Corero Network Regulatory News (CNS)

5 April 2018

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

Corero Network Security plc

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

Placing and Subscription to raise £4.0 million

Final Stage Discussions for £3.0million Debt FacilityandNotice of General Meeting

Corero (AIM: CNS), the listed network security company, is pleased to announce a conditional Placing and Subscription to raise approximately £4.0 million ($5.6 million) before expenses, and that it is in final stage discussions with a bank regarding a new debt facility to provide additional finance of up to £3.0 million ($4.2 million) ("Debt Facility"), the net proceeds of which will be used:

· to support the development of SmartWall sales and marketing activities in the US and Europe;

· for further investment in the development of the SmartWall product; and

· for the general working capital requirements of the Group.

The Placing and Subscription will require the issue and allotment by the Company of up to 69,565,217 new Ordinary Shares at the Placing Price of 5.75 pence per Ordinary Share to certain investors, including certain Directors, institutions and individual shareholders.

The Placing and Subscription is conditional, inter alia, upon Shareholders approving the Resolutions contained in a Notice of General Meeting to be sent to Shareholders today. Admission is expected to occur no later than 8.00 a.m. on 27 April 2018 or such later time and/or date as Cenkos and the Company may agree. The Placing and Subscription are not underwritten. In the event the Resolutions are not approved at the General Meeting, the Placing and Subscription will not proceed. Should the Placing and Subscription not proceed, the Debt Facility will not be available to the Company and the Group will need to seek alternative financing. There can be no guarantee that alternative financing will be available to the Company in the required amounts or on acceptable terms for the working capital requirements of the Group.

Background to and reasons for the Transaction

On 21 December 2017, the Company announced a trading update in which it disclosed that it was pursuing debt financing to fund the Company's working capital requirements for 2018. The Company is currently in discussions with a bank regarding the Debt Facility.

The Debt Facility will, if an agreement is entered into between the Company and the bank in respect of the Debt Facility, be conditional on the Company raising no less than £3.0 million ($4.2 million) before expenses via an equity fundraising. Due to this condition, the Board has consulted with its major Shareholders who have been supportive of an equity fundraise. The Company has therefore undertaken the Placing and Subscription at this time instead of purely raising debt finance. The Company intends to enter into an agreement for the Debt Facility between the date of this announcement and the date of the General Meeting, and expects to be able to drawdown the Debt Facility following completion of the Placing and Subscription.

The Debt Facility is currently expected to include the following key terms:

· four year term with one year repayment holiday;

· no early repayment penalties or redemption premium;

· interest payable quarterly at 7.5 per cent. per annum over 3 Month GBP LIBOR plus arrangement fee of 5 per cent.; and

· standard security and loan covenants.

There can be no certainty that the Debt Facility will be entered into prior to Admission or at all. If an agreement in respect of the Debt Facility is not entered into or if for whatever reason the Debt Facility does not complete, then the Company will need to raise additional capital in the second half of this year either from alternative third party debt providers and/or by way of a further equity fundraise. Further, Placees will be granted the option to withdraw their commitments for Placing Shares if an agreement in respect of the Debt Facility is not entered into prior to Admission.

Use of proceeds

The Company intends to raise up to £4.0 million ($5.6 million) before expenses in the Placing and Subscription. The estimate of expenses for the Placing and Subscription is expected to be £0.1 million.

The net proceeds of the Transaction will be deployed to support SmartWall sales and marketing activities in the US and Europe, for further development of the SmartWall product and for the general working capital requirements of the Group. If the Resolutions are not approved by the requisite number of Shareholders and/or the entering into of the proposed Debt Facility or the Placing and Subscription do not proceed for any other reason, the Company will be required to immediately secure alternative financing for the purposes set out above from alternative sources.

The Placing and Subscription

Details of the Placing

The Company has conditionally raised approximately £3.0 million before expenses by the conditional Placing of up to 52,399,275 Placing Shares at the Placing Price by Cenkos, as agent for the Company, with Placees.

The Placing is conditional, inter alia, upon:

(a) the passing of the Resolutions at the General Meeting by Shareholders;

(b) the Placing Agreement becoming or being declared unconditional in all respects and not having been terminated in accordance with its terms prior to Admission;

(c) the Subscription Agreements becoming or being declared unconditional in all respects and not having been terminated in accordance with their terms prior to Admission; and

(d) Admission becoming effective by no later than 8.00 a.m. on 27 April 2018 or such later time and/or date (being no later than 8.00 a.m. on 18 May 2018) as Cenkos and the Company may agree.

