Proposed Fundraising to raise ?4.5 million

RNS Number : 5727X

Corero Network Security PLC

20 November 2014

 



THIS ANNOUNCEMENT IS RESTRICTED AND IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, JAPAN, SOUTH AFRICA, THE REPUBLIC OF IRELAND OR AUSTRALIA OR ANY OTHER STATE OR JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

Corero Network Security plc

("Corero" or the "Company")

Proposed Fundraising to raise £4.5 million

Corero Network Security plc (AIM: CNS),a leading provider of security solutions for defending against DDoS (Distributed Denial of Service) attacks and cyber threats, is pleased to announce a conditional placing to new and existing shareholders and a conditional subscription by Jens Montanana, chairman of the Company, of a total of 30,000,000 new ordinary shares of 1p each (the "New Ordinary Shares") at a price of 15 pence per New Ordinary Share to raise up to £4.5 million (before expenses) (the "Fundraising").

Pursuant to the intention set out in the Company's trading update of 6 November 2014, the Fundraising is being undertaken to provide funding for the further development of the Company's SmartWall Threat Defense System ("SmartWall") product suite, to fund targeted SmartWall sales and marketing activities in the US and Europe, and to cover the funding gap arising from lower than expected revenue from the previous generation product, with a view to achieving sustainable positive cash flows from trading after the year ending 31 December 2015.

The Fundraising consists of a conditional placing with new and existing shareholders of 18,253,333 New Ordinary Shares (the "Placing" and the "Placing Shares") and a conditional subscription of 11,746,667 New Ordinary Shares by Jens Montanana, chairman of the Company (the "Subscription" and the "Subscription Shares"), as set out below. Jens Montanana has lent the Company the total principal sum of £450,000 on terms described below (the "Loan"), and it is intended that the Loan be set off against some of the subscription monies owed by Jens Montanana pursuant to the Subscription.

This Fundraising is conditional upon, inter alia, the passing of a resolution (the "Resolution") to be proposed at a general meeting (the "General Meeting") to be held at 9.30 a.m. on 8 December 2014, notice of which is set out in a circular which will be posted to holders of existing ordinary shares of the Company (the "Circular", "Ordinary Shares" and the "Shareholders" respectively) today. By way of the Resolution, the Company is seeking the authority of Shareholders to provide the directors of the Company (the "Directors" or the "Board") with authority to allot and issue the New Ordinary Shares and to disapply pre-emption rights in relation to the issue of the New Ordinary Shares.

Further details of the Placing, Subscription and the Loan are set out below and in the Circular. Unless stated otherwise, terms and expressions defined in the Circular have the same meaning in this announcement.

Background to and Reasons for the Fundraising

Further to the trading update by the Company on 6 November 2014, the Directors maintain a positive outlook on the future for the Company. A copy of the trading update is available on the Company's website at www.corero.com.

Corero is seeing an acceleration in the shift for enterprises looking to their internet service providers and cloud data centre providers for delivery of protection against DDoS attacks.

In the first half of 2014, and following a two year investment plan, the Company launched its new family of SmartWall products to enable it to address the growing service provider market demand for DDoS solutions. The Board believes that SmartWall has several competitive differentiators to its peers, particularly that it is the only DDoS product, of which the Directors are aware, that has specifically been designed to be deployed in-line.

The Company intends that the core target market for SmartWall will initially be the substantial number of opportunities amongst hosting and data centre providers and service providers such as internet service and telecommunication providers in North America and Europe, where deals are potentially more lucrative than in the Company's traditional enterprise customer orientated market.

As highlighted in the trading update, Corero secured a flagship SmartWall order in October this year by an on-line gaming company (the Company's largest DDoS defence deployment to date), alongside multiple other SmartWall orders in recent months and a growing number of SmartWall proof of concept customer trials are in progress. The Directors are highly encouraged by this and the validation that it provides of SmartWall.

2014 was planned to be a year of transition for Corero with the second half of 2014 focused on the commercialisation, marketing and sales of SmartWall. The Directors now believe that the requisite key individuals and resources are in place and aligned to implement this strategy. Looking forward, therefore, the Directors intend in 2015 to:

·              establish SmartWall as the leading solution for DDoS protection through raising Corero's profile, increasing its base of reference customers, and participating in independent market testing and thought leadership initiatives;

·              continue improvement of the DDoS protection product suite, with incremental added functionality and forensic and analytical capabilities, a Cloud enabled software model, and additional attack protections; and

·              refine its 'go to market' proposition by prioritising markets by geography and market segment, broadening available routes to market to include selling through 'bundled' offerings with partners such as systems integrator and original equipment manufacturers, and enhancing and scaling its post-sales customer support offering.

The Company is pleased that the market dynamics are shifting in its favour, but the shift away from the previous generation product is occurring faster than expected, and therefore the Company intends to undertake the Fundraising to provide the requisite funding to continue aligning its sales and marketing activities and product development, on its strategy centred upon SmartWall.

