TIDMCORO
RNS Number : 7490A
Corero PLC
07 February 2011
7 February 2011
CORERO PLC
Proposed Acquisition of Top Layer Networks, Inc. and Placing
Corero plc (AIM: CORO, "Corero" or the "Company"), has entered
into a conditional agreement to acquire Top Layer Networks, Inc., a
Massachusetts based developer of network security infrastructure
solutions, by way of a merger for a maximum consideration of $15.3m
to be satisfied by shares, loan notes and cash (the
"Acquisition").
In addition, the Company has conditionally raised up to GBP2.3
million (before expenses) by way of a placing (the "Placing") of up
to 6,571,429 new ordinary shares in the capital of the Company
("Ordinary Shares") (the "Placing Shares") at a price of 35p per
Placing Share (the "Placing Price").
On 4 February 2011, Jens Montanana, a non-executive director,
was appointed non-executive Chairman following the resignation of
Peter Waller as Chairman and a director of the Company.
Highlights
-- First step in strategy to build security systems business
focused on the network security market
-- Top Layer
- Focuses on network security infrastructure software solutions
- such as Intrusion Prevention Systems ("IPS") and Distributed
Denial-of- Service ("DDOS") protection solutions - to help
commercial and government organisations protect critical on-line
assets from cyber threats;
- Brings strong proprietary technology offering and core
platform with potential to deliver strong revenue growth through
wider international sales focus;
- 13-year history in delivering high performance network
security solutions, with over 1,000 corporate and government
customers across numerous sectors with large multinational
corporations and public sector customers including Air Liquide,
Camelot UK Lotteries, Globix and University of Miami; and
- Ranked by Gartner as a visionary in the IPS market in recent
report.
-- Maximum consideration of $15.3m (approximately GBP9,495,752)
to be satisfied in shares, loan notes and cash
- Approximately $6.3m by the issue of 9,038,855 new Ordinary
Shares (the "Completion Consideration Shares") (based on a share
price of 45p and a US dollar-to-British pound sterling exchange
rate of 1.55)
- $5.0m in loan notes
- $3.9m in cash
- $123,558 in deferred consideration by the issue of 177,145
Ordinary Shares (the "Deferred Consideration Shares") payable
within 30 days after the date that is 18 months after completion of
the Acquisition subject to adjustment for set off against any
warranty claims
Jens Montanana, non-executive Chairman, said:
"We are delighted that Top Layer will be our first acquisition
and will provide us with the core technology for our move into
network security systems - a market that offers significant growth
potential. Top Layer is an established player at the mid to high
end of the network security market and brings key proprietary
intellectual property and a scalable software platform.
"Corero will now operate two distinct divisions: Top Layer,
which will form the nucleus of our security ambitions, and Corero
Business Systems, which serves the business and education sector in
the UK.
"We see real opportunities to develop Top Layer's products and
drive revenue growth; using its significant technology and
know-how, Corero will create a much larger organisation. Our
expertise will address the fast developing Next Generation Firewall
market and complement Top Layer's existing business by growing
international sales channels in order to become a key player in the
network security market."
Peter Waller, outgoing chairman, said:
"As I stand down after five years as chairman, Corero has a
recently strengthened executive team, an experienced board and a
strong shareholder base. The company now has the financial capacity
to invest further in the Corero Business Systems division whilst
developing its business in the rapidly growing network security
systems market."
Enquiries:
Corero plc
Jens Montanana, Non-executive Chairman
Andrew Miller, Chief Operating Officer 01923 897 333
FinnCap
Sarah Wharry / Henrik Persson 020 7600 1658
College Hill
Kay Larsen / Rozi Morris 020 7457 2020
Further Information
Transaction Statistics
Number of Ordinary Shares in issue 31,963,434
Number of Completion Consideration Shares
to be issued 9,038,855
Number of Placing Shares(1) 6,571,429
Placing Price 35p
Estimated gross proceeds of the Placing(1) GBP2,300,000
Estimate net proceeds of the Placing receivable
by the Company(1)(2) GBP1,790,000
Enlarged issued share capital of the Company
immediately following Admission(3) 47,573,718
Maximum number of Deferred Consideration
Shares to be issued 177,145
Percentage of Enlarged Issued Share Capital 19.0 per cent.
