Corero Network Regulatory News (CNS)

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17 February 2012

Corero Network Security plc

("Corero" or the "Company")

Placing to raise £4.56 million

Corero Network Security plc (AIM: CNS), the network security and business software provider, is pleased to announce a conditional placing of up to 10,615,694 new Ordinary Shares at a price of 43 pence per share to raise £4.56 million (before expenses).

Highlights:

·; £4.56 million to be raised by way of a conditional Placing, which was over-subscribed, to certain institutional and other investors at a price of 43 pence per Ordinary Share (representing a discount of 2.3 per cent. against the closing mid-market price on 16 February 2012)

·; Aggregate participation in the Placing by Directors and management of £1.4 million

·; Net proceeds of the Placing will be deployed to accelerate the growth plans of the Company

·; Placing subject to approval of Shareholders at a General Meeting on 5 March 2012

·; Admission expected to be effective from 6 March 2012

The proceeds of the Placing will enable the Company to execute its organic growth plans for 2012 and 2013, by investing in the sales and marketing function of the Corero Network Security division, in order to increase brand awareness and deepen existing channel relationships. The Placing will also fund investment in the network security division's product development team, thereby enabling the Company to achieve its planned product roadmap.

The Placing has attracted both new and existing institutional investors. The Company, in conjunction with finnCap, has conditionally placed all of Loudwater Trust Limited's interest in the Company (comprising 4.4 million shares) to enable excess institutional demand in the Placing to be met. Loudwater Trust Limited was a vendor to Corero of the Top Layer Networks (since renamed to Corero Network Security) business acquired by the Company in March 2011.

This Placing is conditional on, inter alia, the passing of the Resolution to be proposed at the General Meeting.

Jens Montanana, Chairman of Corero, commented: "This placing will allow Corero to further penetrate the network security market and ensure that it is well placed to fully exploit opportunities in network security, an area which is becoming ever more relevant to businesses in light of increasing cyber attacks.

"The Board was very encouraged by the level of institutional interest in this fundraising and thank shareholders for their continued support of the Company.

"Corero has the technology to offer viable and proven solutions to enterprises. By using these funds to invest in marketing and sales personnel and further invest in product development, the Company will be able make this technology available to a greater number of potential customers."

Enquiries:

A circular to Shareholders ("Circular") setting out full details of the Placing and convening the General Meeting will today be posted to Shareholders. A full copy of the Circular will soon be available on the Company's website: www.coreroplc.com.

All defined terms are set out in the Appendix to this announcement.

About Corero Network Security plc

Corero Network Security plc consists of two businesses: Corero Network Security and Corero Business Systems.

Corero Network Security is an international network security company and the leading provider of Distributed Denial of Service (DDoS) defence and Intrusion Prevention System (IPS) solutions. Corero's products and services provide comprehensive, integrated, high-performance protection against constantly evolving network-borne cyber threats. Customers include enterprises, service providers and government organisations worldwide. Corero's appliance-based solutions are highly adaptive and preemptively respond to modern cyber attacks, known and unknown, protecting critical information and online assets. Corero's products have superior performance, are highly scalable, and feature the lowest latency and best reliability in the industry.

Corero Business Systems is a leading provider of powerful and dynamic modular accounting, human resources, payroll and management information software to the schools (including academies) and further education sectors in the UK and internationally.

The following text has been extracted from the Circular which has been sent to Shareholders today:

1. Introduction

The Company today announced that it proposes to raise up to £4.56 million (before expenses) by way of a placing of up to 10,615,694 new Ordinary Shares with certain institutional and other investors at a price of 43p per Placing Share. The Placing is not being underwritten. Further details of and terms of the Placing are described below.

This Placing is conditional on, inter alia, the passing of the Resolution to be proposed at the General Meeting.

The Company is seeking the authority of Shareholders to: (i) provide the Directors with authority to allot and issue the Placing Shares; and (ii) disapply pre-emption rights in relation to the issue of the Placing Shares. Accordingly, the Company is convening the General Meeting. The Resolution to be proposed at the General Meeting is set out in the Notice of General Meeting in the circular to Shareholders.

The purpose of this letter is to outline the reasons for the Placing and explain why the Board considers the Resolution to be in the best interests of the Company and the Shareholders as a whole and why the Directors recommend that you vote in favour of the Resolution to be proposed at the General Meeting as they intend to do in respect of the 13,650,190 Ordinary Shares held by them (representing 28.6 per cent. of the Existing Shares).

2. Background to and Reasons for the Placing

The Company's two businesses, Corero Network Security and Corero Business Systems, performed strongly in their respective markets in the year ended 31 December 2011 and have strong sales pipelines of opportunities going into 2012.

