Notice of AGM and Proposed Share Option Regrant

18 May 2020

 

Corero Network Security plc

("Corero," the "Company" or the 'Group')

 

Notice of Annual General Meeting

 

Proposed Share Option Regrant

 

Approval of waiver of obligations under Rule 9 of the Takeover Code

 

Corero announces that it will be posting a circular to shareholders (the "Circular") today including notice  convening the Company's 2020 annual general meeting ("Notice of AGM") to be held at 11:30 am on 11 June 2020 at the Company's offices at Regus House, Highbridge, Oxford Road, Uxbridge, Middlesex, UB8 1HR (the "AGM").

 

In light of the Government's current restrictions on gatherings of persons from different households and the rules regarding social distancing relating to the COVID-19 pandemic, Shareholders are requested not to attend the AGM and Shareholders who intend to attend the AGM in person in breach of any stay at home measures which are in place on the date of the AGM will not be admitted. In lieu of attending the AGM, Shareholders are instead encouraged to vote by proxy and to appoint the Chairman of the meeting as their proxy.

 

In addition, Shareholders can also submit questions relating to the business of the AGM at any time from the date of this announcement by email to [email protected] and the Company will answer such questions via its website at www.corero.com/who-we-are/investor-relations/shareholder-information on a regular basis up until 11.30 a.m. on 9 June 2020.

If the restrictions on gatherings and social distancing are relaxed or lifted by the British Government prior to the date of the AGM, the Company will notify Shareholders of any resulting change which may effect the ability of Shareholders to attend the AGM on its website at www.corero.com/who-we-are/investor-relations/shareholder-information.

The Circular, together with the Company's annual report and accounts for the year ended 31 December 2019 (which have also been posted to shareholders), are available to view on the Company's website at www.corero.com/who-we-are/investor-relations/annualreports.

 

Alongside the ordinary course resolutions set out in the Notice of AGM, and in order to ensure that share options in issue continue to act as an effective incentive and staff retention tool, the Company is seeking Shareholder approval at the AGM for the cancellation, and subsequent regrant, of certain Existing Share Options granted to various of its directors and employees. Further details of the Proposals, which include a Whitewash Resolution to allow the cancellation and regrant of share options held by Andrew Miller (a member of the Concert Party) on the same terms as those proposed for the cancellation and regrant of options to other Corero employees and directors under the Proposals, are set out below.

 

Capitalised terms in this announcement shall have the same meaning as in the Circular to be posted to shareholders today.

 

Enquiries:

 

Corero Network Security plc
Andrew Miller, CFO		Tel: 01895 876 382
Cenkos Securities plc		Tel: 020 7397 8900
Ben Jeynes / Mark Connelly - NOMAD Alex Pollen - Sales
Vigo Communications		Tel: 020 7390 0230
Jeremy Garcia / Ben Simons / Antonia Pollock [email protected]

 

 

1.               Corero share options background

An important part of the incentive structure for Corero's directors and employees is the grant of options over new Ordinary Shares in the Company. The significant majority of share options previously granted to directors, including the Concert Party, and employees, are at exercise prices considerably higher than the current market price of the Ordinary Shares. 

 

A total of 24,186,836 Existing Share Options (excluding the Existing CP Share Options), were granted in the period 24 April 2015 to 12 April 2019 at a range of exercise price from 8 pence to 22.5 pence, compared to the closing mid-market price per Ordinary Share of 4.6 pence on 15 May 2020.

 

In order to continue to act as an effective incentive and staff retention tool, Corero proposes to enter into cancellation agreements to cancel up to an aggregate of 19,743,500 Existing Share Options granted to certain of its directors and employees (excluding the Concert Party) and, under the terms of new option agreements, to grant to those directors and employees an equal number of Regrant Share Options (representing 3.99% of the Ordinary Shares in issue) at a price per Ordinary Share equal to the higher of: (a) the closing mid-market price per Corero Ordinary Share on the last business day immediately prior to date of grant of the Regrant Share Options; and (b) the volume weighted average price per Corero Ordinary Share for the 90 trading days ended on the last business day immediately prior to the date of grant of the Regrant Share Options.  Corero will enter into such agreements as soon as reasonably practicable following the passing of the Share Option Resolution at the AGM.

