Corero Network Regulatory News (CNS)

15 July 2013

Corero Network Security plc

("Corero" or the "Company")

Proposed Sale of Corero Business Systems Limited for £13.0 million and Notice of General Meeting

Corero today announces that it:

·; has entered into a conditional agreement to sell its entire legal and beneficial holding in the Company's subsidiary, Corero Business Systems Limited ("CBS"), amounting to 92% of the issued share capital of CBS, to Civica UK Limited ("CUK") (the "Sale");

·; expects that the proceeds of the Sale receivable by the Company on completion will be approximately £10.9 million ($16.6 million), net of repayment of bank debt ("CBS Debt");

·; has called a general meeting (the "General Meeting") of the shareholders of the Company ("Shareholder") to be held at the offices of finnCap at 60 New Broad Street, London EC2M 1JJ at 9.30 a.m. on 31 July 2013 to approve the Sale;

·; would have had on a pro-forma basis at 30 June 2013 gross cash of $21.2 million (£13.9 million) and net cash of $15.2 million (£10.0 million) including the net proceeds from the Sale; and

·; intends to appoint Ashley Stephenson, Chief Executive Officer of the Corero Network Security division, to the board of the Company following completion of the Sale.

The Sale will result in the Company becoming exclusively focused in the network security market for which its strategy remains unchanged from that set out in the annual report and accounts for the year ended 31 December 2012 and the circular to shareholders dated 25 February 2013.

The Sale is conditional upon Shareholder approval. Full details of the Sale, including what action Shareholders may take, are set out in the circular posted to Shareholders today (the "Circular"). A copy of the Circular will be made available on the Company's website (www.coreroplc.com) and a summary is given below. Unless otherwise defined, terms used in this announcement shall have the meaning given to them in the Circular.

Enquiries:

Introduction

The Company has announced today that it has entered into a conditional agreement with CUK and Bernard Snowe, Paul Lamberth, Pankaj Tanna and Mike Stansfield who together hold 8 per cent of the issued shares in, and are part of the management team of, CBS (the "Other Sellers"), pursuant to which the Company and the Other Sellers have agreed to sell their entire legal and beneficial holdings in the Company's subsidiary, CBS, to CUK for a total aggregate cash consideration of £13.0 million ($19.8 million) (subject to the repayment of the CBS Debt as described below). The Company has a legal and beneficial holding of 92 per cent of the issued share capital of CBS, with the remainder of the shares held by the Other Sellers.

It is expected that the proceeds of the Sale receivable by the Company on completion of the Sale after repayment of the CBS Debt of approximately £1.2 million ($1.8 million) will be approximately £10.9 million ($16.6 million). The balance of the proceeds of the Sale (after repayment of the CBS Debt) shall be received by the Other Sellers in the proportions set out in the Sale Agreement. The principal terms of the Sale Agreement are summarised below.

The Sale will result in the Company becoming exclusively focused in the network security market for which its strategy remains unchanged from that set out in the annual report and accounts for the year ended 31 December 2012 and the circular to shareholders dated 25 February 2013. The Company plans to appoint Ashley Stephenson, Chief Executive Officer of the Corero Network Security division, to the Board following completion of the Sale.

The Sale will constitute a fundamental change of business of the Company pursuant to Rule 15 of the AIM Rules, which requires the approval, by way of an ordinary resolution, of the Shareholders at the General Meeting.

The purpose of this document is to provide Shareholders with further information on the Sale and the Company's ongoing strategy, and the reasons why the Directors consider that the Sale is in the best interests of the Company and its Shareholders as a whole. The Directors recommend that you vote in favour of the Resolution as they intend to do in respect of the 35,733,609 Ordinary Shares held by them representing approximately 41.7 per cent of the Ordinary Shares in issue ("Existing Shares").

Background to and reasons for the Sale

Since August 2010, the Company's core strategy has been to establish a strong presence in the network security market by way of organic growth and, where attractive opportunities arise, strategic acquisition. In parallel to this, the Company has sought to build and enhance shareholder value in the Corero Business Systems division, which operates as a standalone business within the Existing Group. Corero Business Systems supplies finance and business management software to the education and commercial markets.

The Board is pleased with the performance and progress to date of Corero Business Systems division but believes that the Sale provides an attractive opportunity to realise its investment in CBS at this time at a compelling valuation, and for a cash consideration. The aggregate valuation of CBS of £13.0 million ($19.8 million) on a debt free basis represents:

·; a multiple in excess of 8.0 times the Corero Business Systems division's earnings before development costs capitalised, depreciation, amortisation, acquisition and restructuring costs and financing for the year ended 31 December 2012; and

·; in excess of 2.2 times the revenues achieved by Corero Business Systems division in the same period.

Corero Business Systems achieved a profit before taxation of $2.8 million for the year ended 31 December 2012 and had gross assets at that date of $7.0 million. The Existing Group as a whole recorded a loss before tax of $6.3 million and had gross assets of $39.4 million in the same period and date (source: the Company's annual report and accounts for the year ended 31 December 2012). The CBS Loan Agreement was entered into by CBS to enable CBS to repay a loan of £1.25 million ($1.9 million) owed by CBS to the Company.