With the Fundraising, the Directors are confident in the outlook for SmartWall with the Company focusing its development efforts on market driven features and SmartWall sales in priority target geographies and markets so as to deliver a step change in its revenues. The Directors, who hold approximately 41.8 per cent of the Existing Shares support the Fundraising and, furthermore, Shareholders who hold approximately 24.9 per cent of the Existing Shares are also participating in the Fundraising. If the Resolution is not approved by the requisite number of Shareholders or the Fundraising does not proceedfor any other reason, the Company will be required to secure financing for the purposes set out above from alternative sources.

The Loan

Pursuant to the Loan Agreement, Jens Montanana has lent the Company the total principal sum of £450,000. This loan is unsecured and repayable on the earlier of (i) the day immediately following the date that the Resolution is passed at the General Meeting and (ii) 31 December 2015. The Company may have to repay the loan early if it commits an event of default. Interest is payable on the loan at the end of each three month period at a percentage rate per annum equivalent to the Bank of England's published base rate from time to time plus 5 per cent. However no interest shall be payable and accrue on the loan if it is repaid or prepaid by the Company during the period of 60 days commencing on the date the loan is made.

The intention is for part of the subscription monies owed by Jens Montanana pursuant to his Subscription Agreement to be satisfied by the release of the Company of its obligation to repay the liquidated sum which the Company will owe Jens Montanana pursuant to the Loan Agreement if the Resolution is passed at the General Meeting.

If the Fundraising does not proceed the Company will continue to owe the principal sum plus accrued interest under the Loan Agreement to Jens Montanana in accordance with its terms.

Details of the Fundraising

The Subscription is conditional upon admission of the New Ordinary Shares (the "Admission") and the Placing is conditional upon, inter alia, the following:

·              the passing (without amendment) of the Resolution as a special resolution at the General Meeting to authorise the Directors, pursuant to section 551 of the Act, to allot relevant securities up to a maximum aggregate nominal value of £300,000.00 pursuant to the Fundraising and to disapply the pre-emption rights conferred by the Act in connection with the allotment of Ordinary Shares pursuant to the Fundraising up to 30,000,000 New Ordinary Shares;

·              the Subscription Agreement remaining in full force and effect and having become unconditional and the Company having received the subscription monies from Jens Montanana in respect of the Subscription Shares, less the amount which is owed by the Company under the Loan Agreement by no later than 5.00 p.m. on the Business Day prior to Admission; and

·              Admission.

The Circular setting out full details of the Fundraising and convening the General Meeting will be posted to Shareholders today. The Circular will explain why the Board considers the Fundraising to be in the best interests of the Company and the Shareholders as a whole.

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.

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 if and when issued.

Application will be made for the New Ordinary 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 9  December 2014.

Participation by Directors

It is proposed that Jens Montanana will participate in the Subscription, as set out below. The interests of the Directors immediately following Admission will be as follows:

Director	Number of Ordinary Shares held as at the date of this announcement	Number of New Ordinary Shares subscribed for in the Subscription	Resulting number of Ordinary Shares held immediately following Admission	Resulting holding as a percentage of the Enlarged Issued Share Capital*
Jens Montanana	33,943,687**	11,746,667	45,690,354	39.5%
Andrew Miller	723,255	-	723,255	0.6%
Richard Last	1,066,667	-	1,066,667	0.9%
Andrew Lloyd	-	-	-	-
Ashley Stephenson	38,000	-	38,000	0.0%
Total	35,771,609	11,746,667	47,518,276	41.0%

* "Enlarged Issued Share Capital" means the 115,637,416 Ordinary Shares of the Company as it will be immediately following the Fundraising (assuming the Fundraising is fully subscribed).

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

Related Party Transactions

The proposed participation in the Fundraising by Jens Montanana and the provision by him to the Company of the Loan, as a director of the Company, constitute related party transactions pursuant to the AIM Rules for Companies. The Directors of the Company, excluding Jens Montanana, consider, having consulted with finnCap, the Company's nominated adviser, that these transactions, as set out above, are fair and reasonable insofar as the Shareholders are concerned.

Enquiries:

Corero Network Security plc                                                    Tel: [phone]

Andrew Miller, Chief Financial Officer and COO

finnCap                                                                                    Tel: [phone]

Stuart Andrews / Henrik Persson

Redleaf Polhill                                                                                     Tel: [phone]

Rebecca Sanders-Hewett / Dwight Burden / David Ison                  [e-mail]

About Corero Network Security

Corero Network Security, an organization's First Line of Defense® against DDoS (Distributed Denial of Service) attacks and cyber threats, is a pioneer in global network security. Corero products and services provide online enterprises, service providers, hosting providers, and Managed Security Service Providers with an additional layer of security capable of inspecting Internet traffic and enforcing real-time access and monitoring policies designed to match the needs of the protected business. Corero technology enhances any defense-in-depth security architecture with a scalable, flexible and responsive defence against DDoS attacks and cyber threats before they reach the targeted IT infrastructure allowing online services to perform as intended. For more information, visit www.corero.com. 

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 Conduct 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.

 

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