Placing & Subscription, Open Offer & Notice of GM

21 April 2016

Corero Network Security plc (AIM: CNS)

("Corero" or the "Company")

Firm Placing and Subscription to raise £8.0 million, Open Offer to raise up to

£1.0 million and Notice of General Meeting

Corero Network Security plc (AIM: CNS), the AIM listed network security company, is pleased to announce a conditional Firm Placing and Subscription to raise £8.0 million before costs through the issue of 36,363,637 new Ordinary Shares at the Offer Price of 22 pence per new Ordinary Share. The Company also announces an Open Offer to raise up to an additional £1.0 million through the issue of up to 4,601,040 new Ordinary Shares.

Highlights

·     Significantly oversubscribed Firm Placing and Subscription of 36,363,637 new Ordinary Shares at the Offer Price of 22 pence per Ordinary Share to raise up to £8.0 million

·     Strong support shown from both existing shareholders and new institutional investors

·     A number of new institutional investors introduced to the Company's shareholder register

·     The Offer price represents a discount of 10.2 per cent. to the Company's closing mid-market share price on 15 April 2016, a discount of 11.7 per cent. to the Company's 20 day average closing share price and a discount of 7.5 per cent. to the Company's average closing share price in the period since 4 January 2016

·     The net proceeds will be used to support the marketing and further development of the SmartWall TDS product and for the general working capital requirements of the Group

·     Open Offer for an aggregate of 4,601,040 Offer Shares on the basis of 1 new Ordinary Share for every 36 Existing Ordinary Shares, at 22 pence each to raise up to £1.0 million

·     Under the Excess Application Facility, Qualifying Shareholders can apply for Excess Shares in excess of their Open Offer Entitlement, up to a maximum of the total number of Offer Shares available under the Open Offer

·     The Firm Placing, Subscription and Open Offer are conditional, inter alia, upon Shareholders approving the Special Resolution at a General Meeting. A circular containing a Notice of General Meeting will be sent to Shareholders today

Ashley Stephenson, Corero's CEO, said: "We have been extremely encouraged by the investor response to the fundraise, which was significantly oversubscribed and also introduces a number of new blue chip institutions to the Company's shareholder register.

"The Company continues to build on the momemtum from 2015 with a number of significant contracts for its flagship SmartWall TDS product in 2016. We are at an exciting point in the development of Corero, and the proceeds of the fundraise will enable us to continue to take advantage of the substantial opportunities available to us in the fast growing DDoS defence market."

Enquiries:

Introduction

The Company has today announced a conditional Firm Placing and Subscription to raise approximately £8.0 million before expenses by the issue and allotment by the Company of up to 36,363,637 new Ordinary Shares at the Offer Price of 22 pence per Ordinary Share to certain institutional and other investors.

In addition, in order to provide Shareholders who have not taken part in the Firm Placing or Subscription with an opportunity to participate in the proposed issue of New Ordinary Shares, the Company is providing all Qualifying Shareholders with the opportunity to subscribe at the Offer Price for an aggregate of 4,601,040 Offer Shares, to raise up to approximately £1.0 million, on the basis of 1 new Ordinary Share for every 36 Existing Ordinary Shares, at 22 pence each, payable in full on acceptance.

The Transaction is conditional, inter alia, upon Shareholders approving the Special Resolution at the General Meeting that will grant to the Directors the authority to allot the New Ordinary Shares and the power to disapply statutory pre-emption rights in respect of the New Ordinary Shares. The Special Resolution is contained in the Notice of General Meeting as set out at the end of the circular. Admission is expected to occur no later than 8.00 a.m. on 10 May 2016 or such later time and/or date as Cenkos Securities and the Company may agree. The Transaction is not underwritten.

The Open Offer provides Qualifying Shareholders with an opportunity to participate in the proposed issue of the Offer Shares on a pre-emptive basis whilst providing the Company with additional capital to invest in the business of the Group.

The Offer Price is at a discount of 10.2 per cent. to the closing mid-market price of 24.5 pence per Existing Ordinary Share on 15 April 2016, a discount of 20.0 per cent. to the closing mid-market price of 27.5 pence per Existing Ordinary Share on 20 April 2016 (being the last practicable date before publication of this announcement), a discount of 11.7 per cent. to the Company's 20 day average closing share price and a discount of 7.5 per cent. to the Company's average closing share price in the period since 4 January 2016.

Further details of the Transaction are set out below and in the circular. Unless otherwise stated, terms and expressions defined in the circular have the same meaning in this announcement.

Corero Network Security plc overview

Corero is positioned to be a leader in real-time, high-performance distributed denial-of-service ("DDoS") defence solutions. Service providers, hosting providers and online enterprises rely on Corero's award winning technology to eliminate the DDoS threat to their environment through automatic attack detection and mitigation, coupled with comprehensive network visibility, analytics and reporting. Corero's next-generation technology provides a First Line of Defense® against DDoS attacks in the most complex environments while enabling a more cost effective economic model than previously available.