represented by the Completion Consideration
Shares(1)
Percentage of Enlarged Issued Share Capital 13.8 per cent
represented by the Placing Shares(1)
Market Capitalisation of the Company immediately GBP16.65 million
following Admission at the Placing Price(1)
ISIN GB00B54X0432
Notes:
(1) Assuming the Placing is fully subscribed
(2)Net of estimated costs for the Placing and the
Acquisition
(3) Excludes any Deferred Consideration Shares
In view of the size of the Acquisition in relation to the
Company, the Acquisition constitutes a reverse takeover under the
AIM Rules for Companies. As such, the Acquisition is subject to the
approval of the Company's shareholders which is being sought at a
general meeting of the Company to be held at 11.00 a.m. on 1 March
2011 (the "General Meeting").
An admission document (the "Admission Document") setting out
details of Top Layer, the Acquisition, the Placing and calling the
General Meeting is being sent to the Company's shareholders
today.
Definitions and Forward Looking Statements
All defined terms in this announcement shall, unless the context
otherwise requires, have the same meaning as in the Admission
Document. Copies of the Admission Document will be available to the
public free of charge on the Company's website, www.corero.com.
finnCap Ltd, which is regulated in the United Kingdom by the FSA
and which is a member of the London Stock Exchange, is acting as
nominated adviser and broker for the Company and for no one else in
connection with the matters described herein and will not be
responsible to anyone other than the Company for providing the
protections afforded to customers of finnCap, or for advising them
on the contents of this announcement or any matter referred to
herein. Its
responsibilities as the Company's nominated adviser under the
AIM Rules are owed solely to the London Stock Exchange and are not
owed to the Company or to any Director or to any other person in
respect of his decision to acquire shares in the Company in
reliance on any part of this document.
This announcement and the Admission Document contain
forward--looking statements which reflect the current view of the
Company or, as appropriate, of the Directors with respect to
financial performance, business strategy, plans and objectives of
management for future operations (including development plans
relating to the Enlarged Group's products and services). These
forward--looking statements relate to the Enlarged Group and the
sectors and industries in which the Enlarged Group operates.
Statements which include the words "expects", "intends", "plans",
"believes", "projects", "anticipates", "will", "targets", "aims",
"may", "would", "could", "continue", the negative of these words or
similar statements of a future or forward looking nature identify
forward--looking statements. All forward--looking statements
included in this announcement and the Admission Document address
matters that involve known and unknown risks and uncertainties.
Accordingly, there are or will be important factors that could
cause the Enlarged Group's actual results of operations,
performance, achievements or financial condition to differ
materially from those indicated in these statements. These factors
include but are not limited to those described in Part II of the
Admission Document on Risk Factors, which should be read in
conjunction with the other cautionary statements that are included
in the Admission Document.
Although the Company and the Directors have attempted to
identify all factors that may influence the accuracy of any
forward--looking statement there remain factors which are
impossible to foresee and which may cause results or events to
differ materially from those predicted. Any forward--looking
statements in this announcement and the admission document reflect
the Company's and Directors' current views with respect to future
events and are subject to these and other risks, uncertainties and
assumptions relating to the Enlarged Group's operations, results of
operations, growth strategy and liquidity.
Any forward--looking statements speak only as of the date of
this announcement and the Admission Document. Subject to any
obligations under the AIM Rules for Companies, the Company
undertakes no obligation to update publicly or review any
forward--looking statement, whether as a result of new information,
future developments or otherwise. All subsequent written or oral
forward--looking statements attributable to the Company, the
Directors, or any member of the Enlarged Group or individuals
acting on behalf of the Enlarged Group are expressly qualified in
their entirety by this paragraph. Prospective investors should
specifically consider the factors identified in this announcement
and the Admission Document which could cause actual results to
differ before making an investment.
Information on Top Layer
Top Layer is based in Hudson, Massachusetts, and focuses on
developing and bringing to market network security infrastructure
solutions such as Intrusion Prevention Systems ("IPS") that help
commercial and government organisations protect their critical
on-line assets from the losses and risks associated with cyber
threats. Top Layer has over 1,000 corporate and government
customers across the financial services, healthcare, retail and
e-commerce, government, education, critical infrastructure, service
provider and other markets.