 

Ashley Stephenson, the Company's Chief Executive Officer, holds 7,919,000 Existing Share Options and the Company proposes to grant to him up to 7,919,000 Regrant Share Options, if the Share Option Resolution is passed. As announced by the Company on 27 April 2020, and following the appointment of Lionel Chmilewsky as an Executive Director and CEO Designate with effect from 1 May 2020, it is intended that Lionel Chmilewsky will be appointed as Chief Executive Officer of the Company on 1 July 2020, at which point Ashley Stephenson will be appointed as Chief Technology Officer and will remain on the Board.

 

The vesting of the Regrant Share Options will not be subject to any performance conditions, but to ensure that the Regrant Share Options provide a suitable long term incentive and retention tool, the Regrant Share Options will vest as to one-third on the first anniversary of the date of grant, one-third on the second anniversary of the date of grant and the final one-third on the third anniversary of the date of grant. Any Ordinary Shares which are issued following exercise of the first tranche of Regrant Share Options (which will vest on the first anniversary of the option grant date) may not be sold or otherwise transferred by an option holder prior to the second anniversary of the option grant date. Other than the exercise price and the revised vesting schedule, the Regrant Share Options will be granted on the same terms as the Existing Share Options which are to be cancelled.

 

The cancellation agreements and new option agreements relating to the Regrant Share Options (except for those relating to the Concert Party) will not be entered into if the Share Option Resolution is not passed at the Annual General Meeting.

 

The Company also proposes to enter into a cancellation agreement to cancel up to 5,775,000 Existing CP Share Options previously granted to Andrew Miller and, under the terms of a new option agreement, to grant an equal number of Regrant CP Share Options to him at a price per Ordinary Share, being equal to the higher of: (a) the closing mid-market price per Corero Ordinary Share on the last business day immediately prior to date of grant of the Regrant CP Share Options; and (b) the volume weighted average price per Corero Ordinary Share for the 90 trading days ended on the last business day immediately prior to the date of grant of the Regrant CP Share Options.

 

The cancellation agreement and new option agreement with Andrew Miller will not be entered into if the Whitewash Resolution is not passed at the Annual General Meeting.

 

The Concert Party will hold an interest in the Company of up to a total of 5,775,000 Regrant CP Share Options (representing 1.17% of the Ordinary Shares in issue).  Should the Concert Party exercise its rights in full under the CP Share Options (comprising the Existing CP Share Options (as reduced following the cancellation of 5,775,000 Existing CP Share Options) and the Regrant CP Share Options), and assuming no other Ordinary Shares are issued by the Company, then the Concert Party will hold, in aggregate, 196,125,843 Ordinary Shares, representing 39.02% of the Company's issued share capital as enlarged by the exercise of the CP Share Options.

 

The vesting of the Regrant CP Share Options will not be subject to any performance conditions, but will be issued with a new vesting schedule such that the Regrant CP Share Options, like the Regrant Share Options, will vest as to one-third on the first anniversary of date of grant, one-third on the second anniversary of the date of grant and the final one-third on the third anniversary of the date of grant. Any Ordinary Shares which are issued following exercise of the first tranche of Regrant CP Share Options (which will vest on the first anniversary of the option grant date) may not be sold or otherwise transferred by Andrew Miller prior to the second anniversary of the option grant date. Therefore, the Regrant CP Share Options will be granted on the same terms as the Regrant Share Options.

 

Separately, and in order to ensure the Company has sufficient headroom in the share option pool to continue to incentivise directors and employees in the future and to be able to attract new talent to the Company, the Board intends to increase the overall limit on share options the Company has in issue from time to time from the current limit of 10% of the Company's issued share capital to the greater of a maximum of 61,856,538 share options (equivalent to 12.5% of the Company's current issued share capital) or 10% of the Company's issued share capital, enabling the Company to issue additional options in the future, if required.

