Corero Network Regulatory News (CNS)

 10 May 2018

Corero Network Security plc

("Corero," the "Company" or the 'Group')

Notice of Annual General Meeting

Capitalised terms in this announcement shall have the same meaning as in the Circular that will be posted to shareholders today.

Corero announces that it has posted a Notice of Annual General Meeting to be held at 68 Lombard Street, London, EC3V 9LJ at 11.30am on 5 June 2018 (the "Meeting"). The Notice of Annual General Meeting as well as the Annual Report and Accounts for the year ended 31 December 2017 (which have also been posted to shareholders) are available to view on the Company's website: https://www.corero.com.

Alongside the ordinary course resolutions contained within the Notice of Annual General Meeting that the Company is seeking approval for at the Meeting, the Company is also proposing a Whitewash Resolution to allow the cancellation and regrant of share options to Jens Montanana and Andrew Miller. The requirement for a Whitewash Resolution was previously announced on 9 June 2017 and 5 April 2018. The terms of the cancellation and regrant of options for Jens Montanana and Andrew Miller are the same as those for the cancellation and regrant of options to Corero employees and directors as announced on 9 June 2017.

Further details on the Whitewash Resolution are set out below.

1. Background to and reasons for the Whitewash Resolution

On 9 June 2017, the Company announced its intention to cancel 2,356,000 Existing CP Share Options granted to Andrew Miller and 425,000 Existing CP Share Options granted to Jens Montanana and to grant an equal number of Regrant CP Share Options to each of them. Andrew Miller and Jens Montanana are considered by the Takeover Panel to be acting in concert for the purposes of the Takeover Code

The Existing CP Share Options were granted to Mr. Miller on 10 August 2010, 6 September 2012, 3 April 2013, 12 May 2014, 24 April 2015 and 7 January 2016, and to Mr. Montanana on 10 August 2010, 21 March 2012, 3 April 2013 and 7 January 2016. Independent Shareholders approved the future exercise of the Existing CP Share Options by the Concert Party at a General Meeting on 24 April 2017. The Concert Party will hold 2,781,000 Regrant CP Share Options. The purpose of re-granting the Regrant CP Share Options is to put in place a new, lower exercise price and to ensure that Corero share options continue to act as an incentive and retention tool.

The Company has entered into deeds of cancellation and option agreements with Andrew Miller and Jens Montanana which will terminate and lapse if the Whitewash Resolution is not passed. The Regrant CP Share Options will carry an exercise price of 13.6 pence per Ordinary Share, being the weighted average price of the Company fundraises from 2010 up to 9 June 2017 (being the date in which certain share options of other directors and employees were cancelled and regranted), and they will vest in equal proportions on the first, second and third anniversaries of being granted. Any Ordinary Shares issued pursuant to the exercise of the Regrant CP Share Options may not be sold or otherwise transferred until the second anniversary of the date of being granted. There are no performance conditions associated to the vesting of the Regrant CP Share Options.

The number of Regrant CP Share Options to be granted will be the same as the number of Existing CP Share Options to be cancelled. However, since the grant of the Regrant CP Share Options will be on new terms, the increase in the percentage shareholding of the Concert Party as a result of the exercise of any of the CP Share Options without a waiver of the obligations under Rule 9 of the Takeover Code (commonly referred to as a "Whitewash"), would oblige the Concert Party to make a general offer to Shareholders under Rule 9 of the Takeover Code in either circumstance. The Panel has agreed to a waiver of this obligation, subject to the Whitewash Resolution being approved at the Annual General Meeting (on a poll) by Independent Shareholders who hold in excess of 50 per cent. of the Independent Shares. The Rule 9 Waiver and the re-grant of Regrant CP Share Options are therefore each conditional, inter alia, upon Shareholders approving the Whitewash Resolution. If the Whitewash Resolution is not approved by Independent Shareholders, no Existing CP Share Options of the Concert Party will be cancelled and no Regrant CP Share Options will be granted.

The Regrant CP Share Options to be granted to Andrew Miller will be granted under the terms of the Corero Executive Enterprise Management Incentive Plan. The current EU State Aid approval for Enterprise Management Incentive ("EMI") options schemes expired on 6 April 2018 due to UK government oversight in making the application for the renewal of EU State Aid. This means that EMI share options granted in the period after 6 April 2018 up until EU State Aid approval is received may not be eligible for the tax advantages afforded to EMI option holders, and accordingly share options granted in that period as EMI share options may therefore be treated as non-tax advantaged employment-related securities options.

