REG - Corero Network Sec. - Notice of AGM and Proposed Share Option Regrant

Corero Network SecurityAnnouncement

18/05/2020 07:00

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RNS Number : 1242N  Corero Network Security PLC  18 May 2020

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
investor_relations@corero.com (mailto:investor_relations@corero.com) and the
Company will answer such questions via its website at
www.corero.com/who-we-are/investor-relations/shareholder-information
(http://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
(http://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
(http://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

 corero@vigocomms.com (mailto:corero@vigocomms.com)

 

 

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  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  Number of Existing CP Share Options to be cancelled  Number of Regrant CP Share Options proposed to be granted following the  Total Number of CP Share Options to be held on the passing of the Whitewash  Resulting holding as a percentage of the Enlarged Share Capital assuming the
                 prior to publication of this announcement)                                                                                                      practicable date prior to publication of this announcement)                                                                         passing of the Whitewash Resolution                                      Resolution                                                                   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.

 

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