RECOMMENDED TAKEOVER OFFER FOR SONNET CORPORATION LIMITED CommodiTel Limited (ASX: CMO) (CommodiTel or CMO) is pleased to announce a friendly offmarket takeover offer (Offer) for Sonnet Corporation Limited (ASX: SNN) (Sonnet or SNN). The Offer will comprise the issue of 4.5 CommodiTel shares for every 1 Sonnet share, plus a total of $4.5 million for all Sonnet shares on issue as at the date the Offer closes (which is expected to be 193,555,555 shares). This implies a price of 14.025 cents per Sonnet share, based on the last traded price of CommodiTel shares on 24 April 2007 (being 2.6 cents). The last trading price of Sonnet shares on 24 April 2007 was 10 cents. The Offer terms reflect a premium of approximately 29.08 % to the volume weighted average price for Sonnet shares in the 30 trading days prior to 26 April 2007 (based on the volume weighted average price of CMO shares during the same period). The Offer is subject to a 90% minimum acceptance condition, no material adverse effect on SNN's prospects and other standard takeover conditions (as set out in the Annexure to this announcement). Sonnet’s directors have unanimously recommended that Sonnet shareholders accept the CommodiTel offer in the absence of a superior offer and provided that there is no material adverse change in CMO's prospects. Sonnet directors have also indicated that they intend to accept the CommodiTel offer with respect to their own shareholdings, in the absence of a superior offer or a material adverse change in CMO's prospects. At today's date, SNN Directors hold relevant interests in 22.76% of SNN's fully diluted share capital. A separate offer (the Options Offer) will be made for the 9.5 million options outstanding over SNN shares, in respect of which CMO will offer comparable CMO options in exchange for SNN options. Details of the Options Offer will be set out in the Bidders' Statement. 2 The 1,625,000 unlisted SNN Convertible Notes will convert into 18,055,555 ordinary shares on a compulsory basis if the offer is successful. A takeover represents an automatic conversion event under the terms of the Convertible Note deed. Merger Strategy The proposed friendly acquisition of Sonnet represents a significant step forward in CommodiTel’s growth strategy and will strengthen the overall position of the merged entity in the Australian mobile market. The proposed merger will deliver substantial synergies and efficiencies on a number of levels. More importantly, in terms of customers and revenues, CommodiTel will have the critical mass required to be a full service mobile telecommunications provider, with both wholesale and retail operations. The combined business will be the largest mobile virtual network enabler ("MVNE") in the Australian telecommunications market. Key benefits of proposed merger Operational efficiencies Substantial synergies and efficiencies will be gained by merging the two entities. Currently both CommodiTel and Sonnet have a financial team, a customer operations team, a billing and analysis team, a limited marketing team, and resources focused on working with external parties. The proposed merger will realise immediate savings via rationalisation of the existing teams, whilst also allowing a greater focus on developing individual opportunities that today neither business in their own right has the resources to investigate and pursue. Corporate efficiencies The proposed merger releases substantial savings in the areas of listing, insurance, audit and compliance costs. The proposed Board structure (with four (4) Board members) represents a significant reduction on the current pool of seven (7) Directors across both organisations and retains equal representation in the merged entity from both listed companies. I f the offer is successful, the Board of the merged entity will consist of four (4) members, comprising two (2) executive directors and two (2) non-executive Directors. From the CommodiTel Board, Mr David Sweet will be the Managing Director of the combined entity and Mr Roger Steinepreis will remain as non-executive director. From the Sonnet Board, Mr Ilario Faenza will be the Commercial Director of the combined entity, with Mr Kevin Weldon assuming the role of non-executive Chairman. Economies of Scale In the mobile industry it is critical to achieve a certain size of customer base to begin to realise the efficiencies gained from scale. An accepted size from which to effectively build a long term sustainable business in the mobile industry is a customer base of approximately 60,000 post paid subscribers and 50,000 prepaid subscribers. Currently neither business has such scale and therefore operates with excess capacity in their operations. Organic growth from this reduced scale is also cost prohibitive. The proposed merger achieves the scale required immediately and establishes a solid platform from which to focus on additional opportunities for growth including investment in organic growth. 