Independent Expert s Report Shareholder Approval for an issue of shares under item 7, section 611 of the Corporations Act

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1 17 April 2012 The Directors Anittel Group Limited Level 10, 132 Arthur Street North Sydney NSW 2060 Dear Sirs, Independent Expert s Report Shareholder Approval for an issue of shares under item 7, section 611 of the Corporations Act 1 Introduction 1.1 Overview of the Proposed Transaction On 28 February 2011 and 31 March 2011 respectively, Anittel Group Limited ( Anittel or the Company ) raised a total of $3 million, via the issue of two sets of convertible notes (collectively the Convertible Notes ) in order to meet its funding needs. These had the following key terms: 1,250,000 convertible notes for $1.25 million at 11.78% p.a., convertible into ordinary shares at the option of the holder, and repayable on 31 December The conversion rate is shares for each note held, which is equivalent to a current market price per share of the notes of approximately 0.9 cents per share ( Tranche 1 ). 1,750,000 convertible notes for $1.75 million at 11.78% p.a., convertible into ordinary shares at the option of the holder, and repayable on 31 December The conversion rate is 143 shares for each note held, which is equivalent to a current market price per share of the notes of approximately 0.7 cents per share ( Tranche 2 ). The holders of all the Convertible Notes are Peter and Vicki Kazacos (the Allottees ), who also jointly own 19.80% of the total Anittel ordinary shares currently issued. The Allottees have informed Anittel that they wish to exercise their rights to convert up to 2 million of the Convertible Notes into additional shares in the Company (the Proposed Transaction ). This would include 250,000 Tranche 1 Convertible Notes and 1,750,000 Tranche 2 Convertible Notes, which collectively would convert into 278,027,778 ordinary shares in the Company at a weighted average price of 0.72 cents per share (the Effective Issue Price ).

2 1.2 Reasons for the Shareholder Vote The Proposed Transaction will result in the Allottees owning greater than 20% of the total shares issued by the Company. Section 606 of the Corporations Act 2001 ( the Act or Corporations Act ) prohibits the acquisition of a relevant interest in issued voting shares of a company if the acquisition results in a person s voting power in the company increasing from below 20% to more than 20%, or from a starting point that is above 20% and below 90%. However a person may acquire the relevant interest under one of the exceptions set out in Section 611 without contravening Section 606. Item 7 of s611 of the Act allows members to approve an acquisition of relevant interests in voting shares that would otherwise contravene the prohibitions in s606, by passing a resolution at a general meeting. The relevant voting restrictions ensure that only members who are not associated with the parties to the transaction are able to vote in favour of the proposal ( Non- Associated Members ). The parties to the Proposed Transaction and the Company are now seeking the approval of the Non-Associated Members under item 7, section 611 of the Corporations Act for the Proposed Transaction. The Allottees may not vote on this resolution. 1.3 Purpose of this Independent Expert s Report ASIC Regulatory Guide 74 ( RG 74 ) states that company directors are obligated to provide shareholders with full and proper disclosure to enable them to assess the merits of any proposal under which a person would acquire an interest in a company that represents greater than 20% of the shares outstanding, and to decide whether to agree by resolution to the proposed acquisition. SLM Corporate Pty Ltd ( SLM ) has been asked by the directors of Anittel to prepare this Independent Experts Report ( Report ) in accordance with RG 74 with an opinion as to whether the Proposed Transaction is fair and reasonable and making it available to Non- Associated Members. This Report has been prepared so that the Non-Associated Members may fully consider and if appropriate, approve the Proposed Transaction at a general meeting, under the relevant exception set out in item 7 of Section 611 of the Act. SLM confirms that it is independent of Anittel in accordance with ASIC Regulatory Guide 112 ( RG 112 ) and has no other involvement with, or interest in, the outcome of the vote at the general meeting. A copy of this Report is to be included in the Explanatory Statement to be sent by the Company to its shareholders. The purpose of this Report is to express SLM s opinion as to whether the Proposed Transaction is fair and reasonable in accordance with ASIC Regulatory Guide 111 ( RG 111 ), and in particular clauses RG RG relating to takeover bids, as the Proposed Transaction is considered to result in a change of control similar to a takeover of the Company by a cash rich vehicle. This Report should not be used for any other purpose by any other party