Top Layer has a 13 year history in delivering high performance
network security solutions that protect critical IT infrastructures
of medium to large enterprises and service providers against the
losses and risks associated with network-borne cyber threats. It
has a recognised pedigree for dependable performance, reliability
and quality for both hardware and software security systems.
In April 2010, Top Layer successfully completed a technology
evolution from a product line based on custom ASIC hardware, to a
proprietary software operating system that leverages recent
advances in off-the-shelf, multi-core central processing unit
("CPU") technology. The release of these new 4th generation IPS
appliances has boosted performance levels, significantly reduced
manufacturing costs (by using industry standard hardware
components), and has created a platform with the innate flexibility
required to meet future market demands. In a recent report by
Gartner, Top Layer is ranked as a "Visionary" in the IPS
market.
Top Layer's scalable IPS platform includes solutions with
network throughputs up to 20 Gigabits per second, and offers a
highly competitive price performance ratio and a rich set of IPS
features including DoS protection. The Top Layer operating system
is capable of fully exploiting 64-core processors and beyond. It
illustrates a clear path to the performance needs of the future,
and creates a versatile platform for the delivery of a Next
Generation Firewall product line and a suite of security
gateways.
In addition to its flagship intrusion prevention products, Top
Layer markets and sells its Intelligence Distribution System
Balancer ("IDSB") family of products. The IDSB product is used by
enterprises and government agencies to aggregate and distribute
network traffic more efficiently to a variety of third-party
network sensors like those used for Voice over Internet Protocol
recording, data leakage protection and forensic analysis. In the
year ended 31 December 2009, this business represented
approximately 22 per cent. of Top Layer's revenue and in the six
months ended 30 June 2010 approximately 30 per cent. of Top Layer's
revenue.
Summary Financial Information on Top Layer
Six months
Year ended Year ended ended 30
31 December 31 December June 2010
2008 Audited 2009 Audited Unaudited
($'000) ($'000) ($'000)
Revenue 11,779 11,693 5,269
Comprising of:
Products (hardware and
software) 5,907 4,989 2,035
Services 5,872 6,583 3,015
Other - 121 219
Gross Profit 8,697 6703 4,267
Loss before finance costs (5,750) (2,113) (368)
Finance Costs (net of finance
income) (1,869) (1,305) (1,053)
Loss before taxation (7,619) (3,418) (1,421)
The Business
Top Layer's IPS solution is built around a family of
purpose-built appliances, using off the shelf silicon and hardware
and Top Layer's proprietary software (licensed to customers on a
non-exclusive basis until terminated by Top Layer), that are
deployed at strategic points in customers' IT networks. The
appliances inspect network traffic flows to identify and block
malicious software ("malware") and other cyber attacks using
multiple threat detection engines and an extensive database of
rules and signatures developed by Top Layer. In addition to the IPS
appliance, the Top Layer solution includes TopResponse(TM), an
automated threat update subscription service, IPS Controller, a
centralised management software module and Network Security
Analyzer, a security information and event management software
module that provides real-time dashboard views and reporting
capabilities. In addition, Top Layer offers customers professional
services, comprising mainly IPS implementation and security
optimisation services, training and maintained IPS security
services.
Top Layer's product line uses an integrated firewall filtering
and intrusion prevention-focused deep packet inspection to block
undesired network access and malicious network content (including
remote exploits of system vulnerabilities in computer operating
systems and applications viruses, worms, Trojans and spyware). The
same product also mitigates rate-based attacks such as DoS and DDoS
attacks and application-level flood attacks. Rate-based attacks are
cyber attacks which intentionally overload computers or networks
with traffic for the purpose of preventing legitimate traffic from
reaching its destination, resulting in lost revenue and brand
damage for the attacked enterprise or organisation.
Top Layer is headquartered in Hudson, Massachusetts, US and has
51 employees, of which 21 are involved in the sales and marketing
function, 13 in development of Top Layer's technology and the
balance in management, support, product management, finance and
administration. The manufacturing and assembly of Top Layer's IPS
hardware appliance is outsourced to a contract manufacturer in the
US.