The expectation is that this matter should be resolved within a relatively short time and that EU State Aid approval will be obtained. However, there is currently no certainty as to the manner in which, or indeed if, this matter will be resolved. If EMI options are granted in the period between 7 April 2018 and the date on which EU State Aid is obtained it is likely that either: (i) EU State Aid will be obtained with retrospective effect in which case any EMI option grants would subsist as qualifying EMI options; or (ii) EU State Aid will be obtained but without retrospective effect in which case such EMI option grants would subsist as non-qualifying options which would need to be cancelled and new options granted in order to qualify as an EMI options. If EU State Aid is not obtained, any such option grant would either remain as a non-qualifying options or would need to be cancelled and a new option grant made under a more tax efficient scheme.

In the event that either EU State Aid is obtained without retrospective effect or is not obtained at all then, assuming that the Whitewash Resolution is passed, the Company may cancel the grant of the Regrant CP Share Options to Andrew Miller and instead grant new options to Andrew Miller on the same terms as the Regrant CP Share Options as regard to the number of share options granted, the exercise price and the vesting. Therefore, if Shareholders vote in favour of the Whitewash Resolution they will be approving both the Regrant CP Share Options and the possible future grant and exercise of 2,356,000 options over Ordinary Shares in the event that the Regrant CP Share Options to Andrew Miller are cancelled.

2. The Takeover Code

The Takeover Code is issued and administered by the Takeover Panel. The Takeover Code applies, inter alia, to all public companies which have their registered office in the United Kingdom and are considered by the Takeover Panel to have their place of operation in the United Kingdom. The Company is such a company and Shareholders are therefore entitled to the protections afforded by the Takeover Code.

Under Rule 9 of the Takeover Code, any person who acquires an interest (as such term is defined in the Takeover Code) in shares which, taken together with the shares in which he and persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights in a company that is subject to the Takeover Code, is normally required to make a general offer to all of the remaining shareholders to acquire their shares. Similarly, when any person, together with persons acting in concert with him or her, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights but does not hold shares carrying more than 50 per cent. of the voting rights of such a company, a general offer will normally be required if any further interests in shares are acquired which increases the percentage of shares carrying voting rights by any such person. Such an offer would have to be made in cash at a price not less than the highest price paid by him, or by any member of the group of persons acting in concert with him, for any interest in shares in the company during the 12 months prior to the announcement of the offer. The Takeover Panel may agree to waive an obligation that would otherwise arise to make a mandatory offer under Rule 9 of the Takeover Code where that obligation arises as a result of an issue of new shares and the waiver is approved by independent shareholders.

Shareholders should be aware that if the Whitewash Resolution is passed, Jens Montanana will hold an interest in Ordinary Shares carrying more than 30 per cent., but not more than 50 per cent., of the voting rights of the Company's voting share capital. As such, for the purposes of the provisions of Rule 9 of the Takeover Code, any further increase in Jens Montanana's interest in Ordinary Shares will be subject to the provisions of Rule 9 of the Takeover Code.

Shareholders should also be aware that if the Whitewash Resolution is passed, the Concert Party will also hold an interest in Ordinary Shares carrying more than 30 per cent., but not more than 50 per cent., of the voting rights of the Company's voting share capital. As a result, for as long as they continue to be treated as acting in concert, any further increase in the Concert Party's interest in Ordinary Shares will also be subject to the provisions of Rule 9 of the Takeover Code.

The Concert Party

Under the Takeover Code, a concert party arises when persons, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of, or frustrate the successful outcome of an offer for the Company. Control means an interest or interests in shares carrying in aggregate 30 per cent. or more of the voting rights of a company irrespective of whether the interest or interests give de facto control.