3 2 Summary Opinion and Conclusions 2.1 Summary of opinion SLM considers the Proposed Transaction to be fair and reasonable in the context of Regulatory Guide 111, having regard to the interests of the Non-Associated Members of Anittel. SLM considers that the Proposed Transaction is fair as the Effective Issue Price is at a premium to the Company s recent trading price and our assessed valuation of the Company s shares. SLM considers that the Effective Issue Price includes a premium for control of the Company. A summary of our valuation analysis is in Section 2.2 and Section 6 and our detailed calculations are in Appendix A. In accordance with RG 111, if the offer is fair, it is also reasonable. Although it is not a requirement of RG 111 that SLM is to consider whether the advantages of the Proposed Transaction outweigh any disadvantages, we also considered a number of key advantages and disadvantages at Sections 2.3 and 2.4 below and we have provided further details in Section 6 of this Report. We have determined that the advantages do outweigh the disadvantages, and this lends additional weight to our recommendation that the Non- Associated Members of Anittel should vote in favour of the Proposed Transaction. 2.2 Valuation Analyses We have used the following methodology to independently value the Company s shares: a comparison of current market valuation earnings multiples for ASX listed companies that are comparable to Anittel; and a comparison of valuation earnings multiples paid in transactions to acquire businesses that are similar to Anittel. These multiples were then applied to our assessment of Anittel s future maintainable earnings in order to determine the current market value of Anittel (see Appendix A for an explanation of the valuation methodology and calculation). We then compared the Effective Issue Price to our calculated valuation range for the Company and to its historical traded share prices in order to determine whether the Proposed Transaction should be considered to be fair. A summary of our valuation is contained in the following table: Table A Summary of Anittel Valuation Anittel Valuation Pre - Transaction Post - Transaction Uplift Equity Value Per Share Equity Value Per Share (Cents per ($m) (cents) ($m) (cents) Share) Low Mid High The Effective Issue Price of 0.72 cents per share is significantly above the top end of our valuation range of 0.10 cents per share before the Proposed Transaction and increases the value of the shares post the Proposed Transaction to 0.18 cents per share

4 A summary of the historical Volume Weighted Average Price ( VWAP ) for Anittel s shares traded on the Australian Securities Exchange ( ASX ) in the periods prior to 14 March 2012, is contained in the following table: Table B Anittel Historical Share Price Period VWAP Share Price (Cents per Share) 30 days days days months year 0.6 In accordance with RG 111, the offer is fair as the Effective Issue Price of 0.72 cents per share is above all of the recent trading prices (0.5 cents to 0.6 cents per share) and substantially above our current valuation range for the Company s shares (-0.05 cents to 0.10 cents per share). As the Proposed Transaction is considered by us as fair, it is also reasonable. 2.3 Advantages of the Proposed Transaction The principal advantage of the Proposed Transaction is that the Company will extinguish $2 million of debt, which matures and is repayable on 31 December SLM notes that without converting these Convertible Notes into shares, the Company may not be able to meet the repayment due on 31 December Further, the Convertible Notes are incurring an interest rate of 11.78% per annum. Payment of this interest is currently being accumulated as further debt with the support of the Allottees due to the Company s inability to fund these interest payments. The Proposed Transaction will therefore significantly reduce the Company s debts by the elimination of the corresponding Convertible Notes, and increase its profitability by the reduction of interest charges. If the Proposed Transaction was rejected by the Non-Associated Members, it is uncertain whether Anittel would be able to meet its ongoing interest and principal obligations under the current terms of its loans or maintain the support of the Allottees, and it may not be able to continue to operate as a going concern. Finally, a conversion of the $2 million debt to equity results in an uplift of our per share equity valuation for the Company of 0.10 cents per share (at the low end of our valuation range) to 0.08 cents per share (at the high end of our valuation range) as shown in Table A, which directly benefits the Non-Associated Members (see Appendix A for our detailed valuation calculations)

5 2.4 Disadvantages of the Proposed Transaction The principal disadvantage of the Proposed Transaction is that the Allottees will increase their ownership position from 19.8% to 29.88% of the shares in the Company, thereby giving them a more influential shareholding position in the Company. With their existing 19.8% shareholding, the Allottees are able to block a compulsory acquisition (which requires the bidder and their associates holding at least 90% by number of the shares) but not a scheme of arrangement (which requires the bidder and their associates holding at least 75% by number of the shares). The Proposed Transaction would result in the Allottees being able to block both a compulsory acquisition and scheme of arrangement proposal and is therefore likely to deter alternate suitors from making a bid for the Company. This might deprive the Non-Associated Members of the opportunity to receive a higher offer for their shares in the future. However, the Allottees are currently the largest holders of shares in the Company and they are also the major debt providers to the Company, having provided the Company with $5.5673m in interest bearing loans during the period February June 2010, in addition to the Convertible Notes. In addition, Mr Kazacos is the Managing Director and Executive Chairman. The Allottees are currently in a position of substantial influence within the Company. For this reason, SLM believes that the Proposed Transaction would only marginally reduce the likelihood of success of a future offer, as any potential change of control transaction would almost certainly require the approval of the Allottees, whether the Proposed Transaction occurs or not. The Non-Associated Members are at a disadvantage by not being offered an opportunity to sell their shares to the Allottees at the same price. Overall, SLM believes the advantages of the Proposed Transaction outweigh the disadvantages. 2.5 Summary Conclusions SLM is of the opinion that the Proposed Transaction is both fair and reasonable. SLM is also of the opinion that the advantages of the Proposed Transaction outweigh the disadvantages. SLM therefore recommends that the Non-Associated Members of Anittel approve the Proposed Transaction. 2.6 Other Matters SLM s opinion has been formed on the basis of business conditions specific to Anittel and other general economic and market conditions in existence during the weeks leading up to the date of this Report. SLM s opinion is based on the interests of the Non-Associated Members as a whole. The position of individual shareholders has not been considered. Approval or rejection of the proposed vote is ultimately a matter for individual shareholders based on their own views as to value and future market conditions. Shareholders who are in doubt as to the action that they should take in relation to the Proposed Transaction should consult their own professional advisers. SLM has prepared a Financial Services Guide as required by the Corporations Act. The Financial Services Guide is included in Section 7 of this Report. This Report is general financial product advice only and has been prepared without taking into account the objectives, - 5 -

