or in any way injure or annoy them, or conflict with the laws relating to fires, or with the regulations of the Fire Department, or any part thereof, or conflict with any of the rules and ordinances of the Board of Health or similar agency. Tenants, their clerks and servants, shall maintain order in the Premises and the Building, shall not make or permit any improper noise in the Demised Premises or the Building or interfere in any way with other tenants or those having business with them. Nothing shall be thrown by tenants, their clerks or servants out of the windows or doors, or down the passages or skylights of the Building. No rooms shall be occupied or used as sleeping or lodging apartments at any time. No part of the Building shall be used or in any way appropriated for gambling, immoral or other unlawful practice, and no intoxicating liquor or liquors shall be sold in the building.
4.Tenants shall not employ any persons other than the janitors of Landlord (who will be provided with pass-keys into the offices) for the purpose of cleaning or taking charge of the Premises, except as may be specifically provided otherwise in the Lease.
5.No animals, birds, bicycles or other vehicles shall be allowed in the offices, halls, corridors, elevators or elsewhere in the Building without prior written approval of Landlord.
6.All tenants and occupants shall observe strict care not to leave their windows open when it rains and for any fault or carelessness in any of these respects, shall make good any injury sustained by other tenants and by Landlord for damage to paint, plastering or other parts of the Building resulting from such fault or carelessness. No painting shall be done, nor shall any alterations be made to any part of the Building or the Premises by putting up or changing any partitions, doors or window, nor shall there be any nailing, boring or screwing into the woodwork or plastering, nor shall any connection be made in the electric wires or gas or electric fixtures, without the consent in writing on each occasion of Landlord. All glass, locks and trimmings
in or upon the doors and windows of the Building shall be kept whole and when any part thereof shall be broken by tenant, or tenant's agent, the same shall be immediately replaced or repaired by tenant and put in order under the direction and to the satisfaction of Landlord, or its agents, and shall be kept whole and in good repair. Tenants shall not injure, overload, or deface the Building, the woodwork or the walls of the Premises, nor carry on upon the Premises any noxious, noisy or offensive business.
7.Two keys for each office will be furnished to tenants without charge. No additional locks or latches shall be put upon any door without the prior written consent of Landlord. Tenants, at the termination of their lease, shall return to Landlord all keys to doors in the Building.
8.Landlord in all cases retains the power to prescribe the weight and position of iron safes or other heavy articles. Tenants must make arrangements with the superintendent of the Building when the elevator is required for the purpose of the carrying of any kind of freight.
9.The use of burning fluid, camphene, benzene, kerosene or anything except gas furnished to the Building or electricity for lighting the Premises is prohibited. No offensive gases or liquids will be permitted.
10.If Tenants desire blinds, coverings or drapes over the windows, they must be of such shape, color and material as may be prescribed by landlord, and shall be erected only with the Landlord's consent and at the expense of the Tenant desiring them. No awnings shall be placed on the Building.
11.If tenants require wiring for a bell or buzz system, such wiring shall be done by the electrician of the Building only, and no outside wiring workers shall be allowed to do work of this kind unless by the prior written permission of Landlord or its agent. If telegraphic or telephonic service is desired, the wiring for same shall be done as directed by the electrician of the Building or by some other employee of Landlord who may be instructed by the superintendent of the Building to supervise same, and no boring or cutting for wiring shall be done unless approves by Landlord or its representatives as stated.
12.At Landlord's discretion, the Building may be in the charge of a night watchman, and every person entering or leaving the Building may be questioned by the watchman as to the visitor's business in the Building and shall sign his or her name on a form provided by the Building for so registering such persons.
EXHIBIT C
WORK LETTER
Tenant hereby agrees to accept the premises in its "AS IS" condition except Landlord shall have all HVAC - VAV's in working order before the Tenant occupies the Premises. Tenant shall be responsible for all Tenant Improvements.
END OF EXHIBIT C
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this"Amendment") is made and entered into as of 5/27/15 by and between Wilder Corporation of Delaware, a Delaware Corporation ("Landlord") and KnowBe4, LLC ("Tenant").
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015 (hereinafter the "Lease"), for Suite# 1200 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building");
B.Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.The term is hereby amended to commence on June 1, 2015 and terminate sixty (60) months thereafter.
4.Commencing on June 1, 2015 Tenant shall pay Landlord Monthly Base Rent as follows:
|
|
|
|
|
|
|
|
|
|
|
TERM
|
|
MONTHLY
BASE RENT
|
|
June 1, 2015 - May 31, 2016
|
|
$10,350.67
|
|
June 1, 2016 - May 31, 2018
|
|
$21,348.25
|
|
June 1, 2018 - May 31, 2020
|
|
$21,995.17
|
Base Rent (in the amount set forth above) shall be paid by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim,
commencing on the Effective Date and on the first (1st) day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
5.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
6.Tenant accepts the Premises in its "As Is" condition.
7.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
8.Landlord and Tenant represent and warrant to each other that they have not dealt with any real estate agent or broker in connection with this Amendment and that this Amendment was not brought about or procured through the use or instrumentality of any other agent or agents or broker and that all negotiations with respect to the terms of this agreement were conducted between Landlord and Tenant. Landlord and Tenant covenant and agree to indemnify and hold each other harmless from and against any and all claims for commissions and other compensation made by any agent or agents and/or broker or brokers based on any dealing between the respective party and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by the other in resisting such claims (including, without limitation, attorney's fees).
9.This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
10.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
11.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
12.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
13.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
14.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
15.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
THIS AMENDMENT IS EXECUTED between the parties as of the day and year first written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
TENANT: KnowBe4, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
|
|
Print Name:
|
Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
Title:
|
CEO
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
|
|
Dated:
|
5/27/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
LANDLORD: Wilder Corporation
of Delaware
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
By:
|
/s/ Mary Carotenuto
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
|
|
Print Name:
|
Mary Carotenuto
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
Title:
|
Ex VP
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
|
|
Dated:
|
5/27/2015
|
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered into as of 3/10/2016 by and between Wilder Corporation of Delaware, a Delaware Corporation ("Landlord") and KnowBe4, LLC ("Tenant").
