Bill Le Clair v. KnowBe4, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE BILL LE CLAIR and JOSEPH ) POSPISIL, on behalf of themselves ) and all other similarly situated former ) stockholders of KNOWBE4, INC., ) ) Plaintiffs, ) ) v. ) C.A. No. 2024-1143-KSJM ) KNOWBE4, INC., SJOERD ) SJOUWERMAN, JEREMIAH DALY, ) STEPHEN SHANLEY, KEVIN ) KLAUSMEYER, SHRIKRISHNA ) VENKATARAMAN, GERHARD ) WATZINGER, KARA WILSON, KKR ) & CO. INC., KKR KNOWLEDGE ) INVESTORS L.P., ELEPHANT ) PARTNERS, ELEPHANT PARTNERS ) I, L.P., ELEPHANT PARTNERS II, ) L.P., ELEPHANT PARTNERS 2019 ) SPV-A, L.P., and ELEPHANT ) PARTNERS II-B, L.P., ) ) Defendants. ) MEMORANDUM OPINION Date Submitted: January 12, 2026 Date Decided: May 27, 2026 Ned Weinberger, Michael C. Wagner, Ryan C. Stieve, LABATON KELLER SUCHAROW LLP, Wilmington, DE; John Vielandi, LABATON KELLER SUCHAROW LLP, New York, NY; Jeremy Friedman, David Tejtel, Christopher M. Windover, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, NY; Douglas E. Julie, W. Scott Holleman, JULIE & HOLLEMAN LLP, New York, NY; D. Seamus Kaskela, Adrienne Bell, KASKELA LAW LLC, Newtown Square, PA; Counsel for Plaintiffs Bill Le Clair and Joseph Pospisil. Elena C. Norman, Skyler A. C. Speed, YOUNG CONAWAY STARGATT & TAYLOR, Wilmington, DE; Andrew J. Rossman, Courtney C. Whang, Charles H. Sangree, Julia I. Nusgart, QUINN EMANUEL URQUHART & SULLIVAN LLP, New York, NY; Counsel for Defendants KnowBe4, Inc. and Sjoerd Sjouwerman. Blake Rohrbacher, Benjamin O. Allen, RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE; Brian M. Lutz, Jeff Lombard, GIBSON, DUNN & CRUTCHER LLP, San Francisco, CA; Colin B. Davis, GIBSON, DUNN & CRUTCHER LLP, Irvine, CA; Counsel for Defendants KKR & Co. Inc., KKR Knowledge Investors L.P., Stephen Shanley, and Kara Wilson. David E. Ross, Kevin A. Rudolph, ROSS ARONSTAM & MORITZ LLP, Wilmington, DE; Colleen Smith, Anastasia Pyrinis, LATHAM & WATKINS LLP, San Diego, CA; Stephen T. Nasko, LATHAM & WATKINS LLP, Washington, D.C.; Counsel for Defendants Jeremiah Daly, Elephant Partners, Elephant Partners I, L.P., Elephant Partners II, L.P., Elephant Partners 2019 SPV-A, L.P., and Elephant Partners II-B, L.P. T. Brad Davey, J. Matthew Belger, Eric J. Nascone, Nina N. Monzack, POTTER ANDERSON & CORROON LLP, Wilmington, DE; Counsel for Defendants Kevin Klausmeyer, Shrikrishna Venkataraman, and Gerhard Watzinger. McCORMICK, C.  A private equity firm agreed to acquire KnowBe4, Inc., conditioned on two institutional investors and the CEO rolling over their equity. The merger closed. After, the plaintiffs sued on behalf of a class of stockholders. They claim that the rollover stockholders and CEO formed a control group in connection with the merger and breached their fiduciary duties to the class. They also assert claims for breach of fiduciary duties against the KnowBe4 directors. The defendants moved to dismiss the complaint, and this decision grants their motions. As to the claims against the alleged control group, the plaintiffs failed to adequately allege that the rollover stockholders formed a control group with respect to the merger. As to the director defendants, this decision assumes that the entire fairness standard applies because a majority of the board rolled over shares or lacked independence from investors who did. But where entire fairness applies due to board conflicts, either a fully empowered, independent special committee or a fully informed, uncoerced stockholder vote can cleanse the transaction. The defendants rely foremost on the stockholder vote. The plaintiffs fail to identify any disclosure deficiencies that would render the vote coerced or uninformed. The business judgment standard thus applies, and the plaintiffs fail to state a claim under that standard. I. FACTUAL BACKGROUND The facts are drawn from the Verified Amended Class Action Complaint (the “Amended Complaint”) and the documents it incorporates by reference.1 By 1 C.A. No. 2024-1143-KSJM, Docket (“Dkt.”) 35 (“Am. Compl.”). stipulation, the documents incorporated by reference include KnowBe4’s production made under 8 Del. C. § 220, “to the extent permitted by Delaware law.”2 A. Elephant And KKR Invest In KnowBe4. KnowBe4 (or the “Company”) is a Delaware corporation headquartered in Clearwater, Florida. KnowBe4 helps organizations manage cybersecurity risks through security awareness trainings. Sjoerd Sjouwerman founded KnowBe4 in 2010, served as CEO, and held 4.2% of KnowBe4’s voting power on December 7, 2022 (the “Record Date”), the date that stockholders voted for the challenged merger. Shortly after founding KnowBe4, Sjouwerman recruited non-party Kevin Mitnick as the Company’s Chief Hacking Officer. Mitnick was a KnowBe4 director from January 2016 to March 2021. After Mitnick joined KnowBe4, the Company’s product portfolio—including the “Kevin Mitnick Home Internet Security Course,” the “Kevin Mitnick VST Scenario,” and its flagship offering, the “Kevin Mitnick Security Awareness Training”—gained significant market traction. 