Top Layer's revenue model has several streams including hardware
sales, software licensing, support and IPS update service fees,
installation and maintenance services. A typical new customer sale
will pay a set price for the hardware, software license,
maintenance, technical support and IPS threat update services for a
period ranging anywhere from one to three years in addition to
implementation services. Approximately half of Top Layer's business
is sold through channel partners including specialist IT
distributors and integrators including Immix Technology, Inc.,
InfoPeople Security Solutions, Inc., FishNet Security Inc.,
Accuvant, Inc., and Blue Cube Security Limited. In the nine months
ended 30 September 2010, over 65 per cent. of new business orders
of Top Layer were generated from customers in the US. Top Layer's
customers include large multinational corporations and public
sector companies including Air Liquide SA, Globix Limited,
University of Miami and Camelot UK Lotteries Limited.
Information on Corero
Corero's Business Systems division is a provider of management
information software solutions to the Further Education, Academy,
school and commercial markets. The Business Systems' software
solutions include Resource Financials, a financial software
solution and Resource Education Management System ("EMS"), a
management information system aimed at the sixth form and further
education college sector.
Resource Financials is a flexible financial management system
with a suite of highly integrated modules including core accounting
ledgers, order processing including e-procurement, project costing
with timesheets and expenses, fixed asset accounting and tracking,
and document scanning and management. Complementing these core
modules are a range of web based applications covering reporting,
requisitioning, timesheet and expense entry and approval. Resource
Financials has approximately 330 customers (being those who pay for
annual support), including approximately 110 Sixth Form and Further
Education College customers, approximately 150 Academies and
Schools, and over 50 commercial customers including consulting
engineers, market research and design companies.
Resource EMS manages the complete learner life-cycle, from
initial enquiry through to completion within the further education
market place in England. Combining both core and web portal
technology, Resource EMS delivers key aspects of learner and
employer administration including web and portal enrolments,
applications and enquiries through to Individual Learner Plans,
pastoral care and achievement. Resource EMS is a comprehensive
solution with modules covering course provision, timetables,
registers, work based learning and exams as well as satisfying the
requirement for Department of Business, Innovation & Skills
statutory returns. Resource EMS has approximately 40 Sixth Form and
Further Education College Customers.
History of Corero
The Company was incorporated in November 1991 with the name
Mondas plc and was admitted to trading on AIM on 9 October 2000.
The Company changed its name to Corero plc on 27 February 2007. The
Company's business, prior to the August 2010 Transaction comprised
two divisions: Business Systems division and Financial Markets
division. The Business Systems division was formed from two
acquisitions: the acquisition of DSR Holdings Limited, a company
whose principal activity was the design, manufacture and supply of
accounting and management information software products mainly for
small to medium sized enterprises, in October 2000 and the
acquisition of Eclipse Learner Systems Limited, a provider of
learner management administration software, in October 2005. The
Financial Markets division was formed from the Company's legacy
business being the development and marketing of business process
management and workflow software (branded as Radica) and the
acquisition in January 2006 of Blue Curve Limited, a company whose
principal activity was the development and marketing of software
solutions used by financial institutions to improve a variety
of financial information production and distribution processes.
The Financial Markets division was disposed of on 6 August 2010 on
the terms as detailed in the circular to Shareholders dated 14 July
2010 and comprised part of the August 2010 Transaction.
Strategy of the Enlarged Group
On completion of the Acquisition, the Enlarged Group will have
businesses with a strong proposition in the international network
security market and in the supply of software solutions to the UK
education market.
The strategy for the Security Systems division will be to drive
revenue growth through increased marketing and industry visibility
of the division's approach and product capabilities and developing
an international channel focused sales model which will enable the
Enlarged Group to access new markets and customers. In terms of
product development, the emphasis will be on leveraging Top Layer's
IPS and DDoS protection product offerings and developing a broader
network security portfolio, including a next generation firewall
offering, both organically and through complementary
acquisitions.
The strategy for the Business Systems division will be to
continue to invest and grow the business focusing on the education
sector where it has a strong market position, particularly in the
Further Education College and Academy markets in England.