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015 and that certain First Amendment to Lease Agreement dated May 27, 2015 (hereinafter the "Lease"), for Suite# 1200 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building");
B.Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.On or about June 1, 2016, the Premises shall increase by 15,526 rentable square feet consisting of the entire Eleventh (11th) floor ("the Expansion Premises"). The total of the Premises shall be 31,052 rentable square feet.
4.Commencing on June 1, 2016 Tenant shall pay Landlord Monthly Base Rent as follows on the Expansion Premises:
|
|
|
|
|
|
|
|
|
|
|
TERM
|
|
MONTHLY
BASE RENT
|
|
June 1, 2016 - May 31, 2017
|
|
$10,350.67
|
|
June 1, 2017- May 31, 2019
|
|
$21,348.25
|
|
June 1, 2019 - May 31, 2021
|
|
$21,995.17
|
Tenant shall continue to pay Landlord Monthly Base Rent on the Twelfth (12th) floor as set forth in the Lease.
Base Rent (in the amount set forth above) shall be paid by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st) day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
5.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
6.Tenant shall have the right to use an additional sixty (60) reserved parking spaces in the parking garage at no charge to the Tenant for a total of One Hundred Twenty (120) parking spaces in accordance with the terms set forth in section 34 of the Lease
7.Tenant accepts the Premises in its "As Is" condition.
8.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
9.Landlord and Tenant represent and warrant to each other that they have not dealt with any real estate agent or broker in connection with this Amendment and that this Amendment was not brought about or procured through the use or instrumentality of any other agent or agents or broker and that all negotiations with respect to the_ terms of this agreement were conducted between Landlord and Tenant. Landlord and Tenant covenant and agree to indemnify and hold each other harmless from and against any and all claims for commissions and other compensation made by any agent or agents and/or broker or brokers based on any dealing between the respective party and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by the other in resisting such claims (including, without limitation, attorney's fees).
10.This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are
contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
11.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
12.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
13.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
14.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
15.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
16.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
THIS AMENDMENT IS EXECUTED between the parties as of the day and year written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
LANDLORD: KnowBe4, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
By:
|
/s/ Stu Sjouwerman
|
|
Print Name:
|
|
|
Print Name:
|
Stu Sjouwerman
|
|
By:
|
|
|
Title:
|
CEO
|
|
Print Name:
|
|
|
Dated:
|
3/10/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
|
|
LANDLORD: Wilder Corporation
|
|
Presence of:
|
|
of Delaware
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
By:
|
/s/ Mary Carotenuto
|
|
Print Name:
|
|
|
Print Name:
|
Mary Carotenuto
|
|
By:
|
|
|
Title:
|
Ex VP
|
|
Print Name:
|
|
|
Dated:
|
3/11/2016
|
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered into as of 1/9/2016 between Clearwater Tower, LLC, a Florida limited liability company, and ("Landlord") and KnowBe4, LLC ("Tenant").
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015; that certain First Amendment to Lease Agreement dated May 27,2015 (hereinafter the "Lease"), for Suite# 1200 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building"); and that certain Second Amendment to Lease Agreement, for Suite #1100 consisting of 15,526 rentable square feet (the "Expansion Premises") of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building");
B.Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized tem1s used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.On or about January 9, 2017, the Premises shall increase by 11,853 rentable square foot consisting of the suite 700 located on the Seventh (7th ) floor ("the Additional Expansion Premises"). The total of the Premises shall be 42,905 rentable square feet.
4.Commencing on January 6, 2017 Tenant shall pay Landlord Monthly Base Rent as follows on the Additional Expansion Premises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 9, 2017 to March 31, 2017
|
no rental charge
|
|
March 31, 2017 to May 31, 2017
|
8.25 psf
|
$8,148.94
|
|
June 1, 2017 to May 31, 2018
|
16.99 psf
|
$16,786.81
|
|
June 1, 2018 to May 31, 2019
|
17.51 psf
|
$17,290.42
|
|
June 1, 2019 to May 31, 2020
|
18.03 psf
|
$17,809.13
|
|
June 1, 2020 to May 3l, 2021
|
18.57 psf
|
$18,343.40
|
|
June 1, 2021 to May 31, 2022
|
19.12 psf
|
$18,893.70
|
4A.The existing lease for Suite #1100 and the existing lease for Suite #1200 are each hereby extended to match the above schedule starting June l, 2017 - an expiration date of May 31, 2022 and the above Base Rental Rate schedule starting June 1, 2017.
Base Rent (in the amount set forth above) shall be paid by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st) day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
5.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
6.Tenant shall have the right to use additional reserved parking spaces for Additional Expansion Premises in the parking garage at no charge to the Tenant based on a maximum of no more than 4 spaces for every 1000 sq feet, in this case an additional 47 parking spaces, if such are available, in accordance with the terms set forth in section 34 of the Lease
7.Tenant accepts the Premises in its "As Is" condition.
8.Tenant is to reimburse the LOOP, LLC, a Florida limited liability company, for the demolition that was recently permitted, performed and completed on the 7th floor. The amount is to match that paid by LOOP, with no additional surcharge to be added.
9.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
10.Landlord and Tenant represent and warrant to each other that they have not dealt with any real estate agent or broker in connection with this Amendment and that this Amendment was not brought about or procured through the use or instrumentally of any other agent or agents or broker and that all negotiations with respect to the terms of this agreement were conducted between Landlord and Tenant. Landlord and Tenant covenant and agree to indemnify and hold each other harmless from and against any and all claims for commissions and other compensation made by any agent or agents and/or broker or brokers based on any dealing between the respective party and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by the other in resisting such claims (including, without limitation, attorney's fees).