2 Dkt. 49, Ex. 2 ¶ 16, Ex. 3 ¶ 16. As to the Section 220 production, “[a]lthough the parties agree the [documents] are incorporated by reference into the Amended Complaint, this agreement does not enable the court to weigh evidence” at the pleading stage. Wei v. Levinson, 2025 WL 1565356, at *8 n.50 (Del. Ch. June 3, 2025). “When a document leads to competing factual conclusions or interpretations, the court draws inferences in Plaintiffs’ favor.” Id. “The doctrine of incorporation by reference does not enable a court to weigh evidence on a motion to dismiss, nor does it mean that the defendants receive inferences in their favor that run contrary to the allegations of the complaint.” In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *14 (Del. Ch. June 11, 2020). “If there are factual conflicts in the documents or the circumstances support competing interpretations, and if the plaintiff has made a well-pled factual allegation, then the allegation will be credited.” Id. “[I]f a document supports more than one possible inference, and if the inference that the plaintiff seeks is reasonable, then the plaintiff receives the inference.” Id. 2  KnowBe4’s performance attracted investments from KKR Knowledge Investors L.P., an affiliate of KKR & Co. Inc. (together, “KKR”) and from funds affiliated with Elephant Partners, including Elephant Partners I, L.P., Elephant Partners II, L.P., Elephant Partners 2019 SPV-A, L.P., and Elephant Partners II-B, L.P. (collectively, “Elephant”). From 2016 through 2020, KKR and Elephant separately invested millions of dollars into KnowBe4 through several financing rounds. Elephant first invested $8 million in January 2016 in exchange for Series A-1 preferred stock and a board seat. In February and March 2017, Elephant acquired $5.5 million more of KnowBe4’s Series A-1 preferred stock. Less than a year later, Elephant acquired $2.5 million of Series B preferred stock. Three years after Elephant’s initial investment, in March 2019, KKR made its first investment, purchasing approximately $31.6 million of KnowBe4’s Series C preferred stock. KnowBe4 signed an investors’ rights agreement as part of the Series C round. Three months later, KKR and Elephant invested $309.4 million into KnowBe4.3 After this investment, KnowBe4 entered into an amended investors’ rights agreement that gave Elephant and KKR registration rights, information and inspection rights, board observer rights, rights to participate in future stock issuances, and shared consent rights over various corporate acts, including the hiring, 3 Am. Compl. ¶ 60. 3 termination, and compensation of KnowBe4’s executive officers, strategic alternatives, and financing activities.4 KKR and Elephant also signed a right of first refusal agreement with KnowBe4.5 The agreement gave them each the option to purchase any shares KnowBe4 repurchased from an existing stockholder and the right to participate in any sale of KnowBe4 shares by an existing stockholder to a third party.6 Under this agreement, KKR and Elephant each purchased common stock in December 2020. B. Vista Acquires Preferred Shares In KnowBe4. KnowBe4’s performance also attracted private equity firm Vista Equity Partners Management LLC.7 In 2020, Vista and KnowBe4 held preliminary discussions about investment options, including a potential acquisition of KnowBe4. Vista and KnowBe4 executed a three-year NDA in March 2020. In July 2020, the Company retained Morgan Stanley as its financial advisor for any proposed change- of-control sale to Vista. Vista then abandoned its pursuit of KnowBe4. On March 5, 2021, Vista purchased preferred shares from KKR, Elephant, and another institutional investor for $300 million. This transaction gave Vista 12.4% of KnowBe4’s Class A shares, representing 2.8% of KnowBe4’s voting power. 4 Dkt. 49, Ex. 28 (KnowBe4, Inc. Amended and Restated Investors’ Rights Agreement) §§ 2, 3.1–3.3, 4.1, 5.4. 5 Am. Compl. ¶ 62. 6 Id. 7 This decision refers to Vista Equity Partners Management LLC and its relevant affiliates as “Vista.” 