Development will continue on Resource Financials and Resource EMS
with additional modules to meet customer requirements. Resource
Financials V7, the next generation financial software solution, is
expected to be released in the first half of 2011.
Directorate change and information on Directors and Senior
Management and Employees
With effect from 4 February 2011, Jens Montanana (formerly a
non-executive Director) was appointed Chairman of the Company. On
the same date, Peter Waller stood down as Chairman of the Company
and resigned as a non-executive director of the Company. Mr. Waller
has served as a director of the Company since 24 January 2006. The
Board expresses its gratitude to Mr. Waller for his services to the
Company.
Jens Peter Montanana (non-executive Chairman), aged 50, is the
founder and CEO of Datatec Limited, established in 1986. Between
1989 and 1993 Mr. Montanana served as managing director and
vice-president of US Robotics (UK) Limited, a wholly owned
subsidiary of US Robotics Inc., which was acquired by 3Com. In
1993, he co-founded US start up Xedia Corporation in Boston, an
early pioneer of network switching and one of the market leaders in
IP bandwidth management, which was subsequently sold to Lucent
Corporation in 1999 for $246 million. In 1994, Mr. Montanana became
CEO of Datatec Limited. Datatec Limited listed on the Johannesburg
Stock Exchange in 1994 and on AIM in 2006. Mr. Montanana has
previously served on the boards and sub-committees of various
public companies.
Andrew Douglas Miller (chief operating officer), aged 46, was
with the Datatec Limited group in a number of roles between 2000
and 2009 including the Logicalis Group Limited ("Logicalis")
Operations Director and Corporate Finance and Strategy Director.
Mr. Miller led the Logicalis acquisition strategy, acquiring and
integrating 12 companies in the US, UK, Europe and South America.
Prior to this, Mr. Miller gained considerable corporate finance
experience in London with Standard Bank, West Deutsche Landesbank
and Coopers & Lybrand. Mr. Miller trained and qualified as a
chartered accountant and has a bachelor's degree in commerce from
the University of Natal, South Africa.
Bernard Patrick Snowe (executive director of Business Systems
division), aged 52, as one of the founders of DSR UK Plc ("DSR"),
was instrumental in helping to build the marketplace for Resource
Financials and Resource EMS and was a key part of the management
team retained following the acquisition of DSR by the Company in
October 2000. Mr. Snowe has over twenty years experience in the
Accounting and MIS marketplace, and is highly experienced within
the education sector in the UK, establishing Resource as the market
leading finance application to Colleges and Academies. Prior to
DSR, Mr. Snowe was a consultant for the FPS Financial Services
Group and Sales Manager for Hestair Dataline. He graduated in 1980
with BA (Hons) in Geography from Lancaster University.
Richard Last (non-executive director), aged 53, is a fellow of
the institute of Chartered Accountants in England and Wales, has
substantial experience in the IT software and services sectors and
is chairman and non-executive director of The British Smaller
Companies VCT 2 plc, which is listed on the main market of the
London Stock Exchange, and Parseq plc, Patsystems plc and Arcontech
Group PLC, all of which are AIM listed. He is also a non-executive
director of AIM listed Lighthouse Group plc. In addition, Mr. Last
is a director and shareholder of a number of private companies.
Following Admission, the Board intends to appoint an additional
independent non-executive director.
Immediately following Completion, key senior employees of the
Enlarged Group will include:
Peter Rendall - Top Layer Chief Executive Officer
Prior to joining Top Layer in 2003, Mr. Rendall served as the
Chief Financial Officer of Elcom International, Inc., an
international provider of technology solutions. Before that he was
at Logica plc where he served as Vice President of Operations for
its US telecommunications division. Mr. Rendall began his career
with Price Waterhouse, where he spent nine years advising clients
on transactions, including IPO's and corporate consolidations.
Paul Bogonis - Top Layer Chief Financial Officer
Prior to joining Top Layer in 2007, Mr. Bogonis served as
Vice-President of Finance at Elcom International, Inc., and prior
to that he was the Chief Financial Officer and Treasurer at Summit
Design, Inc. where he also served as a member of the board of
directors. Before that Mr. Bogonis held a number of finance
positions at Viewlogic Systems, Inc., Netegrity, Inc., Progress
Software Corporation, and Wang Laboratories, Inc. Mr. Bogonis has a
BS in accounting from Northeastern University and an MS from Boston
University.