11.This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties. covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are
contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
12.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
13.Except as modified by this Amendment. the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease; and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
14.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
15.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
16.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
17.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RA.DON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
18.Right of First Refusal: Provided that no event of Default by Tenant is continuing beyond any applicable notice or cure periods Tenant shall have the Right of First Refusal on the remaining spaces on the 7th floor of the Building as such open up upon their current lease expirations. Landlord shall provide Tenant notice of a bona fide offer and Tenant shall have five (5) business days to respond. No response shall be a declination.
THIS AMENDMENT IS EXECUTED between the parties as of the day and year written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
TENANT: KnowBe4, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Michele Weisensee
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Michele Weisensee
|
|
Print Name:
|
Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Title:
|
CEO
|
|
|
|
|
|
|
|
|
|
Print Name:
|
|
Dated:
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
LANDLORD: Clearwater Tower,
LLC of Florida
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Matthew S. Swartzel
|
|
By:
|
/s/ Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Matthew S. Swartzel
|
|
Print Name:
|
Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Title:
|
Mging Member
|
|
|
|
|
|
|
|
|
|
Print Name:
|
|
Dated:
|
1/12/2017
|
FOURTH AMENDMENT TO LEASE AGREEMENT
THIS FOURTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered into as of 5/17/2017 between Clearwater Tower, LLC, a Florida limited liability company, and ("Landlord") and KnowBe4, Inc. ("Tenant").
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015; that certain First Amendment to Lease Agreement dated May 27, 2015 (hereinafter the "Lease"), for Suite #1200 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building"); that certain Second Amendment to Lease Agreement, for Suite #1100 consisting of 15,526 rentable square feet (the "Expansion Premises") of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); and that Third Amendment to Lease Agreement, for suite 700 of 11,853 rentable square feet of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building")
B.Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration. the receipt and sufficiency of which are hereby acknowledged, the parries hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.On or about May 31, 2017 the Premises shall increase by l,798 rentable square) feet consisting of the suite 770 located on the Seventh (7th) floor ("the 7th Floor Additional Expansion Premises"). The total of the Premises shall be 44,703 rentable square feet.
4.Commencing on June 1, 2017 Tenant shall pay Landlord Monthly Base Rent as follows on the 7th Floor Additional Expansion Premises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2017 to July 1, 2017
|
no rental charge
|
|
July 1, 2017 to August 31, 2017
|
8.25 psf
|
$1,236.13
|
|
August 31, 2017 to May 31, 2018
|
16.99 psf
|
$2,545.67
|
|
June 1, 2018 to May 31, 2019
|
17.51 psf
|
$2,623.58
|
|
June 1, 2019 to May 31, 2020
|
18.03 psf
|
$2,701.50
|
|
June 1, 2020 to May 31, 2021
|
18.57 psf
|
$2,782.41
|
|
June 1, 2021 to May 31, 2022
|
19.12 psf
|
$2,864.81
|
4A. The existing leases for other suites in the building remain the same. The above Base Rental Rate schedule starting June 1, 2017 (ion the amount set forth above) shall be paid
by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st) day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
5.Tenant shall continue to pay as Additional Rent all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
6.Tenant shall have the right to the same 7 reserved parking spaces for the 7th Floor Additional Expansion Premises in the parking garage at no charge to the Tenant in accordance with the terms set forth in section 34 of the Lease. The parking reassigned to KnowBe4 from the existing tenant are spaces 380, 382, 388, 390, 392, 657 and 659.
7.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant. is not relying upon same. Landlord is not liable for or bound in any manner by any promises. statements, representations or information pertaining to the Demised Premises made or furnished by any broker Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
8.Landlord and Tenant represent and warrant to each other that they have not dealt with any other real estate agent or broker in connection with this Amendment and that this Amendment was not brought about or procured through the use or instrumentality of any other agent or agents or broker and that all negotiations with respect to the terms of this agreement were conducted between Landlord and Tenant. Landlord and Tenant covenant and agree to indemnify and hold each other harmless from and against any and all claims for commissions and other compensation made by any agent or agents and/or broker or brokers based on any dealing between the respective party and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by the other in resisting such claims (including, without limitation, attorney's fees).
This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument duly executed by the party to be bound thereby. No representations. warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment except as are contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
9.TO THE MAXIMUM EXTENT PERMITTED BY LAW LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS LEASE.
11.
10.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in an respects ratified, confirmed and approved. Tenant hereby affirms that on the date, hereof, no breach or default by either party has occurred and that the Lease. and all of its terms, conditions covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
11.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
12.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval and no additional consent agreement or approval is required with respect hereto.
13.This Amendment may be executed in several counterparts. each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
14.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
15.Right of First Refusal: Provided that no event of Default by Tenant is continuing beyond any applicable notice or cure periods, Tenant shall have the Right of First Refusal on the remaining spaces on the 7th floor of the Building as such open up upon their current lease expirations. Landlord shall provide Tenant notice of a bona fide offer and Tenant shall have five (5) business days to respond. No response shall be a declination.
THIS AMENDMENT IS EXECUTED between the parties as of the day and year written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
TENANT: KnowBe4, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Alicia Dietzen
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Alicia Dietzen
|
|
Print Name:
|
Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Eloise L. Glenn
|
|
Title:
|
CEO
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Eloise Glenn
|
|
Dated:
|
5/17/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
LANDLORD: Clearwater Tower,
LLC of Florida
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Donna Andrus
|
|
By:
|
Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Donna Andrus
|
|
Print Name:
|
Managing Member
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Ty Davis
|
|
Title:
|
Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Ty Davis
|
|
Dated:
|
5/17/2017
|
FIFTH AMENDMENT TO LEASE AGREEMENT
THIS FOURTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered into as of 8/30/2017 between Clearwater Tower, LLC, a Florida limited liability company, and ("Landlord") and KnowBe4, Inc. (''Tenant").