6 financial situation or needs of individual shareholders of the Company. Shareholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs before acting in relation to their shareholdings. This report should not be relied upon as a basis for acquiring or disposing of shares in Anittel. Shareholders should read the Explanatory Statement and Notice of General Meeting issued by the Company in relation to the proposed vote

7 Table of Contents 1 Introduction Overview of the Proposed Transaction Reasons for the Shareholder Vote Purpose of this Independent Expert s Report Summary Opinion and Conclusions Summary of opinion Valuation Analyses Advantages of the Proposed Transaction Disadvantages of the Proposed Transaction Summary Conclusions Other Matters Scope of this Report Regulatory requirements Basis of this Report Sources of Information Limitations and Reliance on Information Profile of Anittel Background and Overview of the Company Historical Operating Results Financial Position Capital Structure and Shareholders Share Market Performance Overview of the Proposed Transaction Introduction and Background Result of approval Changes to the Board as a result of the Proposed Transaction Intentions of Peter and Vicki Kazacos regarding the future of Anittel Evaluation of the Proposed Transaction Summary and Conclusions The price paid in the Proposed Transaction SLM s Assessed Valuation Quoted Price of the Listed Securities Advantages of the Proposed Transaction Disadvantages of the Proposed Transaction Future Transactions between the Allottees and the Anittel Group

8 6.8 Each Shareholder Should Make Their Own Decision Based on Their Own Criteria SLM s Conclusion Qualifications, Declarations and Consents Qualifications Declarations Financial Services Guide Consents Appendix A 1 Valuation Methodology Background Discounted cash flow method (DCF) Market based methods Asset based methods Methodology selected Valuation of Anittel Capitalisation of maintainable earnings Future maintainable earnings Earnings multiple Surplus assets Net debt Valuation: capitalisation of maintainable earnings Appendix B Comparable Trading Companies Appendix C Comparable Company Transactions Appendix D Industry Commentary List of Tables Table A Summary of Anittel Valuation... 3 Table B Anittel Historical Share Price... 4 Table C Anittel Group Limited Financial Performance Table D Anittel Group Limited Financial Position Table E Substantial Shareholders Table F Anittel Historical Share Price Table G Pro-Forma Share Holdings Post Transaction Table H Top 10 Shareholdings Analysis Table I Anittel Share Price Trends Over The Trading Period

9 Table J Comparable Company EBITA Multiples Table K Comparable Transaction Multiple Table L Anittel Valuation Calculation Table M Pro-Forma Change to Equity Valuation Post Transaction List of Figures Figure 1 Anittel 1 Year Share Price Trading History

10 3 Scope of this Report 3.1 Regulatory requirements Section 606 of the Corporations Act prohibits the acquisition of a relevant interest in issued voting shares of a company if the acquisition results in a person s voting power in the company increasing from below 20% to more than 20%, or from a starting point that is above 20%. However a person may acquire the relevant interest under one of the exceptions set out in Section 611 without contravening Section 606. Item 7 of s611 of the Act allows members to approve an acquisition of relevant interests in voting shares that would otherwise contravene the prohibitions in s606, by passing a resolution at a general meeting, on the conditions that: a) only Non-Associated Members are able to vote in favour of the proposal; and b) the Non-Associated Members of the Company are given all information known to the person proposing to make the acquisition or their associates, or known to the company, that is material to the decision on how to vote on the resolution, including: (i) the identity of the person(s) proposing to make the acquisition and their associates; and (ii) the maximum extent of the increase in that person's voting power in the company that would result from the acquisition; and (iii) the voting power that person(s) would have as a result of the acquisition; and (iv) the maximum extent of the increase in the voting power of each of that person's associates that would result from the acquisition; and (v) the voting power that each of that person's associates would have as a result of the acquisition. RG 74 states that the principles in s602(b) of the Act also requires members to be given enough information to assess the merits of a proposal, and that it is a duty at common law for company directors to provide shareholders with full and proper disclosure. RG 74 makes it clear that the responsibility is on both the acquirer and the Company to provide enough information to enable the Non-Associated Members to assess the merit of the proposal under which the person would acquire a substantial interest in the Company, and to decide whether to agree by resolution to the proposed acquisition. SLM has been asked by the directors of Anittel to prepare this Report in accordance with RG 74 with an opinion as to whether the Proposed Transaction is fair and reasonable and making it available to Non-Associated Members. 3.2 Basis of this Report SLM has prepared this Report in accordance with RG 111 dated March 2011, which outlines the content of expert reports where a control transaction takes place which may be approved under item 7 of s611 of the Act. SLM is required to state its opinion as to whether the Proposed Transaction is fair and reasonable and in particular consider the clauses RG to RG relating to Takeover Bids, as the Proposed Transaction is considered to result in a change of control similar to a takeover of the company by a cash rich vehicle