Mike Cooper - Top Layer Vice President Engineering and Customer
Services
Prior to joining Top Layer in 2004, Mr. Cooper co-founded New
England Project Services, a project management consultancy.
Previously he served as vice president of service delivery with
Tanning Technology Corporation, an IT services company, and for
several years prior to that was an independent consultant helping
organisations improve their technology delivery practices. Mr.
Cooper also served in a number of roles with Logica, Inc.,
including vice president of quality assurance and technology,
Energy and Utilities Division; and vice president of engineering
and quality assurance manager.
Mike Paquette - Top Layer Chief Strategy Officer
Prior to joining Top Layer in 1998, Mr. Paquette held the
position of Senior Engineering Manager at Digital Equipment
Corporation in the Network Product Group where he was responsible
for Digital's multi-technology switch product development. He has
more than 25 years of computer networking and security experience
with an extensive background in the design and development of
networking and security products. Mr. Paquette has a BSEE from
Boston University.
Barry Spinney - Top Layer Chief Technology Officer
Mr. Spinney left FORE Systems, Inc. ("FORE") to found Top Layer
in 1997. At FORE, he managed the engineering team responsible for
the development of the ATM (Asynchronous Transfer Mode, a switching
technique for telecommunication networks) card for the ES-3810 LAN
switch. Prior to FORE, Mr. Spinney held engineering positions at
Digital Equipment Corporation where he was the inventor, architect,
and an engineering manager for the GIGAswitch product. He also
developed and managed the FDDI (Fibre Distributed Data Interface, a
technology used for LANs based on fibre optics) chipset and
VNSwitch (a product that bridges (interconnected) LANs of different
media (copper and fibre, and using different LAN protocols) into a
contiguous LAN or LANs). Mr. Spinney has over 25 years of computer
networking and security experience and has a Bachelor's degree in
Mathematics and Computer Science from the University of Waterloo
and a Masters degree in Computer Science from the University of
Toronto.
James Williams - Top Layer Vice President Sales
Prior to joining Top Layer in 2008, Mr. Williams was Vice
President and General Manager of North America Sales and Marketing
for 3Com Corporation. Prior to that Mr. Williams held a number of
senior sales positions including Senior Vice President of Sales for
Nuvo Network Management, a division of Trilogy Enterprises, Inc.,
and President of Sales and Marketing for Vanguard Managed
Solutions.
Background to and reasons for the Acquisition
In the context of the Corero Security Systems division, the
Directors have examined a number of potential acquisition
opportunities since the August 2010 Transaction. The Company's
target acquisition profile is focused on technology-led companies
with a software orientation in order to provide maximum flexibility
for growth and development and the ability to exploit the latest
advances in multi-core CPUs to deliver enhanced levels of security
processing performance.
The Directors believe that Top Layer presents an exciting
prospect for the Company as the first step in executing its
acquisition strategy by providing a core platform on which to build
a leading network security systems business. Top Layer has a strong
proprietary technology offering with a multi-core processing
platform to support high performance security applications and
scalable architecture, which the Directors believe can be readily
developed to add functionality with which to broaden its network
security offering, and thereby the potential to deliver strong
revenue growth.
The Acquisition will provide Top Layer with a higher profile and
will give the Enlarged Group greater access to capital to
facilitate increased organic and acquisitive growth.
The Directors believe that Top Layer can develop its business
more rapidly by access to greater resources and the ability to
finance suitable acquisitions through the issue of shares on a
public market.
Principal terms of the Acquisition
The Company has conditionally agreed, pursuant to the terms of
the Merger Agreement, to acquire the entire issued share capital of
Top Layer and to satisfy the obligations of Top Layer to the Top
Layer Management Team and employees arising from the Change of
Control Agreements and Special Bonus Plan. The Acquisition is to be
effected by way of a merger, under Delaware law, of Tomcat Sub with
and into Top Layer. The Merger Agreement has been entered into
between (1) the Company, (2) Tomcat Sub, (3) Top Layer, (4)
CrossHill Debt II, L.P., (5) CrossHill Georgetown Capital, L.P. and
(6) Loudwater Trust Limited.