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015; that certain First Amendment to Lease Agreement dated May 27,2015 (hereinafter the "Lease"), for Suite #1200 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building"); that certain Second Amendment to Lease Agreement, for Suite #1100 consisting of 15,526 rentable square feet (the "Expansion Premises") of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); that Third Amendment to Lease Agreement, for suite 700 of 11,853 rentable square feet of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); and, that Fourth Amendment to Lease Agreement, for suite 770 of 1,798 rentable square feet of the Building;
B.Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.On or about October 1, 2017 the Premises shall increase by 854 rentable square feet consisting of the suite #785 located on the Seventh (7th) floor ("the 7th Floor Additional Expansion Premises"). The total of the Premises shall be 45,557 rentable square feet.
Commencing on October 1, 2017 Tenant shall pay Landlord Monthly Base Rent as follows on the 7th Floor Additional Expansion Premises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October l, 2017 to May 31, 2018
|
16.99 psf
|
$1,209.12
|
|
June 1, 2018 to May 31, 2019
|
17.51 psf
|
$1,246.13
|
|
June 1, 2019 to May 31, 2020
|
18.03 psf
|
$1,283.14
|
|
June l, 2020 to May 31, 2021
|
18.57 psf
|
$1,321.57
|
|
June 1, 2021 to May 31, 2022
|
19.12 psf
|
$1,360.71
|
4A. The existing leases for other suites in the building remain the same. The above Base Rental Rate schedule starting October 1, 2017 (ion the amount set forth above) shall be paid
by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st) of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
4.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
5.Tenant shall have the right to the 4 reserved parking spaces for the 7th Floor Additional Expansion Premises in the parking garage at no charge to the Tenant in accordance with the terms set forth in section 34 of the Lease. The parking reassigned to KnowBe4 from the existing tenant are spaces 233, 246, 257 and 461.
6.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
7.Landlord and Tenant represent and warrant to each other that they have not dealt with any other real estate agent or broker in connection with this Amendment and that this Amendment was not brought about or procured through the use or instrumentality of any other agent or agents or broker and that all negotiations with respect to the terms of this agreement were conducted between Landlord and Tenant. Landlord and Tenant covenant and agree to indemnify and hold each other harmless from and against any and all claims for commissions and other compensation made by any agent or agents and/or broker or brokers based on any dealing between the respective party and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by the other in resisting such claims (including, without limitation, attorney's fees).
This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
8.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
9.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
10.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
11.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
12.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
13.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
14.Right of First Refusal: Provided that no event of Default by Tenant is continuing beyond any applicable notice or cure periods, Tenant shall have the Right of First Refusal on the remaining spaces on the 7th floor of the Building as such open up upon their current lease expirations. Landlord shall provide Tenant notice of a bona fide offer and Tenant shall have five (5) business days to respond. No response shall be a declination.
THIS AMENDMENT IS EXECUTED between the parties as of the day and year written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
TENANT: KnowBe4, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Tiffany Mortimer
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Tiffany Mortimer
|
Print Name:
|
Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Eloise Glenn
|
|
Title:
|
CEO
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Eloise L Glenn
|
|
Dated:
|
9/05/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of:
|
|
LANDLORD: Clearwater Tower,
LLC of Florida
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Linda K. Clark
|
|
By:
|
/s/ Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Linda K. Clark
|
|
Print Name:
|
Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
By:
|
Donna Andrus
|
|
Title:
|
Manager
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Donna Andrus
|
|
Dated:
|
8/30/2017
|
SIXTH AMENDMENT TO LEASE AGREEMENT
THIS SIXTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered into as of 11/02/2017 between Clearwater Tower. LLC, a Florida limited liability company, and ("Landlord") and KnowBe4, Inc. ("Tenant").
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015; that certain First Amendment to Lease Agreement dated May 27, 2015 (hereinafter the "Lease"), for Suite # 1200 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building"); that certain Second Amendment to Lease Agreement, for Suite#1100 consisting of 15,526 rentable square feet (the "Expansion Premises'') of that certain office building located in Clearwater. Florida known as Clearwater Tower (the "Building"); that Third Amendment to Lease Agreement. for suite 700 of 11,853 rentable square feet of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); that Fourth Amendment to Lease Agreement for suite 770 of 1,798 rentable square feet of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); and that Fifth Amendment of Lease Agreement for suite 785 of 854 rentable square feet of that certain office building located in Clearwater, Florida know as Clearwater Tower (the "Building").
B.Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby unless otherwise defined herein.
3.On or about December 1, 2017 the Premises shall increase by 1,071 rentable square feet consisting of the suite 760 located on the Seventh (7th) floor ("the Additional Expansion Premises"). The total of the Premises shall be 46,628 rentable square feet.
4.Commencing on December 1, 2017 Tenant shall pay Landlord Monthly Base Rent as follows on the Additional Expansion Premises:
|
|
|
|
|
|
|
|
|
|
|
Dec 1, 2017 to May 31, 2018
|
16.99 psf
|
$1,516.36
|
|
June 1, 2018 to May 31, 2019
|
17.51 psf
|
$1,562.77
|
|
June 1, 2019 to May 31, 2020
|
18.03 psf
|
$1,609.18
|
|
June 1, 2020 to May 31, 2021
|
18.57 psf
|
$1,657.37
|
|
June 1, 2021 to Nov 30, 2022
|
19.12 psf
|
$1,706.46
|
4A. Existing leases for all other KnowBe4 suites in the Building remain the same. excepting that all have their final lease period extended to match the above schedule of an expiration date of November 30, 2022.
Base Rent (in the amount set forth above) shall paid by Tenant to Landlord in equal monthly installments. in advance, without notice, set-off, reduction or counterclaim commencing on the Effective Date and on the FIRST (1st) day of each calendar month thereafter throughout the balance of the Tenant in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease:
5.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
6.Tenant shall have the right to use additional reserved parking spaces for the Additional Expansion Premises in the parking garage at no additional charge to the Tenant based what remains from this tenant which is spaces 291, 293 and 295 in accordance with the terms set forth in section 34 of the Lease.
7.Tenant accepts the Premises in its "As Is'' condition.