Corero Network Security

The Company took the first step toward implementing its buy and build strategy in the network security market on 2 March 2011, by acquiring the (since renamed) Top Layer Networks, Inc. to create Corero Network Security.

As announced in the Company's trading update of 6 February 2012, significant progress has been made within the Corero Network Security business since its acquisition. The business' management team has been reshaped, investment has been made into product development (notably with the release of a new product to protect against the increasing threat from distributed denial-of-service ("DDoS") attacks), the US sales organisation has been reshaped, and an international sales team has been recruited.

The network security market is forecast to grow strongly in the period to 2014 with Gartner, Inc., (a leading information technology research and advisory company), forecasting cumulative annual growth of over 8 per cent. This growth is fuelled by escalating real cyber crime and cyber war threats, the costs associated with cyber attacks, and growing regulatory compliance mandates and business continuity requirements.

The Board remains confident of the strength of its strategy in this sector; offering technology solutions to targeted mid to large enterprise customers in its core vertical markets as well as telecommunications and hosting service providers, whilst actively seeking to grow 'mind share', that is to say, brand and customer awareness of the sector and the solutions offered by Corero Network Security.

The Board believes that the timing is now right to seek to capitalise on opportunities in the network security market by investing in the sales and marketing functions of the business to gain end-user customer and channel partner awareness, and investing in its product development capabilities.

Corero Business Systems

The Corero Business Systems division performed strongly in the year to 31 December 2011. The business won contracts from 192 academies (2010: 70), signed partnerships and agreements with Serco Learning, the Schools Partnership Trust and Kemnal Academies Trust, as well as recruiting to strengthen its management and sales functions. In addition, the business launched Resource Financials v7, its next generation software solution, which the Board believes will provide the division with the platform to explore new market opportunities during the next 12 to 18 months.

The Board believe Corero Business Systems remains well positioned to deliver organic growth, and as such, will make such further investments where necessary to drive growth, enhance the service offering and increase market share.

3. Use of Proceeds

The proceeds of the Placing will enable the Company to execute its organic growth plans for 2012 and 2013, specifically, by investing in the sales and marketing function of Corero Network Security in order to increase brand awareness and deepen existing channel relationships, and by investing in that business' product development team in order to achieve the planned product roadmap.

Since its acquisition, headcount at Corero Network Security has been increased from 51 to 73 as at 31 December 2011. The Board believe that increasing this headcount, particularly across market-facing and product development departments, to a total of over 100 persons by 31 December 2012, alongside increased expenditure on other marketing initiatives, will accelerate the business' growth prospects and enable it to capitalise on the opportunities that present themselves at this time in this exciting market.

4. Current trading and prospects

On 6 February 2012, the Company announced a trading update for the year ended 31 December 2011. A copy of that trading update is available on the Company's website at www.coreroplc.com. There has been no change in the outlook for the Group since the trading update announcement.

5. Details of the Placing

The Company has entered into the Placing Agreement with finnCap and finnCap has agreed (as the Company's agent) to use reasonable endeavours to procure placees for the Placing Shares at the Placing Price. The Placing Price represents a discount of approximately 2.3 per cent. from the closing mid-market price on 16 February 2012, being the latest practicable date prior to this announcement.

The Placing is conditional on, inter alia:

·; the passing (without amendment) of the Resolution; and

·; Admission becoming effective by no later than 6 March 2012 (or such time and date as the Company and finnCap may agree, being not later than 23 March 2012).

The Placing is not being underwritten. The Placing Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Shares, including the right to receive all future distributions, declared, paid or made in respect of the Ordinary Shares from the date of Admission. The Placing Shares represent approximately 18.2 per cent. of the Enlarged Issued Share Capital.

The Placing Agreement contains customary warranties given by the Company to finnCap as to matters relating to the Group and its business and a customary indemnity given by the Company to finnCap in respect of liabilities arising out of or in connection with the Placing. finnCap is entitled to terminate the Placing Agreement in certain circumstances prior to Admission, including, inter alia,in circumstances where any of the warranties are found not to be true or accurate or were misleading in any material respect or on the occurrence of certain force majeure events.

Application will be made for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and dealings in the new Ordinary Shares will commence on 6 March 2012.

It is expected that CREST accounts of the placees who hold their Ordinary Shares in CREST will be credited with their Placing Shares and Sale Shares on 6 March 2012. In the case of placees holding Ordinary Shares in certificated form it is expected that certificates will be dispatched by 23 March 2012.

6. The Selling Shareholder's Agreement and waiver of the Selling Shareholder lock in

In accordance with the Selling Shareholder Agreement, finnCap has agreed (as the Selling Shareholder's agent) to use reasonable endeavours to procure placees for the Sale Shares at the Placing Price. The placing of the Sale Shares is conditional on Admission. The Selling Shareholder Agreement will automatically terminate if the Placing Agreement terminates. The Placing Agreement is not conditional on the Selling Shareholder Agreement.