The aggregate consideration for the Acquisition is $15,288,160
(approximately GBP9,495,752), to be satisfied as to $6,304,602 by
the issue, credited as fully paid, of the Completion Consideration
Shares (such number of shares having been calculated using a share
price of GBP0.45 and a US dollar-to-British pound sterling exchange
rate of 1.55) $5,000,000 (approximately GBP310,559) by the issue of
the Consideration Loan Notes and $3,860,000 (approximately
GBP2,397,516) in cash (of which $500,000 (approximately GBP310,559)
shall be paid into an escrow account comprising the Escrow
Deposit). In addition, deferred consideration of $123,558
(approximately GBP76,744), to be satisfied by the issue of the
Deferred Consideration Shares (such number of shares having been
calculated using a share price of GBP0.45 and a US
dollar-to-British pound sterling exchange rate of 1.55), shall be
payable within 30 days after the date that is 18 months after
Completion, subject to adjustment for set off against any warranty
claims brought by the Company in accordance with the terms of the
Merger Agreement. The majority of the consideration for the
Acquisition will be received by the Principal Stockholders except
for the following:
-- the amount of $1,364,198 (approximately GBP847,328) payable
to the Top Layer Management Team in consideration for the
cancellation of the outstanding Management Preferred Shares (to be
issued by Top Layer immediately prior to Completion as payment in
full for obligations arising from the Change of Control
Agreements), to be satisfied as to $700,185 (approximately
GBP434,898) by the issue of 1,003,850 Completion Consideration
Shares (such number of shares having been calculated using a share
price of GBP0.45 and a US dollar-to-British pound sterling exchange
rate of 1.55), as to $123,558 (approximately GBP76,744) by the
issue of the Deferred Consideration Shares, subject to adjustment
for set off against any warranty claims under the terms of the
Merger Agreement (such number of shares having been calculated
using a share price of GBP0.45 and a US dollar-to-British pound
sterling exchange rate of 1.55) and as to $448,049 (approximately
GBP287,291) in cash (to fund the Top Layer Management Team's US
income tax obligations which will arise from the issue of the
shares); and
-- the amount of $279,000 (approximately GBP175,000) payable in
cash to certain Top Layer employees under the terms of the Special
Bonus Plan.
Relationship Agreement
The Principal Stockholders and the Company entered into the
Relationship Agreement on 7 February 2011 to regulate certain
aspects of the continuing relationship between them. For the
purposes of this paragraph and the immediately following paragraph
which summarises the provisions of the Relationship Agreement,
"Shareholders" means Crosshill Debt II, L.P. and Crosshill
Georgetown Capital, L.P. on the one hand (together being a
"Shareholder") and Loudwater Trust Limited on the other hand. For
so long as:
-- the Shareholders (or any of them) hold any of the
Consideration Loan Notes or the Shareholders (or any of them) hold,
in aggregate, more than 10 per cent. of the entire issued Ordinary
Shares of the Company, the larger Shareholder shall be entitled to
require the appointment of one director to the Board; and
-- the Shareholders (or any of them) hold, in aggregate, more
than 10 per cent. of the entire issued Ordinary Shares of the
Company or the Shareholders (or any of them) hold Consideration
Loan Notes with an aggregate principal value of not less than $1
million, the smaller Shareholder shall have the right to appoint a
representative as an observer to attend each and any meeting of the
Board.
The agreement is conditional on the Acquisition becoming
effective in accordance with the Merger Agreement and the
Shareholders shall only be able to exercise their rights to appoint
a director and/or observer after the expiry of three months
following Admission.
Lock-Ins
Each of the Principal Stockholders has severally agreed pursuant
to the terms of the Principal Stockholders Lock-In Deed that, for a
period of 12 months from Admission, it will not dispose of any of
the Completion Consideration Shares to which it is entitled
pursuant to the Merger Agreement and, for a further 12 months, it
will, at least two Business Days prior to a disposal of any such
Completion Consideration Shares being made, notify finnCap in
writing of the proposed disposal.