Background to and reasons for the Transaction

The Transaction is being undertaken to support the execution of the Company's business plan which is focused on the target market for its SmartWall Threat Defense System ("SmartWall TDS") product, namely service providers including telecommunication ISPs, data centre hosting providers, multiple service operators and mobile operators and on-line enterprises.

The Company's SmartWall TDS products enable it to address the growing service provider market demand for DDoS protection solutions. The Board believes that the SmartWall TDS has several competitive differentiators to its peers and that Corero is well positioned to capitalise on the evolving DDoS defence market and the increasing requirement for real-time, automatic DDoS mitigation. This is a market the SmartWall TDS was designed to address.

The Directors, who hold approximately 40.8 per cent. of the Existing Ordinary Shares of the Company, support the Transaction.

Use of proceeds

The Company intends to raise £8.0 million before expenses via a conditional Firm Placing and Subscription. The Company also intends to raise up to a further £1.0 million before expenses under the Open Offer. The estimate of expenses for the Transaction are expected to be approximately £0.4 million.

The net proceeds of the Transaction will be deployed to support SmartWall TDS sales and marketing activities in the US and Europe, the further development of the SmartWall TDS product and the general working capital requirements of the Group. The Directors believe that the net proceeds of the Transaction, together with anticipated revenues, will enable the Company to achieve EBITDA profitability in the fourth quarter of 2016 and positive cash flows from trading in 2017.

If the Special Resolution is not approved by the requisite number of Shareholders and/or the Firm Placing, Open Offer and Subscription does not proceed for any other reason, the Company will be required to secure alternative financing for the purposes set out above from alternative sources.

Current Trading and Prospects

As outlined in more detail in the annual audited results of the Company for the year ended 31 December 2015 which have been announced today (21 April 2016), the Directors maintain a positive outlook on the future for the Company. A copy of the annual audited results of the Company for the year ended 31 December 2015 is available on the Company's website at www.corero.com.

In 2015 Corero sold DDoS protection to over 20 service providers, hosting providers and enterprises, providing real-time DDoS and cyber threat protection, with an average order value of $200,000. Winning the level and calibre of customers through competitive tenders demonstrates that the SmartWall TDS is a market leading and differentiated solution. SmartWall TDS trials are being conducted by several leading service providers and hosting providers, and since the year end Corero has also secured its largest single hosting provider customer win to date.

The Directors believe that Corero enters 2016 with confidence on the back of important customer wins in 2015, and the first quarter of 2016, and several large opportunities on which the Company is currently engaged for which Corero believes the SmartWall TDS solution is well matched to the customer requirements.

The Firm Placing, Subscription and Open Offer

Details of the Firm Placing

The Company has conditionally raised approximately £7.1 million before expenses by the conditional Firm Placing of 32,363,637 Firm Placing Shares at the Offer Price to the Firm Placees.

The Firm Placing is conditional, inter alia, upon:

(a)   the passing of the Special Resolution at the General Meeting;

(b)   the Firm Placing Agreement becoming or being declared unconditional in all respects and not having been terminated in accordance with its terms prior to Admission;

(c)   the Subscription Agreements becoming or being declared unconditional in all respects and not having been terminated in accordance with their terms prior to Admission; and

(d)   Admission becoming effective by no later than 8.00 a.m. on 10 May 2016 or such later time and/or date (being no later than 8.00 a.m. on 20 May 2016) as Cenkos Securities and the Company may agree.

If any of the conditions are not satisfied, the Firm Placing Shares will not be issued and all monies received from the Firm Placees will be returned to the Firm Placees (at the Firm Placees' risk and without interest) as soon as possible thereafter.

The Firm Placing Shares are not subject to clawback. The Firm Placing is not being underwritten.

The Firm Placing Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Firm Placing Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 10 May 2016 at which time it is also expected that the Firm Placing Shares will be enabled for settlement in CREST.

Details of the Subscription

The Company has conditionally raised £0.9 million before expenses by the conditional Subscription of 4,000,000 Subscription Shares at the Offer Price by the Subscribers.

Each Subscriber has entered into a separate Subscription Agreement with the Company pursuant to which each Subscriber has conditionally agreed to subscribe for a specific number of Subscription Shares set out in the Subscriber's Subscription Agreement. None of the Subscription Agreements are conditional on any of the other Subscription Agreements but each Subscription Agreement is subject to the same conditions.

The Subscription is conditional upon the passing of the Special Resolution at the General Meeting and Admission.

The Subscription Shares are not subject to clawback. The Subscription is not being underwritten.

The Subscription Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Subscription Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 10 May 2016 at which time it is also expected that the Subscription Shares will be enabled for settlement in CREST.

Details of the Open Offer

The Company is proposing to raise up to approximately £1.0 million before expenses through the Open Offer. A total of 4,601,040 new Ordinary Shares are available to Qualifying Shareholders pursuant to the Open Offer at the Offer Price, payable in full on acceptance. Any Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility. The balance of any Offer Shares not subscribed for under the Excess Application Facility will not be available to Firm Placees under the Firm Placing or to Subscribers under the Subscription.