4  KKR and Elephant retained sizeable stakes in KnowBe4. KKR owned 9.1% of KnowBe4’s Class A shares and 31.6% of KnowBe4’s Class B shares as of the Record Date, representing 26.4% of KnowBe4’s voting power. Elephant owned 12.9% of KnowBe4’s Class A shares and 44.9% of KnowBe4’s Class B shares as of the Record Date, representing 37.5% of KnowBe4’s voting power. After Vista’s investment, KnowBe4 completed an IPO. The Company adopted a dual-class structure with the newly issued Class A stock, with one vote per share. All pre-IPO stock converted into Class B stock, with 10 votes per share. C. Vista Expresses Interest In A Potential Transaction. At all relevant times, seven individuals comprised KnowBe4’s Board of Directors (the “Board”): Sjouwerman, Elephant’s Board designee Jeremiah Daly, KKR’s Board designee Stephen Shanley, KKR senior advisor Kara Wilson, KnowBe4’s former CFO Shrikrishna Venkataraman, and outside directors Kevin Klausmeyer and Gerhard Watzinger. Between May 20 and June 8, 2022, Vista met separately with Shanley, Daly, and Sjouwerman. During these meetings, Vista queried whether KKR and Elephant would have any “interest in a potential sale” of KnowBe4.8 On May 20, 2022, Shanley met with Vista to discuss the Company’s business and a potential sale. They had a follow-up meeting on June 1. A week later, Vista approached Daly to also discuss the Company’s business and a potential sale. On June 16, Vista met again with Daly, Shanley, and Sjouwerman “to discuss the 8 Am. Compl. ¶¶ 95, 97–98; Dkt. 49, Ex. 1 (“Proxy Statement”) at 28. 5 Company’s business and a potential sale transaction.”9 Vista then held a follow-up meeting with Daly and Sjouwerman on June 22, to “further discuss ‘Vista’s existing investment in the Company[.]’”10 During this meeting, Vista indicated “that if KnowBe4 were ever to be interested in a transaction, Vista would want to be included.”11 Following the latter meeting, Daly contacted KnowBe4’s outside counsel, Wilson Sonsini Goodrich & Rosati, “to inform them as to the conversations with Vista up to that point.”12 D. The Board Forms A Special Committee. On June 28, 2022, the Board met to discuss the recent conversations with Vista. According to the meeting minutes, the Board confirmed that “the participants in those meetings did not engage in any discussions regarding any economic or other terms of a potential transaction.”13 Plaintiffs do not allege anything to the contrary. During the meeting, Wilson Sonsini advised the Board regarding potential conflicts of interest.14 Daly and Shanley each stated that Elephant and KKR might “not sell some or all of their” holdings “depending upon the terms and counterparty 9 Am. Compl. ¶ 99. 10 Id. ¶ 100. 11 Id. 12 Proxy Statement at 29. 13Id.; Dkt. 49, Ex. 6 (“6/28/22 Board Minutes”) at KB4-000469. The Amended Complaint references the 6/28/22 Board Minutes. See Am. Compl. ¶¶ 102–05. 14 Proxy Statement at 29; 6/28/22 Board Minutes at KB4-000469–70. 6 to a potential transaction[.]”15 Sjouwerman disclosed that he and members of management “might also not sell all of their equity interests in a potential transaction.”16 The Board then discussed forming a special committee and requested Wilson Sonsini provide a recommendation regarding committee membership. The Board formed a Special Committee on July 5 comprising Watzinger, Klausmeyer, and Venkataraman (the “Special Committee”).17 The Board did not establish the scope of the Special Committee’s authority on July 5. The Special Committee met immediately after the July 5 Board meeting. They contacted Potter Anderson & Corroon LLP and Morgan Stanley to potentially serve as the Committee’s legal and financial advisors, respectively. On July 7, the Special Committee retained Potter Anderson as its legal advisor and Morgan Stanley as its financial advisor, subject to receipt of a relationships disclosure memorandum and execution of an engagement letter. 15 Am. Compl. ¶ 103; 6/28/22 Board Minutes at KB4-000470. 16 6/28/22 Board Minutes at KB4-000470; see also Am. Compl. ¶ 103. 17 The Board met to discuss Wilson Sonsini’s recommendation on July 5. During the meeting, “the Board did not actually make any determinations regarding any directors’ disinterestedness and independence[.]” Am. Compl. ¶ 107. According to the Proxy Statement, after the meeting, the Board determined that Watzinger, Klausmeyer, and Venkataraman were independent and disinterested and appointed them to a special committee. Proxy Statement at 29. The Proxy Statement does not state how the Board determined to form the Special Committee after the Board meeting. The language suggests that the Board made this decision informally. Presumably for that reason, the Board ratified its decision to form the Special Committee through a unanimous written consent on July 11, 2022. 