8.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made arid that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
9.Landlord and Tenant represent and warrant to each other that they have not dealt with any real estate agent. or broker in connection with this Amendment and that this Amendment was not brought about or procured through the use or instrumentality of any other agent or agents or broker and that all negotiations with respect to the terms of this agreement were conducted between Landlord and Tenant. Landlord and Tenant covenant and agree to indemnify and hold each other harmless from and against any and all claims for commissions and other compensation made by any agent or agents and/or broker or brokers based on any dealing between the respective party and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by the other in resisting such claims (including without limitation attorney's fees).
10.This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida. contains the entire agreement of the parties hereto with respect to the subject matter hereof: and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument duly executed by the party to be bound thereby. No representations, warranties; covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are
contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
11.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
12.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified confirmed and approved. Tenant hereby affirms that on the date hereof no breach or default by either party has occurred and that the Lease, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
13.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
14.Tenant hereby represents and warrant to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
15.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
16.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
17.Right of First Refusal: Provided that no event of Default by Tenant is continuing beyond any applicable notice or cure periods, upon lease expiration the Tenant shall have the Right of First Refusal for leasing the 7th floor of the Building. Landlord shall provide Tenant notice of a bona fide offer and Tenant shall have five (5) business days to respond. No response shall be a declination.
THIS AMENDMENT IS EXECUTED between the parties as of the day and year written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of witnesses:
|
|
TENANT: KnowBe4, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Eloise Glenn
|
|
By:
|
/s/ Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Eloise L. Glenn
|
Print Name:
|
Stu Sjouwerman
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Alicia Dietzen
|
|
Title:
|
CEO
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Alicia Dietzen
|
|
Dated:
|
11/02/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signed, sealed and delivered in the
Presence of witnesses:
|
|
LANDLORD: Clearwater Tower,
LLC of Florida
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Donna Andrus
|
|
By:
|
/s/ Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Donna Andrus
|
|
Print Name:
|
Brian Andrus
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Linda K. Clark
|
|
Title:
|
Manager
|
|
|
|
|
|
|
|
|
|
|
Print Name:
|
Linda Clark
|
|
Dated:
|
11/02/2017
|
SEVENTH AMENDMENT TO LEASE AGREEMENT
THIS SEVENTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered into as of December 4, 2018 between Clearwater Tower, LLC, a Florida limited liability company ("Landlord") and KnowBe4, Inc., a Delaware corporation.
WITNESSETH
A.Landlord and Tenant entered into that certain Lease Agreement dated May 4, 2015 consisting of 15,526 rentable square feet (the "Premises") of that certain office building located in Clearwater, Florida, known as Clearwater Tower (the "Building"); that certain First Amendment to Lease Agreement dated May 27, 2015 for Suite # 1200; that certain Second Amendment to Lease Agreement date March 10, 2016, for Suite #1100 consisting of 15,526 rentable square feet (the "Expansion Premises") of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); that Third Amendment to Lease Agreement dated January 9, 2016, for suite 700 of 11,853 rentable square feet of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"); that Fourth Amendment to Lease Agreement dated May 17, 2017 for suite 770 of 1,798 rentable square feet of that certain office building located in Clearwater, Florida known as Clearwater Tower (the "Building"): that Fifth Amendment of Lease Agreement dated August 30, 2017 for suite 785 of 854 rentable square feet of that certain office building located in Clearwater, Florida know as Clearwater Tower (the "Building"): and, that Sixth Amendment of Lease Agreement dated November 2, 2017 for Additional Expansion Premises of approximately 1,071 rentable square feet consisting of the suite 760 located on the Seventh (7th) floor, (hereinafter the "Lease Agreement"). The total Premises became 46,628 rentable square feet.
B.Landlord and Tenant desire to amend the Lease Agreement as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease Agreement, as amended hereby, unless otherwise defined herein.
3.Commencing on our before December 4, 2018, the Premises shall increase by the addition of two suites on the first floor - suites 130 of approximately 669 rentable square feet and the suites across the hall known as suites 160/170 of approximately 1,860 rentable square feet. This total of 2,529 rentable square feet is leased for a period of approximately 1 year and will commence on or before December 4, 2018. Upon execution of this Amendment, Tenant will be provided access to the space beforehand for purposes of preparatory work at no charge. Tenant shall pay Landlord a Monthly Base Rent for the spaces as follows:
Dec 4, 2018 to November 31, 2019 ..… 17.51 psf ..… $3,690.23
4.Existing lease for all other Tenant suites in the Building remain the same, in accordance with the original lease and the above noted Amendments.
5.The above Base Rent (in the amount set forth above) shall be paid by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st) day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease Agreement. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease Agreement.
6.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease Agreement, subject to change as provided in the Lease Agreement.
7.Tenant accepts the Premises in its "As Is" condition.
8.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to eh Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are contained herein and in the Lease Agreement. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
9.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRAIL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
10.Except as modified by this Amendment, the Lease Agreement and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease Agreement, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
11.Except as modified hereby, the Lease Agreement shall remain in full force and effect in accordance with the terms and provisions thereof.
12.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
13.This Amendment may be executed in several counterparts. each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
14.A floorplan outlining the spaces is attached hereto in Exhibit A and made a part of this Amendment.
15.Window coverings will be provided for suite 160/170 in the form of blinds, frosted glass covering (as exists in suite 130) or other appropriate covering agreed between the parties, in order to provide privacy and create lack of visuality of the interior office workings from the interior and exterior corridors.
16.Improvements. Exhibit B is hereby made a part of this Lease Agreement. and its provisions shall control in the event of a conflict with the provisions contained in this Lease Agreement. Notwithstanding anything herein to the contract. Tenant shall be permitted to construct the Leasehold Improvements (as defined in Exhibit B) in accordance with the terms and conditions in Exhibit B. Tenant has no obligation to return the Premises to its original state for the modifications made for the Leasehold Improvements.
17.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
THIS AMENDMENT IS EXECUTED as of the day and year written be low .