 

2.               Background to and reasons for the Rule 9 Waiver

The Existing CP Share Options were granted to Mr. Miller and Mr. Montanana on 24 April 2017, 9 May 2018, and 19 October 2018. The Concert Party will, through Mr. Miller, hold up to 5,775,000 Regrant CP Share Options following the Whitewash Resolution being passed and the related cancellation agreement for the Existing CP Share Options and the option agreement granting the Regrant CP Share Options being entered into. The purpose of re-granting the Regrant CP Share Options is to put in place a new, lower exercise price to ensure that Corero share options continue to act as an effective incentive and retention tool for Andrew Miller who, whilst expected to step down as the Company's Chief Financial Officer on 31 May 2020, will remain a director of the Company in a non-executive capacity and continue to be an important member of the Board.

 

The Company proposes to enter into a cancellation agreement and an option agreement with Andrew Miller following the passing of the Whitewash Resolution. The Regrant CP Share Options will carry an exercise price equal to the higher of: (a) the closing mid-market price per Corero Ordinary Share on the last business day immediately prior to date of grant of the Regrant CP Share Options; and (b) the volume weighted average price per Corero Ordinary Share for the 90 trading days ended on the last business day immediately prior to the date of grant of the Regrant CP Share Options, and the Regrant CP Share Options will vest in equal proportions on the first, second and third anniversaries of the date of grant.  Any Ordinary Shares which are issued pursuant to the exercise of the the first tranche of Regrant CP Share Options which will vest on the first anniversary of the option grant date may not be sold or otherwise transferred by Andrew Miller until the second anniversary of the option grant date. There are no performance conditions associated to the vesting of the Regrant CP Share Options.

 

The number of Regrant CP Share Options to be granted will be the same as the number of Existing CP Share Options to be cancelled. However, since the grant of the Regrant CP Share Options will be on new terms, the increase in the percentage shareholding of the Concert Party as a result of the exercise of any of the Regrant CP Share Options without a waiver of the obligations under Rule 9 of the Takeover Code (commonly referred to as a "Whitewash"), would oblige the Concert Party to make a general offer to Shareholders under Rule 9 of the Takeover Code in either circumstance. The Panel has agreed to a waiver of this obligation, subject to the Whitewash Resolution being approved at the Annual General Meeting (on a poll) by Independent Shareholders who hold in excess of 50% of the Independent Shares. The Rule 9 Waiver is therefore conditional upon Independent Shareholders approving the Whitewash Resolution. If the Whitewash Resolution is not approved by Independent Shareholders, no Existing CP Share Options of the Concert Party will be cancelled and no Regrant CP Share Options will be granted.

 

3.               The Takeover Code

The Takeover Code is issued and administered by the Takeover Panel. The Takeover Code applies, inter alia, to all public companies which have their registered office in the United Kingdom and are considered by the Takeover Panel to have their place of operation in the United Kingdom. The Company is such a company and Shareholders are therefore entitled to the protections afforded by the Takeover Code.

 

Under Rule 9 of the Takeover Code, any person who acquires an interest (as such term is defined in the Takeover Code) in shares which, taken together with the shares in which he and persons acting in concert with him are interested, carry 30% or more of the voting rights in a company that is subject to the Takeover Code, is normally required to make a general offer to all of the remaining shareholders to acquire their shares. Similarly, when any person, together with persons acting in concert with him or her, is interested in shares which in aggregate carry not less than 30% of the voting rights but does not hold shares carrying more than 50% of the voting rights of such a company, a general offer will normally be required if any further interests in shares are acquired which increases the percentage of shares carrying voting rights by any such person. Such an offer would have to be made in cash at a price not less than the highest price paid by him, or by any member of the group of persons acting in concert with him, for any interest in shares in the company during the 12 months prior to the announcement of the offer.