7  E. The Board Implements MFW Protections. On July 11, 2022, the Board executed a Unanimous Written Consent, formally establishing the Special Committee and the scope of its authority.18 The Unanimous Written Consent authorized the Special Committee to “consider and evaluate the advisability of” both a “Strategic Transaction” and a “Specified Strategic Transaction” (such as the challenged merger “or any alternative thereto and any related transaction”).19 It authorized the Special Committee to “recommend, reject or approve” any transaction.20 It also provided that Board approval of any Specified Strategic Transaction would depend on the prior approval of (i) the Special Committee and (ii) a majority-of-the-minority vote of KnowBe4’s disinterested stockholders.21 The Special Committee met again on July 13. Potter Anderson conducted an additional independence review. The Special Committee reaffirmed “that each of the [Special] Committee members was independent and disinterested for purposes of evaluating a Potential Transaction.”22 At the same meeting, the Special Committee 18 Am. Compl. ¶¶ 124–25. 19 Dkt. 49, Ex. 8 (Unanimous Written Consent of the Board of KnowBe4) at KB4- 000471–73; see also Am. Compl. ¶¶ 125–27, 314 (referencing the Unanimous Written Consent). 20 Unanimous Written Consent of the Board of KnowBe4 at KB4-000473. 21 The Unanimous Written Consent also authorized the committee to retain its own advisors, which it had already done. 22 Dkt. 49, Ex. 9 (“7/13/22 Special Committee Minutes”) at KB4-000870; see also Am. Compl. ¶¶ 128–33 (referencing the 7/13/22 Special Committee Minutes). 8 reviewed Morgan Stanley’s relationships disclosure memorandum (the “July 12 Memo”). During a July 14 meeting, Morgan Stanley advised the Special Committee to gather further information on whether Vista planned to ask stockholders to roll over their shares. The committee then authorized Morgan Stanley to inform Vista that any transaction involving a rollover by significant stockholders would need to be conditioned on Kahn v. M & F Worldwide Corp. (“MFW”)23 protections. Later that day, Morgan Stanley met with Vista. Vista conveyed that it “would be open to exploratory conversations regarding a potential acquisition,” but Vista “would not expect to condition any . . . transaction on any stockholder rolling a specific amount of equity.”24 Morgan Stanley and Vista did not discuss any specific terms or valuation with respect to a potential transaction. During a July 18, 2022 meeting, Morgan Stanley informed the Special Committee that Vista was open to a potential rollover but that Vista’s proposal would not depend on anyone rolling their equity.25 Potter Anderson noted that KKR expressed a willingness to roll over with Vista or other sponsors.26 The Special Committee authorized Morgan Stanley to reach out to KKR to determine “whether 23 88 A.3d 635 (Del. 2014). 24 Proxy Statement at 31. 25 Dkt. 49, Ex. 11 (“7/18/22 Special Committee Minutes”) at KB4-000881_R; see also Am. Compl. ¶¶ 153–56 (referencing the 7/18/22 Special Committee Minutes). 26 Am. Compl. ¶¶ 149–51, 154; 7/18/22 Special Committee Minutes at KB4-000881_R, KB4-000882_R. 9 there were any set of circumstances where KKR envisioned itself as a potential buyer.”27 Morgan Stanley met with Shanley on July 21. Shanley confirmed that KKR would not pursue an acquisition of KnowBe4 but was open to rolling over equity in a potential transaction.28 F. The Special Committee Launches Outreach And Diligence. Also during the July 18 meeting, Morgan Stanley advised the Special Committee of the four potential financial sponsors most likely to complete an acquisition of KnowBe4.29 The Special Committee then authorized Morgan Stanley to contact those financial sponsors. As of July 24, only one party “had expressed an interest in signing a non-disclosure agreement with the Company to further discuss a Potential Transaction.”30 On July 26, Vista provided initial diligence requests and sent a diligence plan to Morgan Stanley. The same day, another potential bidder exited the process. The Special Committee continued to oversee the sale process while limiting the involvement of KKR and Elephant. On July 28, the Special Committee authorized Potter Anderson to provide updates to KKR’s and Elephant’s outside counsel, but the committee determined that neither KKR nor its designee would participate in the sale process. The committee also directed Morgan Stanley to expand its outreach. 