Qualifying Shareholders may apply for Offer Shares under the Open Offer at the Offer Price on the following basis:

1 Offer Share for every 36 Existing Ordinary Shares

and so in proportion for any number of Existing Ordinary Shares held by Qualifying Shareholders on the Record Date. Entitlements of Qualifying Shareholders will be rounded down to the nearest whole number of Offer Shares. Fractional entitlements which would otherwise arise will not be issued to the Qualifying Shareholders but will be made available under the Excess Application Facility. The Excess Application Facility enables Qualifying Shareholders to apply for Excess Shares in excess of their Open Offer Entitlement. Not all Shareholders will be Qualifying Shareholders. Shareholders who are located in, or are citizens of, or have a registered office in Restricted Jurisdictions will not qualify to participate in the Open Offer.

Jens Montanana, a Qualifying Shareholder, has undertaken not to take up his entitlement under the Open Offer, but will instead be subscribing for Subscription Shares as part of the Subscription.

Valid applications by Qualifying Shareholders will be satisfied in full up to their Open Offer Entitlements as shown on the Application Form. Applicants can apply for less or more than their entitlements under the Open Offer but the Company cannot guarantee that any application for Excess Shares under the Excess Application Facility will be satisfied as this will depend in part on the extent to which other Qualifying Shareholders apply for less than or more than their own Open Offer Entitlements. The Company may satisfy valid applications for Excess Shares of applicants in whole or in part but reserves the right not to satisfy any excess above any Open Offer Entitlement. The Board may scale back applications made in excess of Open Offer Entitlements on such basis as it reasonably considers to be appropriate.

Application has been made for the Open Offer Entitlements to be admitted to CREST. It is expected that such Open Offer Entitlements will be credited to CREST on 22 April 2016. The Open Offer Entitlements will be enabled for settlement in CREST until 11.00 a.m. on 6 May 2016. Applications through the CREST system may only be made by the Qualifying CREST Shareholder originally entitled or by a person entitled by virtue of bona fide market claims. The Offer Shares must be paid in full on application. The latest time and date for receipt of completed Application Forms or CREST applications and payment in respect of the Open Offer is 11.00 a.m. on 6 May 2016. The Open Offer is not being made to certain Overseas Shareholders.

Qualifying Shareholders should note that the Open Offer is not a rights issue and therefore any Offer Shares which are not applied for by Qualifying Shareholders will not be sold in the market for the benefit of the Qualifying Shareholders who do not apply under the Open Offer. The Application Form is not a document of title and cannot be traded or otherwise transferred.

Further details of the Open Offer and the terms and conditions on which it is being made, including the procedure for application and payment for Offer Shares, are contained in the circular that has been sent to shareholders today.

The Open Offer is conditional on both the Firm Placing and Subscription becoming or being declared unconditional in all respects and not being terminated before Admission (as the case may be). If the Firm Placing and Subscription do not proceed, the Offer Shares will not be issued and all monies received by the Receiving Agents from applicants will be returned to such applicants (at the applicants' risk and without interest) as soon as possible thereafter. Any Open Offer Entitlements admitted to CREST will thereafter be disabled.

The Offer Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Offer Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 10 May 2016 at which time it is also expected that the Offer Shares will be enabled for settlement in CREST.

Firm Placing Agreement

Pursuant to the Firm Placing Agreement, Cenkos Securities has agreed to use its reasonable endeavours as agent of the Company to procure subscribers for the Firm Placing Shares at the Offer Price.

The Firm Placing Agreement provides, inter alia, for payment by the Company to Cenkos Securities of commissions based on the number of Firm Placing Shares placed by Cenkos Securities multiplied by the Offer Price.

The Company will bear all other expenses of, and incidental to, the Firm Placing, Subscription and Open Offer, including the fees of the London Stock Exchange, printing costs, Registrars' and Receiving Agents' fees, all legal and accounting fees of the Company and all stamp duty and other taxes and duties payable.

The Firm Placing Agreement contains certain warranties and indemnities from the Company in favour of Cenkos Securities and is conditional, inter alia, upon:

(a)   the passing of the Special Resolution at the General Meeting without material amendment;

(b)   the Firm Placing Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission;

(c)   the Subscription Agreements not having lapsed or been terminated and having been completed in accordance with their terms, subject only to Admission; and

(d)   Admission becoming effective not later than 8.00 a.m. on 10 May 2016 or such later time and/or date as the Company and Cenkos Securities may agree, being not later than 20 May 2016.

Cenkos Securities may terminate the Firm Placing Agreement if, inter alia, there has occurred, in the opinion of Cenkos Securities, acting in good faith, a material adverse change in the business of the Group or in the financial or trading position or prospects of the Group or on the occurrence of certain force majeure events.

Directors' participation in the Subscription

Under the terms of the Subscription Agreements, Jens Montanana and Andrew Miller, each a director of the Company, have conditionally agreed to subscribe for Subscription Shares as part of the Subscription. The interests of the Directors on 20 April 2016 (being the last practicable date prior to publication of this announcement) are, and immediately following Admission of the New Ordinary Shares will be, as follows: