Corero Network Regulatory News (CNS)

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Corero Network Security plc

("Corero" or the "Company")

Proposed Fundraising to raise £4.05 million

Corero Network Security plc (AIM: CNS),the network security and business software provider, is pleased to announce a conditional placing to new and existing shareholders and a conditional subscription by directors and management of the Company of, in aggregate, 27,000,004 new ordinary shares of 1p each (the "New Ordinary Shares") at a price of 15 pence per Placing Share to raise up to £4.05 million (before expenses) (the "Fundraising").

The Fundraising has been undertaken to provide ongoing funding for, inter alia, the continued development of Corero's 'First Line of Defense' product proposition. The 'First Line of Defence' product stops unwanted traffic (including Distributed Denial of Service ("DDoS") cyber-attacks) from reaching and overwhelming firewalls and other infrastructure components, such that good customer traffic can flow unimpeded. The Fundraising consists of a conditional placing with new and existing shareholders of 8,133,337 New Ordinary Shares (the "Placing" and the "Placing Shares") and a conditional subscription of 18,866,667 New Ordinary Shares by certain directors and management of the Company (the "Subscription" and the "Subscription Shares"), as set out below.

Background to the Fundraising

Further to the trading update by the Company on 17 January 2013, the directors of the Company (the "Directors" or the "Board") maintain a positive outlook on the future for the Company's two divisions:

·; Corero Network Security division has a differentiated network security offering which, together with the infrastructure which has now been established, provides the platform from which to grow the business; and

·; Corero Business Systems division performed strongly in 2012 with this strong growth expected to continue.

Corero Network Security

The Board believes that Corero Network Security's existing product platform, which was positioned as a 'First Line of Defense' network security solution during the second half of 2012, can be developed further through a 'next generation' product. This product is intended for deployment in cloud infrastructure and virtual environments, and in larger-scale networks, with commensurate added functionality, performance enhancements, and the option to provide software-only solutions, enabling partnerships to be struck with other security hardware manufacturers. This will allow Corero Network Security to access new markets, increase the its share of network security budgets and leverage its expectation of first mover advantage in the target market for its First Line of Defense product. The Board believes the introduction of the First Line of Defense product positioning, in conjunction with the structural changes to its sales force and sales strategy described in its trading update of 17 January 2013 will enable the division to increase market penetration and sales.

Corero Business Systems

This division continues to report strong growth in both client number terms (for example, new academy and school customers increased by over 76 per cent. in the course of 2012 alone) and revenue terms (divisional revenues have doubled since 2009). The division plans to make further investment in its own products, including plans for a Software-as-a-Service-enabled finance software product. These plans will be funded from existing resources and the ongoing trading of the division.

Use of Proceeds

The net proceeds of the Fundraising will be deployed in the ongoing funding of the Company's Network Security division and development of its 'next generation' product, which the Board believes is capable of delivering a step change in the division's revenues. Specifically, the Board intends for the net proceeds of the Fundraising to be deployed in:

·; continued funding of engineers recruited during 2012 for the development of the 'next generation' product;

·; product management and marketing costs associated with the launch of the 'next generation' product;

·; third party engineering and manufacturing costs including prototypes, specialist development contractors and manufacturing set-up costs; and

·; capital expenditure including test equipment, development hardware and software, demonstration units for the sales team and partners and evaluation units for potential customers.

Should the Fundraising not proceed, the Company believes that it would not have sufficient resources to commit to the ongoing development of the 'next-generation' First Line of Defense proposition and would not be in a position to take full advantage of commercial opportunities emerging in this growth market.

Details of the Fundraising

The Subscription is conditional upon Admission (defined below) and the Placing is conditional upon, inter alia, the following:

·; the agreement of the Takeover Panel to the granting of a formal waiver of the Concert Party's (defined below) obligations to make a general offer for the Company under Rule 9 of the Takeover Code, as set out below;

·; the approval by the Takeover Panel of a circular ("the Circular") to be posted to the shareholders of the Company ("Shareholders") setting out further details of the Fundraising, specifically the Waiver Resolution, as described below;

·; approval by independent Shareholders (being the Shareholders excluding inter alia those who are participating in the Fundraising and the members of the Concert Party) ("Independent Shareholders") of a waiver by the Takeover Panel of the obligation to make a general offer for the Company arising under Rule 9 of the City Code on Takeovers and Mergers (the "Takeover Code") as a result of the proposed participation by Jens Montanana and Andrew Miller, who are two of the members of the Concert Party (defined below), in the Fundraising or any future potential exercise of interests in the existing options over Ordinary Shares (as defined below) and other equity instruments in the Company's share capital by members of the Concert Party described below (the "Waiver Resolution");

·; passing (without amendment) of a special resolution to grant the Directors authority to allot the New Ordinary Shares on a non pre-emptive basis at a general meeting of the Company (the "General Meeting") (this resolution together with the Waiver Resolution, the "Resolutions");

·; the admission of the New Ordinary Shares to trading on AIM ("Admission"); and

·; the terms and conditions in the placing agreement between the Company and finnCap Limited ("finnCap") relating to the Placing ("Placing Agreement") being satisfied or waived in accordance with the terms thereof and the Company and the Subscribers (defined below), complying with the terms of the agreements entered into in respect of the Subscription.