 

As the Concert Party is currently beneficially interested in 188,391,843 Ordinary Shares, representing approximately 38.07% of the Existing Ordinary Shares of the Company and the members of the Concert Party are presumed by the Panel to be acting in concert, the proposed grant and exercise of the Regrant CP Options would result in the Concert Party being obliged, under Rule 9 of the Takeover Code, to make an offer for the remaining Ordinary Shares then in issue and not already owned by them.

 

Under Note 1 on the Notes on the Dispensations from Rule 9, the Panel will normally waive the requirement for a Rule 9 Offer if, inter alia, those shareholders of the Company who are independent of the person who would otherwise be required to make an offer pass an ordinary resolution on a poll at a general meeting approving such a waiver.

 

The Takeover Panel has agreed, subject to the passing of the Whitewash Resolution by Independent Shareholders (being Shareholders other than the Concert Party) voting by way of a poll, to waive the obligation on the Concert Party to make a general offer to Shareholders under Rule 9 of the Code that could otherwise arise on the exercise of the Regrant CP Share Options that the Company is intending to grant to Andrew Miller. 

 

Shareholders should be aware that if the Whitewash Resolution is passed, Jens Montanana will hold an interest in Ordinary Shares carrying 30% or more of the Company's voting rights but will not hold Ordinary Shares carrying more than 50% of such voting rights.  As a result any further increase in his interest in Ordinary Shares will be subject to the provisions of Rule 9 of the Takeover Code.

 

Shareholders should also be aware that if the Whitewash Resolution is passed, the Concert Party will also, in aggregate, hold an interest in Ordinary Shares carrying 30% or more of the Company's voting rights but will not hold Ordinary Shares carrying more than 50% of such voting rights and, as long as they continue to be treated as acting in concert, any further increase in the Concert Party's aggregate interest in Ordinary Shares will be subject to Rule 9 of the Takeover Code.

 

In the event that the Whitewash Resolution is approved at the General Meeting, the Concert Party, or individual members thereof, will not be restricted from making an offer for the Company.

 

The Concert Party

 

Under the Takeover Code, a concert party arises when persons, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of, or frustrate the successful outcome of an offer for, the Company. Control means an interest or interests in shares carrying in aggregate 30% or more of the voting rights of a company irrespective of whether the interest or interests give de facto control.

 

The Company's largest Shareholder and Non-Executive Chairman, Jens Montanana, together with Andrew Miller, Chief Financial Officer, have an aggregate holding in the Company of 188,391,843 Ordinary Shares at the date of this announcement. As set out in a circular issued by the Company dated 14 July 2010, a circular issued by the Company dated 25 February 2013, a circular issued by the Company dated 6 April 2017, and a circular issued by the Company dated 10 May 2018, Jens Montanana and Andrew Miller are presumed by the Takeover Panel to be acting in concert for the purposes of the Takeover Code. Both members of the Concert Party are Directors and employees of the Company.

 

Should the Concert Party exercise their rights under their CP Share Options in full, and assuming no other Ordinary Shares are issued by the Company following the date of this announcement, then the Concert Party would have an interest in the Company of 196,125,843 Ordinary Shares representing 39.02% of the Company's issued share capital at that date. Full details of the Concert Party's interests in Ordinary Shares on 15 May 2020 (being the last practicable date prior to publication of this announcement) and potential interest in Ordinary Shares if the members of the Concert Party exercise their rights under the CP Share Options are set out below:

 

Director	Number of Ordinary Shares held on 15 May 2020 (being the last practicable date prior to publication of this announcement)	Existing holding as a percentage of the Existing Share Capital	Total number of Existing CP Share Options held on 15 May 2020 (being the last practicable date prior to publication of this announcement)	Number of Existing CP Share Options to be cancelled	Number of Regrant CP Share Options proposed to be granted following the passing of the Whitewash Resolution	Total Number of CP Share Options to be held on the passing of the Whitewash Resolution	Resulting holding as a percentage of the Enlarged Share Capital assuming the exercise of all of the CP Share Options and assuming no further issue of Ordinary Shares
Jens Montanana	187,300,406*	37.85%	1,819,000	-	-	1,819,000	37.63%
Andrew Miller	1,091,437	0.22%	5,915,000	5,775,000	5,775,000	5,915,000	1.39%
Total	188,391,843	38.07%	7,734,000	5,775,000	5,775,000	7,734,000	39.02%