On 7 February 2011, the Company, finnCap, Loudwater Trust Limited ("Loudwater"), CrossHill Debt II, L.P. ("CrossHill Debt") and CrossHill Georgetown Capital, L.P. ("CrossHill Georgetown") (Loudwater, CrossHill Debt and CrossHill Georgetown together the "Covenantors") entered into a lock in deed ("Lock In") pursuant to which each of the Covenantors agreed, inter alia, that, for a period of 12 months from 2 March 2011, it would not dispose of any interest in all or any Ordinary Shares which were issued to them on or around 2 March 2011.

The entering into of the Selling Shareholder Agreement by the Selling Shareholder on or about the date of this announcement would constitute a breach of the terms of the Lock In. However, as the Lock In will expire on 2 March 2012 (prior to the expected date of Admission on 6 March 2012), the Company and finnCap have agreed to waive their rights in respect of this breach of the Lock In provided that the placing of the Sale Shares by finnCap occurs and completes at the same time as the placing of the Placing Shares in accordance with the terms of the Placing Agreement. Under the terms of the Selling Shareholder Agreement, the Selling Shareholder has agreed to sell all (and not part only) of the Sale Shares and, if all of the Sale Shares are successfully placed and sold, the Selling Shareholder will no longer be a Shareholder of the Company.

7. Directors' Shareholdings

It is proposed that Jens Montanana, Andrew Miller, and Richard Last, each a director of the Company, will participate in the Placing. The interests of the Directors immediately following Admission will be as follows:

* of which 8,971,429 Ordinary Shares are held in the name of JPM International Limited, which is wholly owned by Jens Montanana.

In addition, it is proposed that Andre Stewart (President of International Sales of Corero Network Security), who holds 5,638,000 Ordinary Shares (all of which are held in the name of BFG Investments Group Limited, a company which is wholly owned by Andre Stewart) at the date of this announcement, will subscribe for 93,023 new Ordinary Shares in the Placing, resulting in a holding of 5,731,023 Ordinary Shares after Admission. This holding represents 9.9 per cent. of the Enlarged Issued Share Capital.

8. Related Party Transactions

The participation in the Placing by Jens Montanana, Andrew Miller and Richard Last, as directors of the Company, and Andre Stewart, as a substantial shareholder in the Company, constitute related party transactions pursuant to the AIM Rules. The Independent Director considers, having consulted with finnCap, that the participation in the Placing by these individuals, as outlined in paragraph 6 above, is fair and reasonable insofar as the Shareholders are concerned.

9. General Meeting

A notice convening the General Meeting, to be held at the offices of finnCap at 60 New Broad Street, London EC2M 1JJ at 10.00 a.m. on 5 March 2012 is set out at the end of this announcement at which the following resolution will be proposed as a special resolution in order:

(a) to authorise the Directors, pursuant to section 551 of the Act, to allot Ordinary Shares up to a maximum aggregate nominal value of £106,156.94 pursuant to the Placing, which will be in addition to all existing authorities under section 551 of the Act; and

(b) to disapply the pre emption rights conferred by the Act in connection with the allotment of up to 10,615,694 Placing Shares pursuant to the Placing which will be in addition to the existing authority.

Pursuant to resolutions passed at the last annual general meeting of the Company on 24 May 2011, the Directors currently have authority to allot up to 15,857,905 Ordinary Shares, representing approximately 27.2 per cent. of the Enlarged Issued Share Capital, of which 7,136,058 Ordinary Shares are capable of being allotted on a non pre-emptive basis.

10. Action to be taken

Shareholders will find a Form of Proxy enclosed with the circular to Shareholders, posted to them today, for use at the General Meeting. Whether or not you intend to be present at the General Meeting, you are requested to complete and return the Form of Proxy in accordance with the instructions printed thereon as soon as possible. To be valid, completed Forms of Proxy must be received by the Company's Registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not later than 10.00 a.m. on 1 March 2012. Completion of the Form of Proxy will not preclude you from attending the meeting and voting in person if you so wish.

11. Recommendation

The Directors consider the Placing to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend that you vote in favour of the Resolution to be proposed at the General Meeting, as they intend to do in respect of their own holdings of Ordinary Shares, totalling 13,650,190 Ordinary Shares, being approximately 28.6 per cent of the Existing Shares.

PLACING STATISTICS

Number of Existing Shares 47,713,718

Number of Placing Shares to be issued pursuant to the Placing* 10,615,694

Number of Ordinary Shares in issue immediately following Admission* 58,329,412

Placing Price in respect of the Placing Shares 43p

Estimated net proceeds of the Placing receivable by the Company* £4.3 million

Number of Placing Shares as a percentage of the Enlarged Issued Share Capital 18.2 per cent.