If any of the conditions are not satisfied, the Placing Shares will not be issued and all monies received from the Placees will be returned to the Placees (at the Placees' risk and without interest) as soon as possible thereafter.

The Placing is not conditional upon completion of the Debt Facility. However, if an agreement in respect of the Debt Facility has not been signed by 8.00 a.m. on 25 April 2018 (being 48 hours prior to Admission) and the Company and Cenkos do not believe (acting reasonably) that it will be signed prior to Admission, Cenkos will, as agent for the Company, notify Placees that the Debt Facility will not be available on Admission and will inform Placees that they will remain committed to subscribe for the number of Placing Shares set out in their respective forms of confirmation unless they notify Cenkos in writing by no later than 8.00 a.m. on 26 April 2018 (being 24 hours prior to Admission) that they no longer wish to subscribe for their Placing Shares.

Since Placees may withdraw their commitments for Placing Shares if an agreement in respect of the Debt Facility is not entered into prior to Admission, the Placing may not be fully subscribed. The Placing is not being underwritten.

The Placing Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Placing Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 27 April 2018 at which time it is also expected that the Placing Shares will be enabled for settlement in CREST.

Details of the Subscription

The Company will conditionally raise approximately £1.0 million before expenses by the conditional Subscription of up to 17,165,942 Subscription Shares at the Placing Price by each of Jens Montanana, Andrew Lloyd and Richard Last. Each of Jens Montanana, Andrew Lloyd and Richard Last intends to enter into a Subscription Agreement with the Company pursuant to which each will conditionally agree to subscribe for either a specific number of Subscription Shares or, in respect of Jens Montanana, up to a maximum number of Subscription Shares, set out in that person's Subscription Agreement. None of the Subscription Agreements will be conditional on any other Subscription Agreement but each Subscription Agreement will be subject to the same conditions. Subscribers will not be able to withdraw their commitments if an agreement in respect of the Debt Facility is not entered into prior to Admission.

The Subscription is conditional upon the passing of the Resolutions at the General Meeting by Shareholders and Admission.

The Subscription Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Subscription Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 27 April 2018 at which time it is also expected that the Subscription Shares will be enabled for settlement in CREST.

As a result of the obligations imposed by Rule 9 of the City Code on Takeovers and Mergers (the "Code"), if the Subscription and the Placing become unconditional then, if any other Subscriber and/or any other Placee defaults under his or its Subscription Agreement or placing commitment and does not subscribe for some or all of the Subscription Shares and/or Placing Shares specified therein, Jens Montanana shall, if applicable, reduce the number of Subscription Shares which he will subscribe for in the Subscription to such number as to ensure that, on Admission, Jens Montanana will only hold such number of Ordinary Shares as will represent no more than 43.75 per cent. of the Company's issued share capital at that date (being the percentage of Existing Ordinary Shares held by him on 4 April 2018).

Directors' Participation in the Transaction and Related Party Transaction

Jens Montanana, Andrew Lloyd and Richard Last, each a Director of the Company, intend to shortly enter into Subscription Agreements pursuant to which each will conditionally agree to subscribe for new Ordinary Shares as part of the Subscription. The interests of the Directors on 4 April 2018 (being the last practicable date prior to publication of this announcement) are, and immediately following Admission will be, as follows:

*of which 25,987,899 Ordinary Shares are held in the name of JPM International Limited, which is wholly owned by Jens Montanana, and 94,258,302 Ordinary Shares are held in the name of The New Millennium Technology Trust of which Jens Montanana is a beneficiary.

** which will be subscribed for by Jens Montanana in his personal capacity or JPM International Limited, which is wholly owned by Jens Montanana, or by The New Millennium Technology Trust of which Jens Montanana is a beneficiary.

The participation in the Placing and Subscription by Jens Montanana, Andrew Lloyd and Richard Last as Directors of the Company will constitute a related party transaction pursuant to the AIM Rules. Andrew Miller and Ashley Stephenson, being the only Directors who will not participate in the Placing and Subscription, consider, having consulted with Cenkos, the Company's nominated adviser, that the participation in the Subscription by these Directors, as set out above, is fair and reasonable insofar as Shareholders are concerned.

Incentive Arrangements

On 9 June 2017, the Company announced the cancellation and re-granting of options over Ordinary Shares to certain Directors and employees, with an option re-grant price of 13.6p ("New Option Grant Price"). The Company also announced that it intended to cancel 2,356,000 options previously granted to Andrew Miller and 425,000 options granted to Jens Montanana and grant an equal number of new options to each of them (the "New Concert Party Options") at the New Option Grant Price.