3 Economies of Scale (continued) The additional size of the customer bases mean that there are also additional benefits to be gained in negotiating supply contracts associated with ongoing customer management costs. It is anticipated that the gross margin associated with the supply of wholesale minutes will improve substantially across the whole business, with additional scale resulting in improved margins. The merged entity intends to rationalise its branding to retail customer groups, with the implied savings accruing within the financial year 2008. Improved capability and depth of talent Currently the two entities focus on similar areas but with very different skills. CommodiTel has traditionally focused on sales and marketing with an outsourced customer care focus to help keep operational overheads to a minimum. Sonnet has concentrated on developing wholesale (MVNE) solutions with a key aspect being its billing and in-house customer care facilities. The proposed merger combines the key strengths of each organisation and substantially improves the depth of talent within the merged entity. This will enable the company to focus on growth through its own retail operations whilst developing best of breed wholesale partners. It will also enable the company to explore other telecommunications areas and overseas markets where MVNO businesses are yet to be established. Broadening of investor base and improved liquidity The merged entity will combine two distinct shareholder groups, each with their own pool of sophisticated investors. This broadening of the pool of sophisticated investors enhances the merged entity’s ability to raise funds for growth whilst improving the liquidity available to all shareholders. Funding the Cash Component of the Offer The cash component of the Offer totals approximately $4.5 million. These funds are to be secured from the following sources: (a) the holders of existing convertible notes in CommodiTel (issued in November 2006) with a total face value of $2.5 million have agreed to convert all the convertible notes into shares (each new share being issued at a price of 1 cent). Under the terms of the November 2006 Notes, upon conversion, the holders will be issued one (1) Option for every one (1) CommodiTel share issued to them (a total of 250,000,000 Options, each having an exercise price of 1.2 cents each). In addition to converting all of the 2006 Notes, the holders have agreed to exercise all of the Options, (requiring the issue of 250,000,000 Commoditel shares and raising a total of $3,000,000), subject to CMO being entitled to proceed to compulsory acquisition and other terms to be detailed in the bidder’s statement; and 4 Funding the Cash Component of the Offer (continued) (b) In consideration for the holders of the 2006 Notes agreeing to convert their existing notes, CommodiTel has entered into loan agreements with the holders which will ultimately result in the issue of further convertible notes to them with a total face value of $1,500,000, subject to CMO being entitled to proceed to compulsory acquisition and other terms to be detailed in the Bidder’s Statement. The new convertible notes will be convertible into CommodiTel shares at a price of 2 cents each, will accrue interest at 11% per annum and will mature 3 years from the date of issue. For every share issued on conversion of the convertible notes, the holder will be issued one (1) new option to acquire a CommodiTel share with an exercise price of 2.5 cents and an expiry date 4 years from the date of issue of the option. The new convertible notes will be secured against Just Mobile Pty Ltd, which is a 100% owned CommodiTel subsidiary. Independent of the Offer, but contingent on the Offer being successful, CommodiTel intends to proceed with a fully underwritten non-renounceable entitlements issue of shares to the combined shareholder group on the basis of one (1) new CommodiTel share for every ten (10) CommodiTel shares held as at the record date at an issue price of 2 cents per share to raise a total of approximately $4,347,548. The rights issue is to fund future customer acquisition growth. Capital Structure As a result of the Offer and the capital raisings referred to above, the number of CommodiTel shares on issue is expected to increase as follows: Event Number of Shares Current 802,773,890 Conversion of existing convertible notes 250,000,000 Exercise of options issued on conversion of existing convertible notes 250,000,000 Issued to Sonnet shareholders under the Offer (estimate based on full conversion by convertible noteholders) 870,999,997 TOTAL 2,173,773,887 Rights Issue 1:10 @ $0.02 ( based on 100% acceptance of the Offer) 217,377,389 TOTAL POST RIGHTS ISSUE 2,391,151,276 Summary of Key Terms of the Offer �� CommodiTel’s total offer for Sonnet shareholders will comprise 4.5 CommodiTel shares for every 1 Sonnet share, plus a total of $4.5 million for all Sonnet shares on issue as at the date the Offer closes (being all SNN shares on issue at today's date and those SNN shares issued during the offer period (being the convertible notes which will convert into Sonnet shares)). �� Based on the expected issued capital of Sonnet as at the date the Offer closes of 193,555,555 shares, and a closing price of CommodiTel shares on 24 April 2007 of 2.6 cents per share, the value of the consideration is equivalent to 14.025 cents per Sonnet share. This represents an attractive premium to the level at which Sonnet shares have traded recently, namely a 29.08% premium to the volume weighted average price ("VWAP") for Sonnet shares in the 30 trading days prior to this announcement (based similarly on the VWAP for CommodiTel shares over the same period). �� Unanimously recommended by the Sonnet Board in the absence of a superior offer provided that there is no material adverse effect on the prospects of CMO. �� Cash component is fully funded by various capital raisings. �� The Offer is subject to a number of conditions which are set out in detail in the Annexure to this announcement.
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