Use of Proceeds

The Board believes that the network security market remains highly attractive and that the Group as a whole would benefit greatly from investing the proceeds of the Sale into the continuing enhancement of the Corero Network Security division. Furthermore, the Directors believe that the Sale will, in addition to providing the funding required by the Company for the foreseeable future, enable the Company's management to focus on driving forward the growth of the Corero Network Security division.

The Company is satisfied that this strategy continues to progress well following the appointment of Ashley Stephenson as Chief Executive Officer of the division in January 2013 (who it is intended will join the Board following Completion) and of David Ahee as Senior Vice President Sales in May 2013.

The Board intend specifically to invest the proceeds of the Sale in the ongoing development and the commercial rollout of the Corero Network Security division's 'next generation' products.

Further information on the CNS 'next generation' product and strategy

The 'next generation' offering is intended for deployment in cloud infrastructure, virtual environments, and larger scale networks and the Board believes that the offering will enable partnerships to be struck with other original equipment manufacturers (OEM's), provide access to new markets and potentially increase the Company's share of network security budgets.

An increasing number of online providers, enterprises and data centres are actively upgrading their network designs to include a traffic inspection, monitoring and control layer at their points of connectivity to the Internet. This new layer of security protection has become increasingly important to combat the growing variety and frequency of Internet-borne cyber threats including DDoS attacks, bot-net operations, competitive abuse and server intrusion. Corero Network Security has responded to this high growth security market trend with enhancements to its current enterprise focused First Line of Defense product line.

During 2012 and 2013, Corero Network Security has invested in the development of a 'next generation' First Line of Defense product which expands both the feature set and market reach of its solutions for this growing market segment. This 'next generation' product also expands the scale and flexibility of the Company's delivery platforms for DDoS and cyber threat protection to include larger-scale online enterprises, service provider networks and hosting providers, as well as cloud data centres and VM (virtual machine) environments. The 'next generation' product roadmap includes the integration of key features into the First Line of Defense solution required for competitive leadership in this market including 10 Gigabit packet capture and forensics, SSL decryption and inspection, advanced traffic monitoring and real time behavioural analysis. The first release of this 'next generation' product is expected to begin deployments in customer networks at the end of 2013, with further releases to follow in the course of 2014.

Current trading and prospects

The Board will provide Shareholders with its interim report for the six month period ended 30 June 2013 in September 2013.

The Corero Network Security division has during the year to date secured a number of important customer contract wins including a US energy utility, a leading service provider in Brazil, two US regional banks, an Asian based provider of on-line games, a web hosting company, a provider of real estate and mortgage portfolio management information services, a leading industrial group, a Middle East based investment services firm, a large US city corporation, a leading price comparison web site and Camelot (the UK Lottery operator). Sales order intake (bookings as opposed to amounts recognised as revenue) in the six months to 30 June 2013 was $4.2 million (30 June 2012: $6.7 million).

The Corero Network Security division expects for the year ending 31 December 2013 to report revenue similar to that for the year ended 31 December 2012. Corero Business Systems has continued to trade in line with management's expectations.

As a result of the disposal of the Corero Business Systems division, the Company is expected to be loss making for the years ending 31 December 2013 and 2014 as it develops the business and grows revenues in the Corero Network Security division. The Board believes its 'next generation' product, aimed for release later this year, will allow Corero Network Security to address new markets, access new customers and increase its share of the network security market for DDoS defence and attack mitigation solutions by leveraging its early mover advantage with its First Line of Defense product.

On a pro-forma basis to illustrate the effect on the net cash position of the Group that the Sale would have had if it had occurred on 30 June 2013 and including the net proceeds receivable by the Company from the Sale (after repayment of the CBS Debt), the Group would have at 30 June 2013 had gross cash of $21.2 million (£13.9 million) and net cash of $15.2 million (£10.0 million). This figure has been prepared for illustrative purposes only.

The Board expects that the proceeds which the Company receives from the Sale (after repayment of the CBS Debt) will provide the funding required by the Group for the foreseeable future for the purposes described above.

Summary of the Sale Agreement

Pursuant to the Sale Agreement, the Company and the Others Sellers have agreed to sell the entire issued share capital of CBS to CUK for a total aggregate cash consideration of £13.0 million payable on Completion. Of this cash consideration approximately £1.2 million will be used to repay the CBS Debt on Completion.

Completion is only conditional upon approval by Shareholders of the Sale at the General Meeting.

CUK may terminate the Sale Agreement prior to Completion if at any time prior to Completion the Sellers are in material breach of certain restrictions regarding the conduct of the business of CBS during the period prior to Completion and such breach has or is likely to allow CUK to recover in aggregate a sum of £650,000 or more from the Sellers.

The Company has agreed to pay CUK a sum equal to £130,000 (excluding VAT) if (i) the Sale fails to complete solely because the Company has not obtained the requisite Shareholder approval of the Sale or (ii) the Board fails to recommend the Sale to its Shareholders or such recommendation of the Board is subsequently withdrawn or modified in a manner which adversely affects the likelihood of the Sale receiving Shareholder consent and as a result the Sale subsequently fails to complete.

A summary of the principal terms of the Sale Agreement are set out in Part II of the Circular.

Recommendation

The Directors consider that the Sale is in the best interests of the Company and its Shareholders as a whole and unanimously recommend Shareholders to vote in favour of the Resolution as they intend to do in respect of their aggregate holdings of 35,733,609 Ordinary Shares, representing approximately 41.7 per cent. of the Existing Shares.