Each member of the Top Layer Management Team has severally
agreed pursuant to the terms of the Management Lock-In Deed in
respect of the Completion Consideration Shares to which he is
entitled pursuant to the Merger Agreement, that he will not:
-- dispose of any Completion Consideration Shares during the
period ending on the first anniversary of Admission;
-- dispose of more than 20 per cent. of Completion Consideration
Shares during the period commencing on the date immediately
following the expiry of the first anniversary of Admission and
ending on the second anniversary thereafter; and
-- dispose of more than 50 per cent. of Completion Consideration
Shares during the period commencing on the date immediately
following the expiry of the second anniversary of Admission and
ending on the third anniversary thereafter, and that he will, at
least two Business Days prior to a disposal of Completion
Consideration Shares (which are no longer the subject of a lock in)
being made, notify finnCap in writing of the proposed disposal.
These restrictions will apply in respect of 9,038,855 Ordinary
Shares representing 19.0 per cent. of the Enlarged Issued Share
Capital. The Lock-In Deeds are conditional upon the Acquisition
becoming effective in accordance with the Merger Agreement.
Share Options
The Company has an obligation under the Merger Agreement to
issue 675 000 options over Ordinary Shares in the Company to the
management and certain employees of Top Layer. These options will
be granted as soon as possible following Completion of the
Acquisition at the then prevailing share price of the Company. The
options will vest as to one third on the first anniversary of the
grant, one third on the second anniversary of the grant and one
third on the third anniversary of the grant with a restriction that
any Ordinary Shares acquired on the exercise of options may not be
disposed of until after the second anniversary of the grant.
Details of the Placing and Use of Proceeds
Under the terms of the Placing Agreement, finnCap has
conditionally placed, as placing agent to the Company, up to
6,571,429 Placing Shares at the Placing Price. The Placing Shares
will (assuming that the Placing is fully subscribed) represent
approximately 13.8 per cent. of the Enlarged Issued Share Capital.
The Placing Shares have been conditionally placed with existing
institutional shareholders and other new investors, including
certain Directors. The Placing as a whole will, if approved, raise
proceeds of up to GBP2.3 million, before expenses. The Placing
Shares will be in registered form and capable of being held in
certificated form or uncertificated form in CREST.
The Placing is conditional, inter alia, upon the passing of
Resolutions numbered 1, 2 and 4, Completion of the Acquisition and
Admission having occurred by no later than 2 March 2011 (or such
time and date as finnCap may specify, being not later than 31 March
2011). The Placing Agreement contains provisions (including
customary market related provisions) entitling finnCap to terminate
the Placing Agreement at any time prior to Admission in certain
circumstances. If this right is exercised, the Placing will lapse.
The Placing is not being underwritten.
The Placing Price of 35p represents a discount of approximately
12.5 per cent. to the middle market price of an Ordinary Share at
the close of business on 4 February 2011, being the latest
practicable date prior to the date of this document.
The proceeds of the Placing will be used, inter alia, as working
capital for the Enlarged Group and to provide the resources to
allow the Enlarged Group to increase its market share in the
network security and business systems markets through complementary
acquisitions and organic growth.
Pursuant to the Placing Jens Montanana and Richard Last will be
subscribing for 2,428,571 and 214,286 Ordinary Shares respectively.
Their interests on Admission will be 26.97 per cent. and 0.47 per
cent. respectively of the Enlarged Issued Ordinary Share
Capital.
Recommendation
The Board considers that the terms of the proposed Acquisition
and the Placing are in the best interests of the Company and its
Shareholders as a whole and recommend that Shareholders vote in
favour of the Resolutions to be proposed at the General
Meeting.
General Meeting
The Directors have called the General Meeting to approve and
grant the Directors a general authority to allot Ordinary Shares
(including on a non pre-emptive basis) and authority to issue
Ordinary Shares in connection with, inter alia, the Acquisition and
the Placing. The General Meeting is to be held at the offices of
finnCap, 60 New Broad Street, London, EC2M 1JJ at 11.00 a.m. on 1
March 2011.
Admission and Settlement
Application will be made to the London Stock Exchange for the
Enlarged Issued Share Capital to be admitted to trading on AIM.
Admission is expected to take place at 8.00 a.m. on 2 March
2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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