Since the terms of the New Concert Party Options are different from existing options currently held by Andrew Miller and Jens Montanana, the Company will require consent from the Panel on Takeovers and Mergers ("Panel") to waive the obligation on them to make a general offer to shareholders under Rule 9 of the Code that could otherwise arise if the New Concert Party Options were exercised. The Panel's waiver (if given) will be subject to the approval of independent shareholders, being shareholders other than Andrew Miller and Jens Montanana, taken on a poll at a general meeting of the Company.

The Company can confirm that it still intends, subject to the Panel granting a waiver, to seek approval at the 2018 Annual General Meeting of the Company ("AGM") for the grant of the New Concert Party Options and to include the required resolution in the notice of AGM.

General Meeting

The Directors do not currently have the authority to allot all of the New Ordinary Shares on a non-pre-emptive basis and, accordingly, the Board is seeking the approval of Shareholders to allot the New Ordinary Shares at the General Meeting. The General Meeting will be held at 11:00am on 26 April 2018 at 68 Lombard Street, London EC3V 9LJ.

The following Resolutions will be proposed at the General Meeting to approve:

Ordinary Resolution

1. authority for the Directors to allot the New Ordinary Shares up to a maximum aggregate amount of £695,652.17 (being up to 69,565,217 New Ordinary Shares (the maximum number available under the Placing and Subscription)); and

Special Resolution

2. the disapplication of the statutory pre-emption rights in connection with the allotment of up to 69,565,217 New Ordinary Shares pursuant to the Placing and Subscription.

To be passed, Resolution 1 (proposed to be passed as an ordinary resolution) will require a simple majority, and Resolution 2 (proposed to be passed as a special resolution) will require a majority of not less than 75 per cent. of persons voting in person or by proxy in favour of the relevant Resolution.

The authorities to be granted pursuant to Resolutions 1 and 2 shall expire on whichever is the earlier of the conclusion of the next Annual General Meeting of the Company or the date falling six months from the date of the passing of Resolutions 1 and 2 (unless renewed, varied or revoked by the Company prior to or on that date) and shall be in addition to the Directors' authorities to allot relevant securities and dis-apply statutory pre-emption rights granted at the Company's Annual General Meeting held on 20 June 2017.

Circular and Form of Proxy

A Circular and Form of Proxy will be sent to Shareholders today and will be available from the Company website: https://www.corero.com/investors/

Recommendation

The Directors consider the Placing and Subscription to be in the best interests of the Company and its Shareholders as a whole. The Directors as a whole unanimously recommend that Shareholders vote in favour of all the Resolutions, as they have undertaken to do in respect of their own beneficial holdings, representing approximately 44.62 per cent. in aggregate of the Existing Ordinary Shares.

The Placing and Subscription is conditional, inter alia, upon the passing of the Resolutions at the General Meeting. Shareholders should be aware that if the Resolutions are not approved at the General Meeting, the Placing and Subscription will not proceed. Should (i) the Placing and Subscription not proceed, and therefore the Debt Facility also does not complete (assuming that an agreement in respect of the Debt Facility is entered into prior to Admission), or (ii) the Placing and Subscription complete but no agreement in respect of the Debt Facility is entered into, the Company and the Group will need to seek alternative financing. There can be no guarantee that alternative financing will be available to the Company in the required amounts or on acceptable terms for the ongoing working capital requirements of the Group.

Important Information

The distribution of this announcement and the offering of the Placing Shares and the Subscription Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company or Cenkos Securities that would permit an offering of such shares or possession or distribution of this announcement or any other offering or public material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company and Cenkos Securities to inform themselves about, and to observe such restrictions.

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's current expectations and projections about future events. These statements, which sometimes use words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and neither Cenkos Securities nor, except as required by applicable law, the Company assumes any responsibility or obligation to update publicly or review any of the forward looking statements contained herein. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Cenkos Securities, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting solely as nominated adviser and broker to the Company in connection with the Placing and this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to the clients of Cenkos Securities or for affording advice in relation to this announcement or any matters referred to herein. The responsibilities of Cenkos Securities as the Company's nominated adviser and broker under the AIM Rules for Companies and the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange plc and are not owed to the Company or to any director of or shareholder of the Company or any other person, in respect of his decision to acquire shares in the capital of the Company in reliance on any part of this announcement, or otherwise.

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