11 We note in particular that RG to RG provide a range of criteria to be considered as part of the expert determination. RG states that it has long been accepted in Australian mergers and acquisitions practice that the words fair and reasonable in s640 establish two distinct criteria for an expert analysing a control transaction: a) is the offer fair ; and b) is it reasonable? That is, fair and reasonable is not regarded as a compound phrase. RG provides that under this convention, an offer is fair if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer, with this comparison being made: a) assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm s length; and b) assuming 100% ownership of the target and irrespective of whether the consideration is scrip or cash. RG provides that an offer is reasonable if it is fair. It also provides that it might also be reasonable if, despite being not fair, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer. RG provides guidance for what an expert might consider, when deciding whether an offer is reasonable in the event that it is not fair : a) the Allottee s pre-existing voting power in securities in the Company; b) other significant security holding blocks in the target; c) the liquidity of the market in the target s securities; d) taxation losses, cash flow or other benefits through achieving 100% ownership of the target; e) any special value of the Company to the Allottee, such as particular technology, the potential to write off outstanding loans from the target, etc; f) the likely market price if the transaction is unsuccessful; and g) the value to an alternative bidder and likelihood of an alternative offer being made. We have also had regard to the following factors in assessing the advantages and disadvantages of the Proposed Transaction to Non-Associated Members: a) The Company s current financial position; b) The terms of the Convertible Notes and other loans provided to the Company by the Allottees. c) The terms of the Proposed Transaction; d) The impact on the Company if the Proposed Transaction is approved, and the impact if it is not approved; e) The change in the ownership position of the Non Associated Members of Anittel if the Proposed Transaction is approved compared to the existing position;

12 f) The potential impact the Allottees may have as to the operations of the Company as a shareholder with a controlling stake; g) The intentions of the Allottees with respect to Anittel. 3.3 Sources of Information During the course of preparing this Report, SLM held discussions with, and received information from, the directors and management of Anittel. SLM submitted a number of written questions to Peter and Vicki Kazacos and received their written responses. In preparing this Report, SLM has utilised and relied upon, without independent verification except where noted, the following information: the Annual Reports of Anittel for the years ended 30 June 2010 and 30 June 2011; financial results for the half year ending 31 December 2011 and forecasts for the full year to 30 June 2012; and press releases, stock exchange announcements and other public filings by Anittel. 3.4 Limitations and Reliance on Information SLM s opinions are based on economic, financial market, business trading and other conditions and expectations prevailing at the date of this Report. These conditions can change significantly over relatively short periods of time and, if they did change materially, the valuations and opinions expressed in this Report could be different. SLM has no obligation to, nor does it undertake to advise any person of any change in circumstances that has come to its attention after the date of this Report or to review, revise or update its Report or opinions. This Report is also based upon financial and other information provided by the Company. SLM has considered and relied upon this information. SLM has no reason to believe that any material facts have been withheld. The information provided to SLM has been evaluated through analysis, enquiry and review for the purposes of forming an opinion as to whether the Proposed Transaction is fair and reasonable. However, in preparing reports such as this, time is limited and SLM does not warrant that its enquiries have identified or verified all of the matters that an audit, extensive examination or due diligence investigation might disclose. An important part of the information used in forming an opinion of the kind expressed in this Report is comprised of the opinions and judgment of Management. This type of information was also evaluated through analysis, enquiry and review to the extent practical. However, such information is not always capable of external verification or validation. Preparation of this Report does not imply that SLM has audited in any way the management accounts of Anittel. It is understood that the accounting information that was provided to SLM was prepared in accordance with Australian Financial Reporting Standards and in a manner consistent with the method of accounting in previous years unless otherwise noted. SLM believes that this Report and the opinions included in the Report must be considered as a whole and that selecting portions of the analysis, without considering all of the factors and analysis together, could create a misleading view of the process underlying the opinions. The preparation of a report of this nature is a complex process and is not necessarily amenable to partial analysis or summary

13 4 Profile of Anittel 4.1 Background and Overview of the Company Anittel Group Limited ( Anittel or the Company ) is an ASX-listed IT and telecommunications solutions and service provider offering voice data, mobility, PBX, and IT services to Australian businesses. The Company is also a supplier of telecommunications and IT goods and services. Anittel currently operates out of 17 locations across New South Wales, Victoria, Queensland, Western Australia, South Australia and Tasmania. It employs over 200 staff and provides the following services: IT Support Services: outsourced IT support including managed services Internet & Data: internet connectivity and networks Telecommunications: PSTN / ISDN fixed line, mobiles, inbound 1300/1800 Cloud Services: hosted / online based services Hardware & Software: procurement of IT and telecommunications products. 4.2 Historical Operating Results The table below summarises the financial performance of Anittel during the years ended 30 June 2009, 2010 and Key factors impacting the FY11 result: Table C Anittel Group Limited Financial Performance For the financial period ending, 30 June ($'000) Revenue 5,286 21,460 59,553 Less: Cost of sales (3,217) (13,383) (37,247) Occupancy (291) (586) (1,462) Administration (3,093) (7,629) (20,828) Other expenses (587) (838) (1,754) Total (7,188) (22,436) (61,291) EBITDA (1,902) (976) (1,738) Impairment of goodwill (6,315) - (16,056) Depreciation and amortisation (151) (335) (1,302) Net interest (13) (133) (939) Tax (expense) / benefit Net profit after tax (8,027) (1,444) (19,899) Anittel acquired six businesses during FY10 which resulted in a substantial increase in revenues. It experienced some challenges in seeking to integrate the six businesses which impacted its profits. First half sales were also negatively impacted by a material drop in product sales from its Tasmanian operation due to reduced State Government spending and difficult economic conditions