Market capitalisation of the Company at Admission at the Placing Price* £25.1 million

* Assumes no further Ordinary Shares are issued following the date of this announcement and prior to completion of the Placing and assumes that the Placing is fully subscribed.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Latest time and date for receipt of Forms of Proxy for the 10.00 a.m. on 1 March 2012General Meeting

Date and time of General Meeting 10.00 a.m. on 5 March 2012

Admission and commencement of dealings in Placing Shares 08.00 a.m. on 6 March 2012

CREST accounts credited with Placing Shares and Sale Shares 6 March 2012(CREST shareholders only)

Despatch of definitive share certificates for Placing Shares and Sale Shares By 23 March 2012(non-CREST shareholders only)

Each of the times and dates in the above timetable is subject to change. If any of the above times and/or dates change, the revised times and/or dates will be notified to holders of Ordinary Shares by announcement on a Regulatory Information Service.

All of the above times refer to London time unless otherwise stated.

Admission and dealings in the Placing Shares are conditional on the passing of the Resolution at the General Meeting.

APPENDIX

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

'Act' the Companies Act 2006

'Admission' the admission of the Placing Shares to trading on AIMbecoming effective in accordance with the AIM Rules

'AIM' the AIM market operated by the London Stock Exchange

'AIM Rules' the AIM Rules for Companies published by the London Stock Exchange from time to time

'Board' or 'Directors' the board of directors of the Company from time to time

'Business Day' a day (other than a Saturday or Sunday) when banks are usuallyopen for business in London

'certificated' or the description of a share or security which is not in

'in certificated form' uncertificated form (that is, not in CREST)

'Company' Corero Network Security plc, a company incorporated inEngland and Wales with registered number 02662978

'Corero Business Systems' Corero Business Systems Limited, a Subsidiary of the Company

'Corero Network Security' Corero Network Systems, Inc. (previously Top Layer Networks,Inc.), a Subsidiary of the Company

'CREST' the relevant systems for the paperless settlement of trades in securities and the holding of uncertificated securities operated by Euroclear UK & Ireland Limited in accordance with the CREST Regulations

'CREST Regulations' the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), including (i) any enactment or subordinate legislation which amends or supersedes those regulations and (ii) any applicable rules made under those regulations for the time being in force

'Enlarged Issued Share Capital' the issued ordinary share capital of the Company as it will be immediately following the Placing (assuming no further Ordinary Shares are issued following the date of this announcement and prior to completion of the Placing and that the Placing is fully subscribed)

'Existing Shares' the 47,713,718 Ordinary Shares in issue at the date of this

announcement, all of which are admitted to trading on AIM

'finnCap' finnCap Ltd, the Company's nominated adviser and broker which is incorporated in England and Wales with the registered number 06198898

'Form of Proxy' the form of proxy for use by Shareholders in connection with theGeneral Meeting

'FSA' the UK Financial Services Authority

'General Meeting' the general meeting of the Company convened for 10.00 a.m. on 5 March 2012 at which the Resolution will be proposed

'Group' the Company and its Subsidiaries

'IFRS' International Financial Reporting Standards

'Independent Director' Edward Forwood, being the only director of the Company whois not participating in the Placing

'London Stock Exchange' London Stock Exchange plc

'Notice of General Meeting' the notice of General Meeting

'Ordinary Shares' ordinary shares of 1 pence each in the capital of the Company

'Placing' the placing to certain institutional and other investors of the Placing Shares at the Placing Price pursuant to the Placing Agreement

'Placing Agreement' the conditional agreement, dated 17 February 2012, between theCompany and finnCap relating to the Placing

'Placing Price' 43 pence per Placing Share

'Placing Shares' up to 10,615,694 new Ordinary Shares to be issued pursuant tothe Placing

'Prospectus Rules' the Prospectus Rules published by the Financial ServicesAuthority

'Resolution' the resolution to be proposed at the General Meeting and set outin the Notice of General Meeting

'Sale Shares' up to 4,399,891 existing Ordinary Shares to be sold by the SellingShareholder pursuant to the Selling Shareholder Agreement

'Selling Shareholder' Loudwater Trust Limited

'Selling Shareholder Agreement' the conditional agreement, dated 17 February 2012, between the Selling Shareholder and finnCap relating to the Sale Shares

'Shareholder' a holder of Existing Shares

'Subsidiary' has the meaning given to it in section 1159 of the CompaniesAct 2006

'UK' and 'United Kingdom' the United Kingdom of Great Britain and Northern Ireland

'US' or 'United States' the United States of America, its territories and possessions, any state of the United States of America, the District of Columbia and all other areas subject to its jurisdiction