 

* of which 33,674,846 Ordinary Shares are held in the name of JPM International Limited, which is wholly owned by Jens Montanana, and 125,871,751 Ordinary Shares are held in the name of The New Millennium Technology Trust of which Jens Montanana is a beneficiary.

 

Further detail of the Concert Party's interests in the Company prior to and subsequent to the Rule 9 Waiver, both before and after any potential exercise of their rights over the Existing CP Share Options and the Regrant CP Share Options, is set out in paragraph 3 of Part III of the Circular.

 

Rule 9 Waiver

The Panel has agreed to waive the obligation on the Concert Party to make a general offer that would otherwise arise as a result of the exercise of Regrant CP Share Options, subject to the approval of the Independent Shareholders, (to be taken on a poll). Accordingly, the Whitewash Resolution is being proposed at the Annual General Meeting to approve the Rule 9 Waiver in respect of the Concert Party for the future exercise of any of the Regrant CP Share Options. Members of the Concert Party will not be entitled to vote on the Whitewash Resolution.

 

4.               Intentions of the Concert Party

The Concert Party has confirmed that, if the Whitewash Resolution is passed by the Independent Shareholders on a poll, there is no agreement, arrangement or understanding for the transfer of their Ordinary Shares to any third party. Save as set out below, the Concert Party is not intending to seek any changes in respect of: (i) the composition of the Board, nor the Company's plans with respect to the continued employment of employees and management of the Company and its subsidiaries (including any material change in conditions of employment); (ii) the Company's future business and its strategic, research and development plans; (iii) the location of the Company's place of business; (iv) employer contributions into any of the Company's pension schemes, the accrual of benefits for existing members, nor the admission of new members; (v) redeployment of the Company's fixed assets;  or (vi) the continuation of the Ordinary Shares being admitted to trading on AIM.

 

In the event that the Whitewash Resolution is passed by the Independent Shareholders at the AGM, the Concert Party will not be restricted from making an offer for the Company.

 

5.               Independent advice provided to the Board

The Takeover Code requires the Board to obtain competent independent advice regarding the merits of the Rule 9 Waiver which is the subject of the Whitewash Resolution, the increase of the Concert Party's controlling position on exercise of the Regrant CP Share Options and the effect it will have on the Shareholders generally. Accordingly, Cenkos, as the Company's financial adviser, has provided formal advice to the Board regarding the Proposals.  Cenkos confirms that it is independent of Jens Montanana and Andrew Miller, being the Concert Party, and has no commercial relationship with them.

 

6.               Recommendations

The Independent Directors consider the Proposals to be in the best interests of the Company and its Shareholders as a whole. The Independent Directors, who have been so advised by Cenkos, consider that the Proposals are fair and reasonable and in the best interests of the Independent Shareholders and the Company as a whole. In providing advice to the Independent Directors, Cenkos has taken into account the Independent Directors' commercial assessments.   

 

The Independent Directors unanimously recommend that Shareholders vote in favour of the Whitewash Resolution, as they have undertaken to do in respect of their own beneficial holdings, representing approximately 0.51% in aggregate of the Existing Ordinary Shares. Jens Montanana and Andrew Miller, who are members of the Concert Party, are not deemed to be independent for the purpose of this recommendation.

 

The Directors believe that the Resolutions (excluding the Whitewash Resolution) to be considered at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole and unanimously recommend that Shareholders vote in favour of each of the Resolutions, as the Directors who are Shareholders intend to do in respect of their beneficial shareholders representing, in aggregate, over 38.58% of the current issued share capital of the Company.