27 Am. Compl. ¶¶ 157, 159; Proxy Statement at 32. 28 Am. Compl. ¶ 160; see also Proxy Statement at 33. 29 Proxy Statement at 32; 7/18/22 Special Committee Minutes at KB4-000883_R. 30 Dkt. 49, Ex. 12 (“7/24/22 Special Committee Minutes”) at KB4-000886_R; see also Am. Compl. ¶ 161 (referencing the 7/24/22 Special Committee Minutes). 10  In early August, the Special Committee advanced the diligence process. It amended Vista’s non-disclosure agreement to facilitate diligence but declined to accelerate pricing discussions. By mid-August, Vista was engaged in diligence. When the Special Committee met on August 17, it considered whether to slow Vista’s progress, allowing other bidders to catch up. Morgan Stanley advised against doing so because bidders could always fast-track their diligence if they learned of an impending merger and had sufficient interest. The committee permitted each bidder to proceed at its own pace. By late August, Vista had advanced significantly in diligence, while other bidders lagged. Morgan Stanley noted that Sjouwerman had recently been contacted by “a pension fund with a history of investing in large private equity sponsor companies,” but that it was unclear whether the pension fund would be a potential bidder for KnowBe4.31 The Special Committee decided not to pursue the pension fund.32 G. KnowBe4 And Vista Agree On Price, Which Vista Conditions On A Rollover. On August 19, after reviewing preliminary financial analyses, the Special Committee stated that a price in the “mid-to-high $20s” would be necessary for a transaction to proceed.33 Morgan Stanley relayed this guidance to Vista. 31 Am. Compl. ¶ 210. 32 See Dkt. 49, Ex. 15 (“8/26/22 Special Committee Minutes”) at KB4-000999_R; see also Am. Compl. ¶¶ 204–12 (referencing the 8/26/22 Special Committee Minutes and the presentation it covered). 33 Am. Compl. ¶¶ 195, 198. 11  Through early September, the Special Committee repeatedly declined to adjust the timeline to assist competing bidders. As Vista progressed toward a proposal, the Special Committee authorized discussions regarding potential equity rollovers with Sjouwerman, KKR, and Elephant (the “Rollover Stockholders”). Sjouwerman indicated that he would roll over roughly half his holdings; Shanley suggested that KKR would sell and reinvest at least $200 million; and Daly stated that Elephant would only sell $20 million of its holdings. On September 15, Morgan Stanley reviewed the potential rollovers and potential responses to a Vista bid with the Special Committee. Morgan Stanley also advised that it had contacted the most likely bidders for a potential transaction. On September 16, Vista conveyed to Morgan Stanley its intent to submit a proposal to acquire KnowBe4 (the “Merger”) for $24 per share. Vista stated that it would expect the transaction to be expressly conditioned on the MFW framework. Vista subsequently submitted a written proposal at $24 per share. The next day, Vista provided Morgan Stanley with a list of debt and equity financing sources and requested the Special Committee’s approval to contact Elephant, KKR, and Sjouwerman regarding a rollover. The Special Committee met to discuss Vista’s proposal the next day. The Special Committee countered at $26.50 per share. The Special Committee also discussed the impact that Mitnick might have on the majority-of-the-minority vote and determined that Sjouwerman and Watzinger should meet with Mitnick. 12  After a September 18 meeting, the Special Committee authorized Vista, with Morgan Stanley’s oversight, to communicate with each of KKR and Elephant regarding a potential equity rollover. The Special Committee did not authorize the parties to discuss pricing for Vista’s proposed acquisition of KnowBe4 until the committee and Vista reached a preliminary agreement on pricing. On September 19, Vista publicly disclosed its $24-per-share proposal through a Schedule 13D filing. On September 28, Vista increased its offer to $24.60 per share, conditioned on a rollover of “at least $675MM . . . from Elephant/KKR/[Sjouwerman].”34 On September 29, the Special Committee authorized Morgan Stanley to submit a $25.75 per share counterproposal and to inform Vista to bid “as far into the $25.00s as Vista could go.”35 The Special Committee also discussed the terms of a potential equity rollover and the need for, and proper composition of, a majority-of-the-minority vote. Later that day, after Morgan Stanley relayed the Special Committee’s counterproposal, Vista responded with an offer of $24.80 per share, stating that it could not bid in the $25 range. The Special Committee countered with $24.90 per share. Vista accepted, contingent upon KKR, Elephant, and Sjouwerman collectively rolling over equity worth $682 million. 