The Circular setting out full details of the Fundraising and convening the General Meeting will be posted to Shareholders in due course. The Circular will set out why the Board considers the Fundraising to be in the best interests of the Company and the Shareholders as a whole, and why the Independent Director (being the Board excluding Jens Montanana and Andrew Miller as members of the Concert Party and Richard Last as a participant in the Fundraising) considers the Fundraising and the Waiver Resolution to be in the best interests of the Company and the Independent Shareholders.

The Placing Agreement may be terminated by finnCap 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 or failure to receive satisfactory approvals from HM Revenue & Customs.

Neither the Placing nor the Subscription is being underwritten by finnCap. The New Ordinary Shares will be credited as fully paid and will rank pari passu with the existing ordinary shares of 1 pence each ("Ordinary Shares") of the Company if and when issued.

Participation by Directors and Related Party Transaction

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

*"Enlarged Issued Share Capital" means the 85,637,416 Ordinary Shares of the Companyas it will be immediately following the Fundraising (assuming the Fundraising is fully subscribed).

** held in the name of Jens Montanana and beneficial entities.

Furthermore, it is proposed that Martin Meyer, president of the Corero Network Security division, will subscribe for a further 100,000 New Ordinary Shares in the Subscription (Martin Meyer, Jens Montanana, Andrew Miller and Richard Last, together, the "Subscribers").

The proposed participation in the Fundraising by Jens Montanana, Andrew Miller and Richard Last, as directors of the Company, constitutes related party transactions pursuant to the AIM Rules for Companies. Andrew Lloyd, being the only Director who will not participate in the Fundraising, considers, having consulted with finnCap, the Company's nominated adviser, that the proposed participation in the Fundraising by these individuals, as set out above, is fair and reasonable insofar as the Shareholders are concerned.

Participation in the Placing by the Concert Party

Jens Montanana, Andrew Miller and Stephen Turner (together the "Concert Party"), are considered to be acting in concert for the purposes of the Takeover Code. It is not proposed that Stephen Turner participate in the Fundraising.

As set out in the table below, the number of Ordinary Shares held by the Concert Party at the date of this announcement is in aggregate 16,866,912, representing 28.8 per cent. of the Company's issued share capital, and should the Fundraising be completed, the Concert Party would on Admission in aggregate hold 34,966,912 Ordinary Shares of the Company, representing 40.8 per cent. of the Company's issued share capital at that date.

*"Existing Issued Share Capital" means the 58,637,412 Ordinary Shares in issue at the date of this announcement, all of which are admitted to trading on AIM.

**held in the name of Jens Montanana and beneficial entities.

The above table excludes a total of 1,099,000 options over new Ordinary Shares held by the Concert Party ("Share Options") at the date of this announcement.

Further details of the Share Options will be set out in the Circular and in the Company's previous announcements. Furthermore, as set out in the Company's announcement of 23 March 2011, under the terms of the Company's Deferred Payment Share Plan, Andrew Miller is entitled to purchase 140,000 Ordinary Shares from the Company's Employee Share Ownership Trust at a price of 40 pence per Ordinary Share ("DPSP"). Should the Concert Party exercise their rights under the Share Options and DPSP in full and the Fundraising be completed, and assuming:

i. no other Ordinary Shares are issued by the Company following Admission; and

ii. the Fundraising is fully subscribed;

then the Concert Party would have an interest in the Company of 36,205,912 Ordinary Shares representing 41.7 per cent. of the Company's issued share capital at that date.

The Company notes that Andre Stewart, formerly vice-president of international sales within Corero Network Security, is no longer considered a member of the Concert Party subsequent to his leaving the Company to pursue other opportunities (as described in the Company's interim results announcement dated 5 September 2012).

The intentions of the Concert Party

The members of the Concert Party have each confirmed to the Company that they are not proposing, following any increase in their percentage interests in Ordinary Shares or voting rights as a result of their participation in the Fundraising, any potential exercise of Share Options or purchase of Ordinary Shares under the DPSP to seek any change in the composition of the Board or the general nature of the Company's business.