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Signed:
|
/s/ Stu Sjouwerman
|
|
Date:
|
Dec. 4, 2018
|
|
|
|
Stu Sjouwerman, CEO KnowBe4 Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/ Alicia Dietzen
|
|
Print Name:
|
Alicia Dietzen
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/ Tiffany Mortimer
|
|
Print Name:
|
Tiffany Mortimer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlord signed:
|
/s/ Brian Andrus
|
|
Date:
|
12/5/2018
|
|
|
|
Brian Andrus, Managing Member, CW Tower, LLC
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/ Donna Andrus
|
|
Print Name:
|
Donna Andrus
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/ Linda K. Clark
|
|
Print Name:
|
Linda Clark
|
EXHIBIT B
Leasehold Improvements - "Leasehold Improvements" shall mean all work specified in Exhibit B, which shall be necessary to complete the Premises to a finished condition from which business can be conducted, including, without limitation, all floor coverings in the Premises; any Tenant desired upgrades to the Premises; all interior partitions and wall coverings in the Premises; all door hardware other than that provided by Landlord; and additional service/fire exits doors if required by applicable codes (including code requirements and/or changes or additions to Landlord's Work triggered by Tenant's use, exiting requirements, or interior floor plan layout).
LEASEHOLD IMPROVEMENTS
Tenant shall be permitted to perform the following Leasehold Improvements to suite 130 in accordance with the terms and conditions in the Lease Agreement:
1.Replacement of the ceiling and lighting (with EPA regulated and efficient lighting system) in the Premises.
2.Replacement of all carpeting on the floors throughout the Premises.
3.Painting of walls in the Premises.
Exhibit A
|
|
|
|
|
|
|
|
DISCLAIMER: THIS FLOORPLAN IS PROVIDED WITHOUT WARRANTY OF ANY KIND. FLOOR PLAN NINJA DISCLAIMS AND WARRANTY INCLUDING, WITHOUT LIMITATION, SATISFACTORY OR ACCURACY OF DIMENSIONS WE RESERVE THE RIGHTS TO USE ALL FLOOR PLANS AND RENDERINGS FOR MARKETING PURPOSES.
|
|
EIGHTH AMENDMENT TO LEASE AGREEMENT
THIS EIGHTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered to be effective as of July 28, 2020 (the "Effective Date"), between CLEARWATER TOWER, LLC, a Florida limited liability company ("Landlord"), and KnowBe4, Inc., a Delaware corporation ("Tenant").
Background
A.Landlord and Tenant are parties to a Lease Agreement dated May 4th, 2015 (the "Original Lease"), as amended by a First Amendment to Lease Agreement dated May 27, 2015 (the "First Amendment"), a Second Amendment to Lease Agreement dated as of March 10, 2016 (the "Second Amendment"), a Third Amendment to Lease Agreement dated as of January 9, 2016(the "Third Amendment"), a Fourth Amendment to Lease Agreement dated as of May 17, 2017 (the "Fourth Amendment"), a Fifth Amendment to Lease Agreement dated as of August 30, 2017 (the "Fifth Amendment"), a Sixth Amendment to Lease Agreement dated as of November 2, 2017 (the "Sixth Amendment"), a Seventh Amendment to Lease Agreement dated as of December 4, 2018 (the "Seventh Amendment")- (collectively, the "Lease").
B.Pursuant to the Lease, Landlord currently leases to Tenant premises containing approximately 49,157 rentable square feet (the "Premises") in the office building known as Clearwater Tower and located at 33 N. Garden Avenue, Clearwater, Florida 33755, which Premises consist of the following: (I) Suite 1200 containing approximately 15,526 rentable square feet; (2) Suite 1100 containing approximately 15,526 rentable square feet; (3) Suite 700 containing approximately 15,576 rentable square feet; (4) Suite 130 containing approximately 669 square feet; and (5) Suite 160/170 containing approximately 1,860 rentable square feet.
C.Landlord and Tenant desire to amend the Lease as hereinafter set forth. This replaces and supersedes the earlier Eighth Amendment to Lease Agreement that was executed in July, 2019.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized
terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.Commencing on or before August 4, 2020, the Premises shall increase by the addition of the tenth (10th) floor in its entirety (Suite 1000) of approximately 15,848 rentable square feet (floor plan attached as Exhibit A). This additional square feet along with the above already leased square feet will be leased for the period noted below and will commence on or before August 4, 2020. Upon execution of this Amendment, Tenant will be provided access to the space beforehand for purposes of preparatory work at no charge, upon reasonable coordination with the existing tenant, Stratus Video. Stratus Video is to be fully vacated no later than August 3, 2020. Tenant shall pay Landlord a Monthly Base Rent for this space as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aug 4, 2020 to Aug 31, 2020
|
|
18.57 psf
|
|
$21,360.29
|
|
Sept 1, 2020 to May 31, 2021
|
|
18.57 psf
|
|
$24,524.78
|
|
June 1, 2021 to May 31, 2022
|
|
19.12 psf
|
|
$25,251.15
|
|
June 1, 2022 to May 31, 2023
|
|
19.69 psf
|
|
26.003.93
|
|
June 1, 2023 to May 31, 2024
|
|
20.28 psf
|
|
$26,783.12
|
|
June 1, 2024 to May 31, 2025
|
|
20.88 psf
|
|
$27,586.61
|
4.Existing leases for all other KnowBe4 suites in the Building shall remain the same, in accordance with their stated rates, but all are now are extended to May 31, 2025 to parallel the above time periods and shall continue the same 3% annual increase in rates as noted in the above
5.The above Base Rent (in the amount set forth above) shall be paid by Tenant to Landlord in
equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
6.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
7.Tenant shall be permitted to perform the Leasehold Improvements as detailed in Exhibit 8.
8.Tenant accepts the Premises in its "As Is" condition.