34 Id. ¶ 256; Proxy Statement at 41. 35 Am. Compl. ¶ 258. 13  H. No Competing Bidder Emerges. On October 2, the Special Committee met and Morgan Stanley reported that, even though Vista’s bid had been public for nearly two weeks, it “had not received, and was not otherwise aware of, any inbound interest from a potential third party who was interested in acquiring KnowBe4” since Vista publicly disclosed its proposal.36 Morgan Stanley added that it conducted additional outreach to certain potential bidders that it had previously contacted after Vista’s public bid. Each party “had either not responded to Morgan Stanley’s outreach or had confirmed that they were not interested.”37 Morgan Stanley also advised the Special Committee on its outreach efforts, explaining that it contacted 16 parties excluding Vista. Nine parties executed NDAs, eight parties met with KnowBe4 management, but only two parties submitted due diligence requests. No party other than Vista submitted a bid. According to Morgan Stanley, the lack of interest was attributable to concerns relating to the scope of KnowBe4’s total addressable market, competition, continued growth prospects, and the ability to pay a meaningful premium to the Company’s current market trading price. I. Vista And The Rollover Stockholders Down-Convert Their Shares From Class B To Class A Stock. On October 7, the Special Committee again discussed an approach for securing Mitnick’s approval of the Merger and how his vote would impact the majority-of-the- 36 Proxy Statement at 43. 37 Id. 14 minority vote. The Special Committee decided “that it was supportive of seeking a commitment from Mr. Mitnick to vote in favor of the Merger Agreement.”38 The Special Committee then determined that Sjouwerman—Mitnick’s long-time friend and business partner—should contact Mitnick. On October 9, Kirkland & Ellis LLP (Vista’s counsel), Wilson Sonsini (KnowBe4’s counsel), and Potter Anderson (the Special Committee’s counsel) met to discuss how to structure the stockholder vote in light of an equal treatment provision in KnowBe4’s Certificate of Incorporation.39 Kirkland recommended that the Merger be subject to separate votes for Class A and Class B common stock given the rollover. Further, Kirkland indicated that Vista planned to exercise its contractual right to down-convert its Class B stock to Class A stock before the Record Date—thereby surrendering its superior voting power—and requested that the Rollover Stockholders do the same. The Proxy Statement disclosed that Vista, KKR, Elephant, and Sjouwerman would control 36% of the Class A vote following the conversions.40 J. The Parties Execute The Merger Agreement And Support Agreements. On October 10, the Special Committee confirmed that it was comfortable proceeding with Vista’s proposal. The Special Committee also noted that KKR had decided to increase its rollover amount. 38 Am. Compl. ¶ 268. 39 Proxy Statement at 44. 40 Id. 15  The next day, Morgan Stanley confirmed that it had no material updates to its prior conflict disclosure. It also reported that Sjouwerman had begun discussions with Mitnick about a potential support agreement. According to Sjouwerman, Mitnick said he did not want to roll over his stake. Mitnick thus would be counted as unaffiliated and included in the majority-of-the-minority vote. The Special Committee then recommended the Merger to KnowBe4’s Board. Later that day, Morgan Stanley provided an overview of the negotiations to the Board, which unanimously approved the Merger at $24.90 per share, for a total equity value of $4.6 billion. The parties signed the merger agreement that night, October 11. And the Rollover Stockholders each executed support agreements which completed their rollovers and committed them to vote for the Merger.41 The parties announced the Merger on October 12. On December 1, Vista, KKR, Elephant, and Sjouwerman down-converted their shares. A week later, Mitnick signed a support agreement similar to those signed by the Rollover Stockholders. Mitnick’s agreement, however, only obligated him to vote for the Merger. He did not roll over his shares.42 He had already down-converted two million of his Class B shares sometime in 2022. Mitnick held 31% of the voting power of unaffiliated stockholders. 41 Am. Compl. ¶¶ 280–282; see also Dkt. 49, Exs. 30 (“Elephant Support Agreement”), 31 (“KKR Support Agreement”). 