14 Operating EBITDA was impacted by one-time adjustments including restructure costs totalling $676k and non-recurring professional fees of $459k. Goodwill relating to IT products and services was impaired by $16.06m during the FY11 period. This was due to a revised outlook by management with respect to certain business units after they experienced continued poor trading performance. 4.3 Financial Position The table below summarises the balance sheet of Anittel as at 30 June 2009, 2010 and Table D Anittel Group Limited Financial Position For the financial period ending, 30 June ($'000) Assets Current assets Cash and cash equivalents 1, ,629 Receivables 354 7,681 6,050 Other 229 1, Total current assets 2,483 9,567 9,436 Non-current assets Receivables Property, plant and equipment 236 1, Intangibles 4,816 38,434 23,153 Total non-current assets 5,052 40,295 24,327 Total assets 7,535 49,862 33,763 Liabilities Key factors impacting the financial position in FY 11: 2011 Current liabilities Payables ,580 9,995 Borrowings 147 3, Provisions Total current liabilities 1,267 17,355 11,019 Non-current liabilities Borrowings 84 3,777 9,645 Deferred tax - - 1,032 Provisions Total non-current liabilities 93 3,915 10,896 Total liabilities 1,360 21,270 21,915 Net assets 6,175 28,592 11,848 Equity Contributed equity 31,191 49,852 53,012 Convertible notes Other - 5,200 5,200 Accumulated losses (25,021) (26,465) (46,346) Total equity 6,175 28,592 11,866 Anittel received a cash injection of $5.43m during the FY11 period from new share issues and an additional loan agreement with Peter and Vicki Kazacos

15 During the year the consolidated entity continued its acquisition strategy by acquiring the business operations of D2K in Townsville, Netrics in Albury and IT West in Dubbo. Net Assets were impacted by the impairment to Goodwill relating to IT products and services of $16.06m made during the FY11 period. The Company s non-current borrowings increased during the period as a result of three separate convertible note issues totalling $6.4m. The Allottees subsequently agreed to alter the terms of the $3.4m convertible note, to make it term debt, with a maturity date of 16 April The maturity dates of the other two Convertible Notes totalling $3m were recently extended to 31 December The combination of goodwill impairments and new debt raisings led to the Company s gearing ratio (net debt / equity) increasing from 24% in FY10 to 61% in FY Capital Structure and Shareholders As at 14 March 2012 Anittel had 1,933,210,518 ordinary fully paid shares on issue, with 24.88% 1 of this shareholding being held by directors and their associates. Based on a closing share price of 0.5 cents per share on 14 March 2012, Anittel had a market capitalisation of $9.66m. Including the Company s net debt of $6.6m as at 31 December 2011, the enterprise value of the business was $16.26m. The schedule of top 10 shareholders as at this date is set out below: Table E Substantial Shareholders Holder Name Number Held % of Total Shares Issued Peter and Vicki Kazacos 382,781, % Auckland Trust Company Ltd 359,998, % UBS Nominees Pty Ltd 95,564, % Corfe Associates Pty Ltd 68,500, % Maddak Pty Ltd 40,271, % Mr Chris Nikolakopoulos 29,350, % Mr Constantine Kazacos 28,571, % BT Portfolio Services Pty Ltd 27,023, % Bostealinc Pty Ltd 24,243, % Mr Stephen James Wyndham 23,780, % TOTAL 1,080,084, % 1 We have been advised by the Company that whilst Constantine Kazacos is the son of Peter Kazacos he is not an associate of Peter Kazacos as defined by section 15(1) of the Corporations Act. Accordingly, Constantinos Kazacos s shareholding has not been included for the purposes of calculating the shareholding of the directors and their associates

16 Price (Cents/share) Volume (millions) 4.5 Share Market Performance The chart below illustrates the daily share prices and trading volumes of Anittel from 15 February 2011 until 14 March 2012 ( Trading Period ). Figure 1 Anittel Share Price Trading History Feb '11 10 May '11 02 Aug '11 25 Oct '11 17 Jan '12 Source: Bloomberg We note the following with respect to the Anittel share price over the Trading Period: At the start of the Trading Period on 14 February 2011, the share price was 1.1 cents per share. The last traded price prior to 14 March 2012was 0.5 cents per share. Anittel shares have traded at a high of 1.1 cents per share on 14 February 2011 and first fell to its low of 0.4 cents per share on 23 September The Volume Weighted Average Price ( VWAP ) of the shares for varying periods up to 14 March 2012 are shown in the following table: Table F Anittel Historical Share Price Period VWAP Share Price (Cents per Share) 30 days days days months year 0.6 The stock traded on 195 out of a possible 262 trading days in the twelve months to 14 March The stock experienced low trading volumes during this twelve month period. Total volume traded was million shares, which equates to approximately 18.9% of the Company s total shares on issue

17 Anittel shares declined 55% during the period, trading from 1.1 cents per share on 14 February 2011 to 0.5 cents per share on 14 March In the same period, the ASX 200 fell 14% from 4,935 to 4,242 points