The members of the Concert Party have also each confirmed that they have no intention to make any changes regarding the future of the Company's business, the locations of the Company's places of business and the continued employment of its employees and management (and those of its subsidiaries) as a result of any increase in their percentage interests in Ordinary Shares or voting rights as a result of their participation in the Fundraising, any potential future exercise of Share Options or purchase of Ordinary Shares under the DPSP nor will there be any redeployment of the fixed assets of the Company as a result of such an increase. The Concert Party intends that the Company remain quoted on AIM.

Rule 9 of the Takeover Code

The Takeover Code governs, inter alia, transactions which may result in the change of control of a public company to which the Takeover Code applies.

Under Rule 9, any person who acquires an interest (as defined in the Takeover Code) in shares, which taken together with shares in which he is already interested and in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares.

Similarly, when any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of such company but does not hold shares carrying more than 50 per cent. of such voting rights, a general offer will normally be required if any further interest in shares are acquired by any such person.

An offer under Rule 9 of the Takeover Code must be made in cash and at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares in the company during the 12 months prior to the announcement of the offer.

Dispensation

On completion of the Fundraising, the number of Ordinary Shares in issue held by the Concert Party will be 34,966,912, representing 40.8 per cent. of the Enlarged Issued Share Capital (excluding the Share Options and DPSP as set out above, the exercise of which would mean that the Concert Party were interested in 36,205,912 Ordinary Shares representing 41.7 per cent. of the Company's issued share capital after such exercise, on the basis of the assumptions set out above). An increase in the Concert Party's shareholding to over 30 per cent. of the issued shares through the Fundraising on the terms referred to above would usually trigger an obligation for the Concert Party to make a general takeover offer for the Company to all the other shareholders in accordance with Rule 9 of the Takeover Code.

However, the Takeover Panel will consider releasing the Concert Party from such an obligation and may allow the Concert Party to increase its shareholding through 30 per cent. This agreement is subject to (i) agreeing with the Takeover Panel a circular convening the General Meeting to approve the Waiver Resolution, and (ii) the Takeover Panel formally waiving the obligation of the Concert Party to make a mandatory offer under Rule 9 of the Takeover Code, subject to shareholder approval by means of the Waiver Resolution. Voting on the Waiver Resolution at the General Meeting will be voted by way of a poll, as required by the Takeover Code. Only Independent Shareholders are permitted to exercise their voting rights in respect of the Waiver Resolution.

Enquiries:

About Corero Network Security plc

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

Corero Network Securityis an international network security company and a leading provider of next generation securitysolutions. Deployed as a First Line of Defense (FLoD) solution, Corero's products and services sit outside of a client's network, effectively stopping unwanted traffic (including Distributed Denial of Service ("DDoS") cyber-attacks) from reaching and overwhelming firewalls and other infrastructure components, such that good customer traffic can flow unimpeded.

Corero's First Line of Defense solution utilises sophisticated techniques and technologies to block malicious traffic to stop DDoS and other advanced cyber-attacks before they enter an organisation's IT infrastructure. This First Line of Defense solution helps customers worldwide, including enterprises, service providers and government organisations safeguard their IT infrastructure and eliminate downtime, ultimately protecting their bottom line.

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

Corero's proprietary software solutions include:

• Resource Financials & HR - a finance and HR management solution delivering web-enabled and workflow controlled business processes.

• Resource EMS - a student record and learner management information solution for the post 16 education sector.

Corero Resource Financials & HR software won The UK Business Software Industry Software Satisfaction Awards 2012 in the category of Accounting & Finance (corporate).

Disclaimer

This announcement contains a number of forward looking statements relating to Corero and its subsidiaries (the "Group") with respect to, amongst others, the following: financial conditions; results of operations; the business of the Group; future benefits of the Fundraising; and management plans and objectives. The Company considers any statements that are not historical facts to be "forward looking statements". They relate to events and trends that are subject to risks, uncertainties and assumptions that could cause the actual results and financial position of the Group to differ materially from the information presented in the relevant forward looking statement. When used in this announcement, the words "estimate"; "project"; "intend"; "aim"; "anticipate"; "believe"; "expect"; "should" and similar expressions, as they relate to the Group or management of it, are intended to identify such forward looking statements. Shareholders are cautioned not to place undue reliance on these forward looking statements which speak only as at the date of this announcement. The Company does not undertake any obligation to update publicly or revise any of the forward looking statements whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable laws, the AIM Rules or other regulations.

finnCap Ltd, which is authorised and regulated by the Financial Services Authority, is acting as nominated adviser and broker to the Company in connection with the matters described in this announcement. finnCap Ltd will not be responsible to anyone other than the Company for providing the protections afforded to clients of finnCap Ltd or for advising any other person on the Fundraising or any other arrangements described in this announcement. finnCap Ltd has not authorised the contents of, or any part of, this announcement and no liability whatsoever is accepted by finnCap Ltd for the accuracy of any information or opinions contained in this announcement or for the omission of any information.