9.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including. without limitation. warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
10.TO THE MAXIMUM EXTENT PERMITTED BYLAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
11.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
12.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
13.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
14.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
15.A floorplan out lining the spaces is attached hereto and made a part of this Amendment.
16.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED TN A BUILDING IN SUFFICIENT QUANTITIES , MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING
MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UN IT.
17.PARKING. In addition to the One Hundred and Fifty-Seven ( 157) parking spots currently provided to the Tenant by the Landlord under the Lease, Tenant shall have the right to use Fifty-Six (56) additional parking spaces in the parking garage connected to the Building at no additional charge to Tenant for a total of Two-Hundred and Thirteen (213) parking spots. Tenant's right to use the parking spots shall run for the term of the Lease.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Signed:
|
|
/s/ Stu Sjouwerman
|
|
Date:
|
|
|
|
|
|
|
Stu Sjouwerman, CEO KnowBe4, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/
|
Jessica Shelton
|
|
Print Name:
|
|
Jessica Shelton
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/
|
Tiffany Mortimer
|
|
Print Name:
|
|
Tiffany Mortimer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlord signed:
|
/s/ Brian Andrus
|
|
Date:
|
7/29/2020
|
|
|
|
|
|
Brian Andrus, Managing Member, CW Tower, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
|
|
Print name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
|
|
Print name:
|
|
|
EXHIBIT A
FLOOR PLANS OF PREMISES
EXHIBIT B
LEASEHOLD IMPROVEMENTS
Tenant shall be permitted to perform the following Leasehold Improvements in accordance with the terms and conditions in the Lease:
1.Removal of all interior walls in the Premises.
2.Replacement of the entire ceiling and lighting (with EPA regulated and efficient lighting system) in the Premises.
3.Replacement of all mechanical VAV units on the heating, ventilation, and air- conditioning units throughout the Premises.
4.Construction of glass conference rooms in the Premises.
5.Replacement of all carpeting on the floors throughout the Premises.
6.Replacement of carpeting and painting of walls in the elevator lobby on the I 0th floor of the Building.
7.Remodeling of the bathrooms in the Premises.
8.Construction of a kitchen in the Premises.
NINTH AMENDMENT TO LEASE AGREEMENT
THIS NINTH AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and entered to be effective as of November 6, 2020 (the "Effective Date"), between CLEARWATER TOWER, LLC, a Florida limited liability company ("Landlord"), and KnowBe4, Inc., a Delaware corporation (“Tenant”).
Background
A.Landlord and Tenant are parties to a Lease Agreement dated May 4th, 2015 (the "Original Lease"), as amended by a First Amendment to Lease Agreement dated May 27, 2015 (the "First Amendment"), a Second Amendment to Lease Agreement dated as of March 10, 2016 (the "Second Amendment"), a Third Amendment to Lease Agreement dated as of January 9, 2016(the "Third Amendment"), a Fourth Amendment to Lease Agreement dated as of May 17, 2017 (the "Fourth Amendment"), a Fifth Amendment to Lease Agreement dated as of August 30, 2017 (the "Fifth Amendment"), a Sixth Amendment to Lease Agreement dated as of November 2, 2017 (the "Sixth Amendment"), a Seventh Amendment to Lease Agreement dated as of December 4, 2018 (the "Seventh Amendment"), an Eighth Amendment to Lease Agreement dated as of July 28, 2020 (the “Eighth Amendment”) - (collectively, the "Lease").
B.Pursuant to the Lease, Landlord currently leases to Tenant premises containing approximately 65,005 rentable square feet (the "Premises") in the office building known as Clearwater Tower and located at 33 N. Garden Avenue, Clearwater, Florida 33755, which Premises consist of the following: (1) Suite 1200 containing approximately 15,526 rentable square feet; (2) Suite 1100 containing approximately 15,526 rentable square feet; (3) Suite 700 containing approximately 15,576 rentable square feet; (4) Suite 130 containing approximately 669 square feet; (5) Suite 160/170 containing approximately 1,860 rentable square feet; and (6) Suite 1000 containing approximately 15,848 rentable square feet.
C.Landlord and Tenant desire to amend the Lease as hereinafter set forth. This replaces and supersedes the earlier Eighth Amendment to Lease Agreement that was executed in July, 2020.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1.The foregoing recitations are true and correct and are incorporated herein by this reference.
2.In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. All capitalized terms used in this Amendment shall have the meanings given to them in the Lease, as amended hereby, unless otherwise defined herein.
3.Commencing on or before January 1, 2021, the Premises shall increase by the addition of the Suite 100, part of Suite 105 and Suite 110 of approximately 3,140 rentable square feet (floor plan attached as Exhibit A). These additional square feet along with the above already leased square feet will be leased for the period noted below and will commence on or before January 1, 2021. Upon execution of this Amendment, Tenant will be provided access to the space beforehand for purposes of preparatory work at no charge, upon reasonable coordination with the building management and building engineer. The existing tenant, Affinitiv, is to be fully vacated no later than November 30, 2020. Tenant shall pay Landlord a Monthly Base Rent for this space as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan 1, 2021 to Mar 31, 2021
|
|
0.00 psf
|
|
$0.00
|
|
Apr 1, 2021 to May 31, 2021
|
|
22.00 psf
|
|
$5,756.67
|
|
June 1, 2021 to May 31, 2022
|
|
22.66 psf
|
|
$5,929.37
|
|
June 1, 2022 to May 31, 2023
|
|
23.33 psf
|
|
$6,104.68
|
|
June 1, 2023 to May 31, 2024
|
|
24.04 psf
|
|
$6,290.47
|
|
June 1, 2024 to May 31, 2025
|
|
24.76 psf
|
|
$6,478.87
|
|
June 1, 2025 to May 31, 2026
|
|
25.50 psf
|
|
$6,672.50
|
4.Existing leases for all other KnowBe4 suites in the Building shall remain the same, in accordance with their stated rates, but all are now are extended to May 31, 2026 to parallel the above time periods and shall continue the same 3% annual increase in rates as noted in the above.