18 5 Overview of the Proposed Transaction 5.1 Introduction and Background Background to the Company Anittel is an ASX-listed IT and telecommunication solutions and service provider to Australian businesses. The Company is also a supplier of telecommunications and IT goods. It currently operates out of 17 locations across Australia and employs over 200 staff. Background to the Allottees Peter Kazacos is the Managing Director and Executive Chairman of Anittel. He and his wife Vicki are currently the largest shareholders in the Company owning a combined 382,781,250 shares which represents 19.80% of its total issued shares. Peter and Vicki Kazacos are also holders of 3 million Convertible Notes as a result of loans totalling $3 million made to the Company in February and March 2011, which were provided on the following terms: 1,250,000 convertible notes for $1.25 million at 11.78% p.a., convertible into ordinary shares at the option of the holder, and repayable on 31 December The conversion rate is shares for each note held, which is equivalent to a current market price per share of the notes of approximately 0.9 cents per share ( Tranche 1 ). 1,750,000 convertible notes for $1.75 million at 11.78% p.a., convertible into ordinary shares at the option of the holder, and repayable on 31 December The conversion rate is 143 shares for each note held, which is equivalent to a current market price per share of the notes of approximately 0.7 cents per share ( Tranche 2 ). Peter and Vicki Kazacos have also provided additional loans to the Company of approximately $6.6m plus accumulated interest. The Proposed Transaction The Proposed Transaction is for Peter and Vicki Kazacos to exercise their rights to convert up to 2 million of Anittel Convertible Notes into additional shares in the Company. This conversion would include 250,000 Tranche 1 Convertible Notes and 1,750,000 Tranche 2 Convertible Notes, which collectively would convert into 278,027,778 ordinary shares in the Company at a weighted average price of 0.72 cents per share. The Proposed Transaction is subject to and conditional upon members of the Company approving such conversion. The vote will exclude the Allottees or any other shareholders associated with the Proposed Transaction. 5.2 Result of approval If the Proposed Transaction is approved by the Non-Associated Members, the particulars of the number and percentage of Anittel shares after the Proposed Transaction is finalised, are set out below:

19 Table G Pro-Forma Share Holdings Post Transaction Convertible note conversion AYG Shares Kazacos Shares Kazacos Ownership Current shares on issue 1,933,210, ,781, % Tranche 1 conversion issue 27,777,778 27,777,778 Tranche 2 conversion issue 250,250, ,250,000 TOTAL 2,211,238, ,809, % Table H Top 10 Shareholdings Analysis % of Total Issued Holder Name Pre-Transaction Post-Transaction Peter and Vicki Kazacos 19.80% 29.88% Auckland Trust Company Ltd 18.62% 16.28% UBS Nominees Pty Ltd 4.94% 4.32% Corfe Associates Pty Ltd 3.54% 3.10% Maddak Pty Ltd 2.08% 1.82% Mr Chris Nikolakopoulos 1.52% 1.33% Mr Constantine Kazacos 1.48% 1.29% BT Portfolio Services Pty Ltd 1.40% 1.22% Bostealinc Pty Ltd 1.25% 1.10% Mr Stephen James Wyndham 1.23% 1.08% 5.3 Changes to the Board as a result of the Proposed Transaction Mr Peter Kazacos is currently the Chairman and Managing Director of the Company. Mr and Mrs Kazacos have informed SLM that they are supportive of the existing members of the Board and do not currently have any intention to seek further appointments to the Board. 5.4 Intentions of Peter and Vicki Kazacos regarding the future of Anittel Both Peter and Vicki Kazacos have informed SLM that they are supportive of the current direction of Anittel and the strategic plan of the Board. They have no intention of requesting any significant changes to the existing business of Anittel. They are supportive of the current management and accordingly, do not expect to have any additional impact on the operations of the Company as a result of the Proposed Transaction. They would support a future capital raising by the Company, and they also intend to convert the remainder of their Convertible Notes into shares at some point in the future

20 6 Evaluation of the Proposed Transaction 6.1 Summary and Conclusions In SLM s opinion the Proposed Transaction is both fair and reasonable for the Non- Associated Members of Anittel. The Effective Issue Price of 0.72 cents per Anittel share is above the Company s historical traded price and substantially above SLM s assessed valuation. In accordance with RG111, SLM considers the Proposed Transaction to be fair. The Effective Issue Price includes a premium for control of the Company. As the Proposed Transaction is fair, it is also reasonable. Further, in SLM s opinion the advantages of the Proposed Transaction also outweigh the disadvantages. SLM therefore recommends that the Non-Associated Members of Anittel approve the Proposed Transaction. 6.2 The price paid in the Proposed Transaction The price to be paid by the Allottees is: o 0.9 cents per share for $250,000 of Tranche 1 Convertible Notes; and o 0.7 cents per share for $1,750,000 of Tranche 2 Convertible Notes, resulting in a combined issue of 278,027,778 Anittel shares at an average price of 0.72 cents per share. The Proposed Transaction will result in the Allottees owning 29.88% of the Company, up from 19.8% before the Proposed Transaction. SLM has considered whether the Allottees have paid a control premium for the stake and whether the Non-Associated Members are at a disadvantage by not being offered an opportunity to sell their shares to the Allottees at the same price. SLM s analysis compares the Effective Issue Price to: o our assessed valuation of the Company; and o the historical traded price of the Company s shares on the Australian Securities Exchange. 6.3 SLM s Assessed Valuation SLM has assessed the fair market value of Anittel using the capitalisation of earnings method. See Appendix A for an explanation of the methodology and calculations. The Company provided SLM with an indicative forecast range of $0.10m to $0.60m for its FY12 earnings before interest, tax and amortisation of intangibles (EBITA), which SLM determined to be the most appropriate measure of maintainable earnings for Anittel. SLM also determined an appropriate earnings multiple range of 9.5x to 14.4x for a change in control transaction for Anittel. The calculated median of this range was 12.0x. These multiples were applied to the $0.60m upper end of the earnings range when calculating Anittel s enterprise value as shown in the table below