42 Mitnick passed away in July 2023 after a long battle with pancreatic cancer. 16  On the Record Date, there were 132,747,542 Class A shares and 44,539,649 Class B shares entitled to vote. K. Morgan Stanley Discloses Fees Received From Vista Affiliates. The Special Committee met on December 15. Morgan Stanley reported that it had received $120 to $140 million in fees in the prior two years from entities affiliated with Vista, approximately $80 million higher than the range it had disclosed in its relationship memorandum. Morgan Stanley attributed the difference to the July 12 Memo’s exclusion of fees it had earned from entities in which Vista only held a minority stake. The Special Committee determined that these fees were immaterial. L. KnowBe4 Files The Proxy Statement And The Stockholders Approve The Merger. On December 22, KnowBe4 filed a Proxy Statement, later amended in January 2023, soliciting stockholder approval of the Merger. The Company conditioned approval of the Merger on four separate votes: (i) a majority vote (the combined Class A and B stockholders); (ii) a majority-of-the-minority vote (stockholders unaffiliated with Vista and excluding Elephant and KKR); (iii) a majority vote of Class A shares; and (iv) a majority vote of Class B shares. On January 31, 2023, the stockholders voted on the Merger:43 Of the outstanding stock entitled to vote, 99.8% of the majority approved; 99.0% of the 43 Dkt. 49, Ex. 22 (Form 8-K) at 7; see also Am. Compl. ¶¶ 292–94 (referencing the stockholder votes reported in the Form 8-K). 17 minority approved; 98.9% of Class A stockholders approved; and 100% of Class B stockholders approved.44 The Merger closed on February 1, 2023. M. Plaintiffs File This Suit. Plaintiffs Bill Le Clair and Joseph Pospisil (“Plaintiffs”) owned KnowBe4 Class A stock at the time of the Merger. They filed this action on November 7, 2024 against Sjouwerman, Daly, Shanley, Klausmeyer, Venkataraman, Watzinger, and Wilson (the “Director Defendants”), KKR, and Elephant (with the Director Defendants, “Defendants”). Defendants moved to dismiss on January 22, 2025 and Plaintiffs filed their Amended Complaint on March 10, 2025. The Amended Complaint contains three Counts. In Count I, Plaintiffs claim that KKR, Elephant, and Sjouwerman comprised a control group and breached their fiduciary duties in connection with the Merger. In Count II, Plaintiffs claim that the Director Defendants breached their duty of loyalty in connection with the Merger. In Count III, Plaintiffs claim that the Company breached the equal-treatment provision in the Company’s charter, which required that Class A and Class B common stock be treated equally in an acquisition. 44 Form 8-K at 7. 95,375 shares abstained from the majority, minority, and Class A votes. The percentages are calculated based on total outstanding shares, inclusive of those abstaining. 18  Defendants moved to dismiss the Amended Complaint. The parties completed briefing on September 8, 2025, and the court held oral argument on January 12, 2026.45 II. LEGAL ANALYSIS In briefing, Plaintiffs did not advance arguments concerning Count III and thus waived their ability to do so.46 Count III is dismissed. Defendants seek dismissal of Counts I and II under Court of Chancery Rule 12(b)(6). “[T]he governing pleading standard in Delaware to survive a motion to dismiss is reasonable ‘conceivability.’”47 When considering a Rule 12(b)(6) motion, the court must “accept all well-pleaded factual allegations in the [c]omplaint as true . . . , draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.”48 The court, however, need not “accept conclusory allegations unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-moving party.”49 45 Dkts. 47 (“KnowBe4 and Sjouwerman Opening Br.”), 51 (“KKR Opening Br.”), 52 (“Elephant Opening Br.”), 53 (“Special Comm. Opening Br.”), 66 (“Pls.’ Ans. Br.”), 71 (“KnowBe4 and Sjouwerman Reply Br.”), 72 (“Special Comm. Reply Br.”), 73 (“KKR Reply Br.”), 75 (“Elephant Reply Br.”), 97. 46 Emerald P’rs v. Berlin, 2003 WL 21003437, at *43 (Del. Ch. Apr. 28, 2003), aff’d, 840 A.2d 641 (Del. 2003) (TABLE) (“It is settled Delaware law that a party waives an argument by not including it in its brief.”). 47 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). 48 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)). 49 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011), overruled on other grounds by Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255 (Del. 2018) (citing Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)). 