5.The above Base Rent (in the amount set forth above) shall be paid by Tenant to Landlord in equal monthly installments, in advance, without notice, set-off, reduction or counterclaim, commencing on the Effective Date and on the FIRST (1st) day of each calendar month thereafter throughout the balance of the Term in the manner otherwise provided in the Lease. Tenant shall also pay to Landlord all applicable sales taxes or other taxes in connection with Base Rent due under the Lease.
6.Tenant shall continue to pay as Additional Rent, all other Rents and Charges due under the Lease, subject to change as provided in the Lease.
7.Tenant shall be permitted to perform the Leasehold Improvements as detailed in Exhibit B.
8.Landlord shall perform the Leasehold Improvements as detailed in Exhibit C.
9.Tenant accepts the Premises in its "As Is" condition.
10.Landlord has not made and does not make any representations or warranties, expressed or implied, with respect to the Demised Premises (including, without limitation, warranties of habitability, merchantability and/or fitness for a particular purpose), which might be deemed pertinent by Tenant in determining to Lease the Demised Premises or to enter into this Amendment. Tenant does hereby expressly acknowledge that no such representations or warranties have been made and that Tenant is not relying upon same. Landlord is not liable for or bound in any manner by any promises, statements, representations or information pertaining to the Demised Premises made or furnished by any broker, Real Estate agent, employer, servant or any other person representing or purporting to represent Landlord.
This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or by any other means except by a written instrument, duly executed by the party to be bound thereby. No representations, warranties, covenants or agreements have been made concerning or affecting the subject matter of this Amendment, except as are contained herein and in the Lease. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
11.TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR IN CONNECTION WITH THIS LEASE.
12.Except as modified by this Amendment, the Lease and all the terms, covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and approved. Tenant hereby affirms that on the date hereof, no breach or default by either party has occurred and that the Lease, and all of its terms, conditions, covenants, agreements and provisions, except as hereby modified, are in full force and effect with no defenses or offsets thereto.
13.Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof.
14.Tenant hereby represents and warrants to Landlord that this Amendment (and each term and provision hereof), has been duly and appropriately authorized by Tenant through proper written corporate action and approval, and no additional consent, agreement or approval is required with respect hereto.
15.This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.
16.A floorplan outlining the spaces is attached hereto and made a part of this Amendment.
17.RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
18.PARKING. In addition to the One Hundred and Fifty-Seven (157) parking spots currently provided to the Tenant by the Landlord under the Lease, Tenant shall have the right to use Fifty-Six (56) additional parking spaces in the parking garage connected to the Building at no additional charge to Tenant for a total of Two-Hundred and Thirteen (213) parking spots. Tenant’s right to use the parking spots shall run for the term of the Lease.
THIS AMENDMENT IS EXECUTED as of the day and year written below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Signed:
|
/s/ Stu Sjouwerman
|
|
Date:
|
11/06/2020
|
|
|
|
|
Stu Sjouwerman, CEO KnowBe4, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/
|
Tiffany Mortimer
|
|
Print Name:
|
|
Tiffany Mortimer
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
/s/
|
Jessica Shelton
|
|
Print Name:
|
|
Jessica Shelton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlord signed: /s/ Brian Andrus
|
|
Date:
|
|
|
|
|
|
Brian Andrus, Managing Member, CW Tower, LLC
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
|
|
Print name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Witness:
|
|
|
Print name:
|
|
|
Exhibit A
EXHIBIT B
LEASEHOLD IMPROVEMENTS
Tenant shall be permitted to perform the following Leasehold Improvements in accordance with the terms and conditions in the Lease:
1.Removal of all interior walls in the Premises.
2.Replacement of the entire ceiling and lighting (with EPA regulated and efficient lighting system) in the Premises.
3.Replacement of all mechanical VAV units on the heating, ventilation, and air-conditioning units throughout the Premises.
4.Construction of glass conference rooms in the Premises.
5.Replacement of all carpeting on the floors throughout the Premises.
6.Replacement of carpeting and painting of walls in the elevator lobby on the 10th floor of the Building.
7.Remodeling of the bathrooms in the Premises.
8.Construction of a kitchen in the Premises.
9.
Exhibit C
LEASEHOLD IMPROVEMENTS
Landlord shall perform the following Leasehold Improvements in accordance with the terms and conditions in the Lease:
1.Landlord shall re-constrcut the wall that was taken down previously in order to seal off Suite 105.
Subsidiaries of registrant
|
|
|
|
|
|
|
|
Name of Subsidiary
|
Jurisdiction of Incorporation
|
|
The Security Awareness Company, LLC
|
Delaware
|
|
MediaPro Holdings, LLC
|
Delaware
|
|
KnowBe4 UK Ltd.
|
United Kingdom
|
|
Twist & Shout Media Limited
|
United Kingdom
|
|
Twist & Shout Communications Limited
|
United Kingdom
|
|
KnowBe4 NL, B.V.
|
Netherlands
|
|
KnowBe4 International B.V.
|
Netherlands
|
|
KnowBe4 Pte. Ltd.
|
Singapore
|
|
KnowBe4 Germany GmbH
|
Germany
|
|
KnowBe4 Africa (Pty) Ltd
|
South Africa
|
|
KnowBe4 Middle East, FZ-LLC
|
United Arab Emirates
|
|
El Pescador Softwares Ltda. d/b/a KnowBe4 Brazil
|
Brazil
|
|
Verified Secure (LLC)
|
Nevada
|
|
KnowBe4 AU Pty. Ltd.
|
Australia
|
|
KnowBe4 Research AS
|
Norway
|
|
KnowBe4 Japan GK
|
Japan
|
Consent of Independent Registered Public Accounting Firm
The Board of Directors
KnowBe4, Inc.:
We consent to the use of our report included herein and to the reference to our firm under the heading 'Experts' in the prospectus. Our report refers to a change to the Company’s method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).
(Signed) KPMG LLP
Tampa, Florida
March 19, 2021