21 Capitalisation of maintainable earnings (all figures in $ millions) Low Mid High Multiple range 9.5x 12.0x 14.4x FY12e EBITA Enterprise Value Less: Net debt Equity value Cents Per Share (0.05) Our calculated enterprise value for the Anittel business was in the range of $5.71m to $8.65m. After deducting the Company s 31 December 2011 net debt of $6.64m, we were left with an equity value range of -$0.93m to $2.01m or -0.5 cents per share to 0.10 cents per share. We note that applying the multiples to the low end of the Company s EBITA guidance range for FY12 of $0.10m resulted in a negative equity value. The Proposed Transaction is based on an Effective Issue Price of 0.72 cents per share which results in the Allottees effectively paying $2.0m for an additional 10.08% of the Company. This equates to a $19.8m equity valuation for Anittel, which is significantly higher than SLM s assessed equity valuation of -$0.93m to $2.01m. 6.4 Quoted Price of the Listed Securities SLM has compared the Effective Issue Price to the historical Quoted Price of the Company s Listed Securities. The table below sets out price trends in Anittel shares over the Trading Period: Table I Anittel Share Price Trends Over the Trading Period Period VWAP Share Price (Cents per Share) 30 days days days months year 0.6 The Effective Issue Price of 0.72 cents per share represents a premium of 44% to the price of 0.5 cents per share on 14 March The Effective Issue Price of 0.72 cents per share also represents a premium of 44% to the 6 month VWAP of 0.5 cents per share The Effective Issue Price of 0.72 cents per share is above the Company s historical VWAP traded price range of 0.5 cents per share to 0.6 cents per share and substantially above SLM s assessed valuation range of -0.5 cents per share to 0.10 cents per share. Therefore, the

22 Proposed Transaction can be considered fair and includes a premium for control of the Company. As the Proposed Transaction is fair, it is also reasonable. 6.5 Advantages of the Proposed Transaction The principal advantage of the Proposed Transaction is that the Company will extinguish $2 million of debt, which is otherwise due on 31 December SLM notes that without converting these Convertible Notes into shares, the Company may not be able to meet the repayment due on 31 December Further, the Convertible Notes are incurring an interest rate of 11.78% per annum. Payment of this interest is currently being accumulated as further debt with the support of the Allottees due to the Company s inability to fund these interest payments. The Proposed Transaction will therefore significantly reduce the Company s debts by the elimination of the corresponding Convertible Notes, and increase its profitability by the reduction of interest charges. The Allottees have already provided additional debt funding to the Company, and are committed to providing additional financial support to the Company should it be required. If the Proposed Transaction was to be rejected by the Non-Associated Members, it is uncertain whether Anittel would be able to meet its ongoing interest and principal obligations under the current terms of its loans or maintain the support of the Allottees, and it may not be able to continue to operate as a going concern. Finally, a conversion of the $2 million debt to equity results in an uplift to our per share equity valuation for the Company as shown in the table below. This uplift in value directly benefits the Non-Associated Members (see Appendix A for our valuation calculations). Anittel Valuation Pre - Transaction Post - Transaction Uplift Equity Value Per Share Equity Value Per Share (Cents per ($m) (cents) ($m) (cents) Share) Low Mid High Disadvantages of the Proposed Transaction The principal disadvantage of the Proposed Transaction is that the Allottees will increase their ownership position from 19.8% to approximately 29.88% of the shares in the Company, thereby giving them a larger and more influential shareholding position in the Company. With their existing 19.8% shareholding, the Allottees are able to block a compulsory acquisition (which requires the bidder and their associates to hold at least 90% by number of the shares) but not a scheme of arrangement (which requires the bidder and their associates to hold at least 75% by number of the shares). The Proposed Transaction would result in the Allottees being able to block both a compulsory takeover acquisition bid and scheme of arrangement proposal and is therefore likely to deter alternate suitors from making an offer for the Company. This might deprive the

23 Non-Associated Members of the opportunity to receive a higher offer for their shares in the future. Furthermore, it could be considered that the Non-Associated Members are at a disadvantage as they are not being offered an opportunity to sell their shares to the Allottees for cash under the Proposed Transaction, but we note that there is no obligation on the Allottees to provide a cash based alternative offer to the Non- Associated Members. Overall, SLM is of the opinion that the advantages of the Proposed Transaction outweigh the disadvantages. 6.7 Future Transactions between the Allottees and the Anittel Group RG states that the expert should also enquire whether future transactions are planned between the subject entity (in this case Anittel) and the Allottees (in this case Peter and Vicki Kazacos) or any of the Allottees associates. According to the Regulatory Guide this is in order to identify any future transactions which may not be at arm s-length or which may compensate a vendor from accepting a price for their shares which is too low. The Allottees confirmed to SLM in writing that no future transactions between them and Anittel are planned. However, we note that the Allottees hold additional Convertible Notes that they intend to convert in the future. 6.8 Each Shareholder Should Make Their Own Decision Based on Their Own Criteria SLM s opinion is based on the interests of the Non-Associated Members as a whole. The position of individual Anittel shareholders has not been considered. Approval or rejection of the Proposed Transaction is ultimately a matter for individual shareholders based on their own views as to value and future market conditions. Shareholders who are in doubt as to the action that they should take in relation to the Proposed Transaction should consult their own professional advisers. 6.9 SLM s Conclusion In SLM s opinion, the Proposed Transaction is fair and reasonable and the Non-Associated Members should vote in favour of the resolution

