Level 17 140 St Georges Terrace Perth Western Australia 6000

Postal Address: PO Box 7191 Cloisters Square Western Australia 6850

Tel: 08 9322 2022 Fax: 03 9922 1262 www.pitcher.com.au [email protected]

Pitcher Partners is an association of independent firms Perth | Melbourne | Sydney | Brisbane

ASX ANNOUNCEMENT

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) ACN 009 120 405 ("the Company")

ASX CODE "ESI"

DISPATCH OF NOTICE OF MEETING

Following the Company's announcement to the Australian Stock Exchange on 19 October 2005 the Deed Administrators advise that a Notice of Meeting, Explanatory Statement and Expert's Report has been dispatched to the Company's shareholders today seeking, inter alia, approval for a proposal to recapitalise the Company and seek reinstatement of the Company's securities to trading on Australian Stock Exchange Limited ("ASX").

The shareholders' meeting will be held at 10am (WST) on 5 December 2005 at the Celtic Club, 48 Ord Street, West Perth Western Australia.

A copy of the Notice of Meeting, Explanatory Statement and Expert's Report is attached to this announcement.

One of the resolutions contained in the Notice of Meeting seeks shareholder approval for a consolidation of the Company's issued securities on a five $(5)$ for one $(1)$ basis. Set out below is an indicative sample timetable in relation to the consolidation (assuming the relevant resolution is approved by shareholders):

Event	Business Day	Date
Announcement of consolidation to ASX	Before Day 0	2 November 2005
Shareholder approval of consolidation	Day 0	5 December 2005
Trading in securities would ordinarily commence on a "deferred settlement" basis	Day 1	6 December 2005
Last day for the Company to register transfers on a pre-organisation basis	Day 5	12 December 2005

An Independent Western Australian Partnership ABN 89 953 077 011

$-2-$

Event Contd	Business Day	Date
First day for the Company to send a notice to each security holder and first day that the Company will register securities on a post-organisation basis	Day 6	13 December 2005
Despatch date, deferred settlement ends and last day for the Company to send a notice to each security holder	Day 10	19 December 2005

The above timetable is indicative and may change. The dates referred to in the timetable are the last dates by which various matters must be completed in accordance with the ASX Listing Rules.

Dated this 2nd day of November 2005.

$\mathcal{J}$ .

BRYAN HUGHES Joint and Several Deed Administrator Environmental Solutions International Ltd (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed)

ENVIRONMENTAL SOLUTIONS INTERNATIONAL

LIMITED (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed)

ABN 28 009 120 405

NOTICE OF GENERAL MEETING

TIME: $10.00$ am

DATE: 5 December 2005

PLACE: The Celtic Club, 48 Ord Street, West Perth, Western Australia

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to votina.

CONTENTS PAGE

Letter to Shareholders

Notice of General Meeting (setting out the proposed resolutions)

Explanatory Statement (explaining the proposed resolutions)

Glossary

Independent Expert's Report

Proxy Form

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

The General Meeting of the Shareholders of Environmental Solutions International Limited (subject to Deed of Company Arrangement) (Receivers and Managers Appointed) will be held at 10.00am (WST) on 5 December 2005 at The Celtic Club, 48 Ord Street, West Perth, Western Australia.

YOUR VOTE IS IMPORTANT

You may vote by attending the meeting in person, by proxy or authorised representative.

VOTING IN PERSON

To vote in person, attend the meeting on the date and at the place set out above. The meeting will commence at 10.00am (WST).

VOTING BY PROXY

To vote by proxy, please complete and sign the proxy form enclosed with this Notice of General Meeting as soon as possible and either:

send the proxy by facsimile to the company's share registry on facsimile number $\left( \bigcirc \right)$ (08) 9315 2233 (International: + 61 8 9315 2233); or
deliver the proxy to the Company's share registry at PO Box 535, Applecross WA ID) 6953,

so that it is received not later than 10.00am (WST) on 3 December 2005.

Proxy forms received later than this time will be invalid.

Lovel 17 140 St Beorge Terrace Perth Western Australia 6000

Postal Address PO Box 7191 Cloisters Square Wastern Australia 6850

Tel: 08 9322 2022 Fex. 08 +322 1262 www.pitcher.com.eu partners@pitcher-walcomiau

Pijcher Partners is an association of independent firms | Penh | Melbourne | Sydney | Brishano

LETTER TO SHAREHOLDERS

Dear Shareholder

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) ACN 009 120 405

On 19 November 2004, Environmental Solutions International Limited ("the Company") appointed Vincent Smith and Bryan Hughes as joint and several administrators pursuant to Section 436A of the Corporations Act ("Deed Administrators").

Prior to this date, on 17 November 2004, the Company's securities were suspended from trading on the official list of Australian Stock Exchange Limited ("ASX").

