Tern Regulatory News (TERN)

This announcement contains inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.

2 December 2021

Tern Plc

("Tern" or the "Company")

Device Authority Strategic Investment from Venafi, Capital Restructuring and Additional Funding

Tern Plc (AIM:TERN), the investment company specialising in the Internet of Things ("IoT"), is pleased to announce that as part of a US$2.91 million funding package for Tern's portfolio company, Device Authority Limited ("Device Authority") has received a US$1.25 million strategic investment from Venafi Inc ("Venafi"), a leader in providing machine identities, alongside a further US$1.25 million investment from Tern (the "DA Fund Raise").

Highlights

· US$2.91 million equity funding of Tern's portfolio company, Device Authority, including a US$1.25 million strategic investment from Venafi, a leading provider of machine identity protection who Device Authority has been working with since 2019, and a US$1.25 million (£0.94 million) investment by Tern, alongside $0.41 million from other existing Device Authority shareholders, Alsop Louie Partners and a Samenuk Family Trust.

· Device Authority has simplified its capital structure, involving, inter alia, the conversion of loan notes into equity, including the US$4.3 million of convertible loan notes held by Tern, plus interest of US$0.6 million accrued to date.

· Following these initiatives Tern now holds 53.8% of Device Authority's equity, with a book value of US$19.8 million (approximately £14.8 million) as implied by the price at which this latest funding has been undertaken. This compares to an unaudited book value of £12.9 million as at 30 June 2021 and Tern's investment of £0.94 million in the DA Fund Raise.

Commenting, Al Sisto, CEO of Tern, said: "I am very pleased that Device Authority has been able to secure this strategic investment from Venafi, uniting leading solutions to ensure IoT security from the device to the data centre. The combination of the complementary market positions of Device Authority and Venafi has already delivered significant benefits for both companies and this deepening of the relationship will, we believe, help deliver increased future shareholder value.

"This strategic investment from Venafi has been structured to maximise the commercial benefit to Device Authority, minimise the impact to the current stakeholders and provide Device Authority with sufficient capital for at least the next 12 months, given its 2022 growth plans. Alongside the strategic investment from Venafi the capital structure of Device Authority has also been simplified to make it more appropriate as the business matures. We look forward to Tern continuing as Device Authority's majority shareholder and benefiting from the results of the deeper partnership with Venafi."

Commenting Darron Antill, CEO of Device Authority said: "Over recent months we have been delighted to work with new customers in industries such as automotive where IoT security is becoming even more crucial as the C-suite continues to prioritize managing risk within their organizations and their supply chains to protect customers. We continue to see an increase in customers who require a retrofit solution for legacy devices already deployed in the field, as well as those who make security an important part of their planning and development phase of a new IoT solutions. As the requirement for a Software Bill of Materials (SBOM) becomes mandatory in the US for software vendors contracting with the federal government in 2022, the drive for transparency of security within IoT products will force manufacturers to take action.

"I am delighted to welcome Venafi as a new strategic investment partner to Device Authority and we are grateful for the continued support of our existing investors."

Jeff Hudson, CEO of Venafi, commented "Since IoT devices are critical business enablers for a wide range of organizations, this investment is perfectly aligned with Venafi's mission to ensure all machine identities are managed and protected. Venafi has always been laser focused on innovation so we're excited about the opportunity to deepen our relationship with Device Authority in order to accelerate the delivery of fast, frictionless solutions that secure the machine identities of edge and IoT devices against devasting supply chain attacks."

Strategic investment by Venafi

Venafi has invested US$1.25 million in the DA Fund Raise to secure a 3.4% equity stake in Device Authority to further deepen the strategic relationship.

Venafi is a privately held cybersecurity company that develops software to secure and protect cryptographic keys and digital certificates. In December 2020, Thoma Bravo, a leading private equity investment firm focused on the software and technology-enabled services sectors, acquired a majority stake in Venafi in a deal valuing Venafi at US$1.15 billion.

Device Authority has been working closely with Venafi since joining its Machine Identity Protection Development Fund in late 2019, as announced by Tern on 31 October 2019. The fund was used to provide a new turnkey code signing and update delivery extension to Device Authority's KeyScaler product, powered by Venafi CodeSign Protect, to connect security team policy and controls, securing the code signing process. Device Authority has since created a security certificate authority service connector for the Venafi Platform, which will allow KeyScaler customers to use the Venafi platform as a source for certificate issuance.

Investment by Tern, capital restructuring, warrant issue and conversion of loan notes

The structure of the DA Fund Raise, which comprises the issue of " Class A" shares in DA, is intended to support Device Authority's 2022 plans and provide them with an operational runway for at least the next 12 months. Alongside the US$1.25 million investment from Venafi and a further US$0.41 million investment by existing Device Authority shareholders, Alsop Louie Partners and a Samenuk Family Trust, Tern has invested US$1.25 million in the DA Fund Raise. The amounts invested by the existing Device Authority shareholders, including Tern, incorporate short term loans advanced to Device Authority against such shareholders' commitment under the DA Fund Raise whilst the transaction was being negotiated.

The opportunity has also been taken to simplify the capital structure of Device Authority by removing the rights of the "Class B" shares and the "Class C" shares to receive, in aggregate, 25% of the total sale proceeds on a liquidity event.

Device Authority's existing outstanding convertible loan notes have been converted into "Class A" shares, in line with their terms. Tern held US$4.9 million of loan notes and interest accrued to date, all of which has been converted to equity. US$2.4 million of convertible loan notes, including interest, outstanding to other Device Authority shareholders has also been converted to equity on the same terms.

The investors in the DA Fund Raise, together with the holders of the loan notes that have been converted, have been issued with warrants over Device Authority ordinary shares. All the Device Authority warrants in issue are now exercisable only in the event that the company is sold at a valuation in excess of US$50 million. Tern holds 54% of the Device Authority warrants in issue, with an aggregate exercise cost of approximately £0.63 million.

Following the DA Fund Raise and capital reorganisation the implied post money valuation of Device Authority, at the DA Fund Raise price, is US$36.7 million (approximately £27.5 million). Tern holds 53.8% of Device Authority's equity which has a book value of US$19.8 million (approximately £14.8 million) based on this valuation. This compares to an unaudited book value of Tern's holding in Device Authority of £12.9 million as at 30 June 2021 and Tern's investment of £0.94 million in the DA Fund Raise. On a full exercise of all the warrants issued by Device Authority, but not including the exercise of any share options granted to Device Authority employees, Tern would own 54.0% of Device Authority's then diluted equity.

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