24 7 Qualifications, Declarations and Consents 7.1 Qualifications SLM Corporate Pty Ltd is an independent corporate advisory firm providing strategic and financial advisory services including in relation to valuations, financial modelling, mergers and acquisitions, public listings, divestments and corporate restructuring, balance sheet and capital optimisation, debt, hybrid and equity raisings, succession planning and general corporate advice. The team responsible for the preparation of this Report on behalf of SLM Corporate includes Mr Barry Lewin MBA, BCOM LLB and Mr Antony Sormann LLB B.Ec F Fin. Mr Lewin is the Managing Director of SLM Corporate and has over 10 years experience in relevant corporate advisory matters. Mr Lewin is a responsible manager of SLM Corporate in relation to its AFS License No issued pursuant to section 913B of the Corporations Act. Mr Sormann is the Director of Corporate Finance of SLM Corporate and has over 10 years experience in relevant corporate advisory matters. Mr Sormann is a responsible manager of SLM Corporate under its AFS Licence No Declarations It is not intended that this Report should be used or relied upon for any purpose other than as an expression of SLM Corporate s opinion as to whether the Proposed Transaction is fair and reasonable, having regard to the interests of the Non-Associated Members. Other than any liability which by law cannot be excluded, SLM Corporate expressly disclaims any liability to any Anittel shareholder who relies or purports to rely on this Report for any other purpose and to any other party who relies or purports to rely on this Report for any purpose whatsoever. This Report has been prepared by SLM Corporate with care and diligence and the statements and opinions given by SLM Corporate in this Report are made in good faith and in the belief on reasonable grounds that such statements and opinions are correct and not misleading. However, no responsibility is accepted by SLM Corporate or any of its officers or employees for errors or omissions however arising in the preparation of this Report, provided that this shall not absolve SLM Corporate from liability arising from an opinion expressed recklessly or in bad faith. SLM Corporate does not have at the date of this Report, and has not previously had, any shareholding in or other relationship with Anittel that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposed Transaction. SLM Corporate considers itself to be independent in terms of ASIC s Regulatory Guide 112 dated 30 March SLM Corporate will receive a fixed fee of $22,000 plus GST, for the preparation of this Report. This fee is not contingent on the outcome of the Proposed Transaction. SLM Corporate will not receive any other benefit for the preparation of this Report. SLM Corporate does not have any pecuniary or other interests that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposed Transaction. An advance draft of this Report was provided to Anittel and its advisers. Certain changes were made to this Report as a result of the circulation of the draft Report. No alterations were made to the methodology or conclusions as a result of circulating the draft Report

25 Anittel has agreed that, to the extent permitted by law, it will indemnify SLM Corporate and its directors, officers and employees from and against all liability, loss or damage arising out of or in connection with the preparation of this Report or resulting from or attributable directly or indirectly to the preparation of this Report. This indemnity does not extend to any liability arising out of or in connection with SLM Corporate s wilful misconduct, dishonesty, fraud or gross negligence. 7.3 Financial Services Guide About us - SLM Corporate Pty Ltd (ABN , Australian Financial Services Licence No ) ( SLM ) has been engaged by Anittel to provide a report in the form of an independent expert s report ( this Report ) in relation to the Proposed Transaction. This Financial Services Guide - This Financial Services Guide ( FSG ) is designed to assist retail clients in their use of any general financial product advice contained in this Report. This FSG contains information regarding SLM generally and the financial services that we are licensed to provide, the remuneration we have received in connection with the preparation of this Report and how complaints against us may be dealt with. Financial Services we are licensed to provide - SLM s financial services licence allows us to provide a broad range of services, including providing financial product advice in relation to various financial products, namely securities and interests in managed investment schemes. General Financial Product Advice - This Report contains general only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs. You should consider your own objectives, financial situation and needs when assessing the suitability of this Report to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services License to assist you in this assessment. Fees, commissions and other benefits we may receive - SLM has charged a fee to produce this Report. A fixed flat fee was negotiated and agreed with Anittel of $22,000 plus GST. Complaints - If you have a complaint regarding this Report, please raise it with us first using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner. Comments, questions or complaints regarding the Explanatory Statement and Notice of General Meeting should not be directed to SLM, which was not responsible for the preparation of those documents. A copy of our internal complaints handling procedure is available upon request. If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Ombudsman Service ( FOS ), as an external complaints resolution service. FOS can be contacted by calling You will not be charged for using the FOS service. Contact Details - SLM may be contacted by sending a letter to the following address: Barry Lewin SLM Corporate Pty Ltd PO Box 431 Flinders Lane