19  A. Count I Against The Alleged Control Group Plaintiffs allege that KKR, Elephant, and Sjouwerman breached their fiduciary duties as controllers in connection with the Merger. Plaintiffs do not argue that any one of these defendants individually controlled KnowBe4. They instead allege that the three defendants formed a group for the purpose of directing the outcome of the sale process. In Sheldon v. Pinto Technology Ventures, L.P., the Delaware Supreme Court explained the “legally significant connection” standard for pleading the existence of a control group: To demonstrate that a group of stockholders exercises control collectively, the [plaintiffs] must establish that they are connected in some legally significant way—such as by contract, common ownership, agreement, or other arrangement—to work together toward a shared goal. . . . [T]here must be some indication of an actual agreement, although it need not be formal or written.50 To meet this standard, the complaint must “‘give rise to a reasonably conceivable inference’ that an alleged control group struck an ‘actual agreement to work together in connection with’ a challenged transaction.”51 Absent a formal or written agreement establishing a legally significant connection, a plaintiff must plead “an array of plus factors”52 “like historical ties and 50 220 A.3d 245, 251–52 (Del. 2019) (internal quotation marks omitted) (quoting In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *15 (Del. Ch. Oct. 24, 2014)). 51 Patel v. Duncan, 2021 WL 4482157, at *11 (Del. Ch. Sep. 30, 2021) (quoting Garfield v. BlackRock Mortg. Ventures, LLC, 2019 WL 7168004, at *10 (Del. Ch. Dec. 20, 2019)). 52 Garfield, 2019 WL 7168004, at *9. 20 transaction-specific ties that support a reasonable inference of an actual agreement.”53 “[V]oting power, concurrence of interests, historical ties, and transaction-specific coordination” can “give rise to a reasonably conceivable inference that [an] alleged group had more than a mere concurrence of self-interest and the actual agreement to work together in connection with the [transaction].”54 Alleging a concurrence of self-interest among purported group members is insufficient.55 “[C]onflat[ing] acts of consensus with the act of forming a group” cannot support a reasonable inference of a control group “[e]ven at the plaintiff-friendly motion to dismiss stage[.]”56 Plaintiffs do not allege that KKR, Elephant, and Sjouwerman entered into a written agreement to work together to consummate the Merger. They argue instead that the court should infer a legally significant agreement from the group members’ historical ties and transaction-specific connections. Historical ties relevant to a control group analysis are typically thick and long- standing.57 Generally, the law requires a “long, well-documented history of 53 Patel, 2021 WL 4482157, at *11. 54 Garfield, 2019 WL 7168004, at *10 (internal quotation marks omitted); see also Zimmerman v. Crothall, 2012 WL 707238, at *11 (Del. Ch. Mar. 5, 2012), as revised (Mar. 27, 2012) (explaining that “parallel interests, in addition to other facts alleged by Plaintiff, support a reasonable, but not necessarily conclusive, inference that the [defendants] acted as a controlling shareholder”). 55 Garfield, 2019 WL 7168004, at *10. 56 Silverberg v. Padda, 2019 WL 4566909, at *7 (Del. Ch. Sep. 19, 2019). 57 See, e.g., In re Tilray, Inc. Reorg. Litig., 2021 WL 2199123, at *1, *11 (Del. Ch. June 1, 2021) (inferring a control group based on “historical ties” where group members were “former classmates and long-time friends” who “quit their investment banking 21 coordinated investments” that demonstrates that the parties have previously “operated in tandem.”58 Transaction-specific connections relevant to a control-group analysis must extend beyond “mere concurrence of self-interest.”59 A plaintiff must plead specific facts that create a reasonably conceivable inference that the members of the alleged control group “functioned as a control group” through actual agreement or concerted efforts that influenced a corporation’s decision-making process for the specific transaction being challenged.60 This court has inferred a legally significant connection based on transaction-specific coordination where the alleged group members each “desire[d] to avoid massive tax liability,”61 or negotiated “as a collective unit[.]”62 jobs” to found a business together, where they worked “just down the hall from each other” for nearly a decade); In re Hansen Med., Inc. S’holders Litig., 2018 WL 3025525, at *7 (Del. Ch. June 18, 2018) (inferring a control g