The Company's largest Shareholder and Non-Executive Chairman, Jens Montanana, together with Andrew Miller, Chief Financial Officer, have an aggregate holding in the Company of 155,474,046 Ordinary Shares at the date of this announcement. As set out in a circular issued by the Company dated 14 July 2010, a circular issued by the Company dated 25 February 2013 and a circular issued by the Company dated 6 April 2017, Jens Montanana and Andrew Miller are considered by the Takeover Panel to be acting in concert for the purposes of the Takeover Code. Both members of the Concert Party are Directors and employees of the Company.

Should the Concert Party exercise their rights under their CP Share Options in full, and assuming no other Ordinary Shares are issued by the Company following the date of this announcement, then the Concert Party would have an interest in the Company of 158,255,046 Ordinary Shares representing 41.27 per cent of the Company's issued share capital at that date. Full details of the Concert Parties interests on 9 May 2018 (being the last practicable date prior to publication of this announcement) and potential interest in Ordinary Shares if the members of the Concert Party exercise their rights under the CP Share Options are set out below:

* of which 33,674,846 Ordinary Shares are held in the name of JPM International Limited, which is wholly owned by Jens Montanana, and 102,953,954 Ordinary Shares are held in the name of The New Millennium Technology Trust.

Rule 9 Waiver

The Takeover Panel has agreed to waive the obligation on the Concert Party to make a general offer that would otherwise arise as a result of the exercise of Regrant CP Share Options, subject to the approval of the Independent Shareholders, (to be taken on a poll). Accordingly, the Whitewash Resolution is being proposed at the General Meeting to approve the Rule 9 Waiver in respect of the Concert Party for the future exercise of any of the Regrant CP Share Options. Members of the Concert Party will not be entitled to vote on the Whitewash Resolution.

3. Intentions of the Concert Party

The Concert Party has confirmed that, if the Whitewash Resolution is passed by the Independent Shareholders on a poll, there is no agreement, arrangement or understanding for the transfer of their Ordinary Shares to any third party. Save as set out below, the Concert Party is not intending to seek any changes in respect of: (i) the composition of the Board, nor the Company's plans with respect to the continued employment of employees and management of the Company and its subsidiaries (including any material change in conditions of employment); (ii) the Company's future business and its strategic plans; (iii) the location of the Company's place of business; (iv) employer contributions into any of the Company's pension schemes, the accrual of benefits for existing members, nor the admission of new members; (v) redeployment of the Company's fixed assets; or (vi) the continuation of the Ordinary Shares being admitted to trading on AIM.

In the event that the Whitewash Resolution is passed by the Independent Shareholders at the AGM, the Concert Party will not be restricted from making an offer for the Company.

4. Current trading

On 5 April 2018, the Company released its annual audited results for the year ended ending 31 December 2017. A copy of the annual audited results for the year ended 31 December 2017 is available on the Company's website at: www.corero.com/investors.

5. Independent advice provided to the Board

The Takeover Code requires the Board to obtain competent independent advice regarding the merits of the Rule 9 Waiver which is the subject of the Whitewash Resolution, the increase of the Concert Party's controlling position on exercise of the CP Share Options and the effect it will have on the Shareholders generally. Accordingly, Cenkos, as the Company's financial adviser, has provided formal advice to the Board regarding the Rule 9 Waiver. Cenkos confirms that it is independent of Jens Montanana and Andrew Miller, being the Concert Party, and has no commercial relationship with them.

6. Recommendations

The Independent Directors consider the Whitewash Resolution to be in the best interests of the Company and its Shareholders as a whole. The Independent Directors, who have been so advised by Cenkos, consider that the Rule 9 Waiver is fair and reasonable and in the best interests of the Independent Shareholders and the Company as a whole. In providing advice to the Independent Directors, Cenkos has taken into account the Independent Directors' commercial assessments.

The Independent Directors unanimously recommend that Shareholders vote in favour of the Whitewash Resolution, as they have undertaken to do in respect of their own beneficial holdings, representing approximately 0.63 per cent. in aggregate of the Existing Ordinary Shares. Jens Montanana and Andrew Miller, who are members of the Concert Party, are not deemed to be independent for the purpose of this recommendation.

The Directors believe that the Resolutions (excluding the Whitewash Resolution) to be considered at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole and unanimously recommend that you vote in favour of each of the Resolutions, as the Directors who are Shareholders intend to do in respect of their beneficial shareholders representing, in aggregate, over 41.02 per cent. of the current issued share capital of the Company.

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