At a meeting of creditors held on 30 September 2005, the Deed Administrators recommended to the creditors of the Company that an amended Deed of Company Arrangement ("DOCA") be entered into. The summary of the terms of that deed are set out in this Memorandum and record a proposal put forward by Rofin Australia Pty Ltd ("Rofin") for the restructuring and recapitalisation of the Company, including the settlement of all creditor claims. The proposal was approved by creditors and the amended DOCA was subsequently executed.

The proposal from Rofin can be summarised as follows:

(a) the Company be authorised to allot and issue 190,000,000 Shares to Rofin (or its nominees) at an issue price of \$0.001 each (together with 30,000,000 free attaching Options) to raise \$190,000;
(b) the Company be authorised to allot and issue up to 220,000,000 Shares at an issue price of not less than \$0.01 each to raise up to a further \$2,200,000;
(c) prior to the upcoming meeting of shareholders, the Deed Administrators will request all of the existing directors and company secretary resign from the Company; and
(d) new directors nominated by Rofin will be appointed to the Company to sign off on any documentation associated with the Rofin proposal (including the Notice

An Independent Western Australian Pertnarship ABN 89 353 077 011

Offices throughout the world

of Meeting and Explanatory Statement). Such appointment will be conditional upon the passing of all resolutions at the upcoming meeting of shareholders.

The resolutions proposed in the attached Notice will enable the terms of the amended DOCA to be completed.

If the resolutions are passed and the proposed restructuring and recapitalisation completed, the Company will seek the reinstatement to trading of its securities on ASX.

None of the resolutions required under the recapitalisation proposal and listed in the accompanying Notice of Meeting will take effect unless each of the resolutions are duly passed. If any of those resolutions are not passed by shareholders the Company will remain subject to the DOCA, the trading suspension imposed by the ASX will remain in force and the Deed Administrators will need to consider other alternatives, which may include placing the Company into liquidation (in which event no return to shareholders is anticipated).

The Deed Administrators urge you to attend the General Meeting of shareholders. If you are unable to attend the meeting personally, your proxy should be forwarded to the Company's share registry so as to be received by no later than 10:00am on Saturday 3 December 2005.

It is considered by us, as Deed Administrators, that the Reconstruction Proposal will enable us as Deed Administrators to achieve the objectives set out in Part 5.3A of the Corporations Act (Commonwealth) 2001 and in particular to maximise the chances of the Company continuing in existence and to provide a better return to the creditors and shareholders of the Company than would result from the immediate winding up of the Company.

We encourage you to consider the attached documentation carefully and to exercise your vote in favour of the resolutions proposed for approval at the forthcoming meeting. It is very important that you participate in the decision which could be crucial for the future of your investment in the Company.

The Deed Administrators of the Company are not responsible for the contents of the Notice, the Explanatory Statement or the Memorandum generally. The Deed Administrators do not accept any responsibility for any disclosure in or failure to include any disclosure in those documents.

Yours faithfully PITCHER PARTNERS

yan Hughez
yan Hughes

Joint and Several Deed Administrator

NOTICE OF GENERAL MEETING

Notice is given that a General Meeting of Shareholders of Environmental Solutions International Limited (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed) will be held at 10.00am (WST) on 5 December 2005 at The Celtic Club, 48 Ord Street, West Perth, Western Australia.

The Explanatory Statement to this Notice of Meeting provides additional information on matters to be considered at the General Meeting. The Explanatory Statement and the proxy form are part of this Notice of Meeting.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Requigitions 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are reaistered Shareholders of the Company on 3 December 2005 at 5.00pm (WST).

Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the Glossary. All of the references to numbers of Shares and Options in the resolutions below are on the basis that the consolidation referred to in Resolution 7 has been completed.

AGENDA

SPECIAL BUSINESS

The Explanatory Statement which accompanies and forms part of this Notice describes the matters to be considered as special business.

RESOLUTION 1 - ALLOTMENT AND ISSUE OF SHARES AND OPTIONS

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passina of all other Resolutions, for the purposes of Listina Rules 7.1 and 10.11 of the Listing Rules of Australian Stock Exchange Limited, Section 208 and Item 7 of Section 611 of the Corporations Act and for all other purposes, approval is aiven for:

the Company to allot and issue up to 190,000,000 fully paid ordinary (a). shares in the capital of the Company at an issue price of \$0.001 to raise \$190,000, together with 30,000,000 free attaching options each to acauire a fully paid ordinary share in the capital of the Company at an exercise price of \$0.01 each:
(b) the Company to allot and issue up to 220,000,000 fully paid ordinary shares in the capital of the Company at an issue price of not less than \$0.01 per share to raise \$2,200,000; and
(c) the acquisition of a relevant interest in the voting shares of the Company by those parties set out in the Explanatory Statement,

and otherwise on the terms set out in the Explanatory Statement accompanying this Notice."

Short Explanation: As part of the recapitalisation of the Company, shares and options will be issued to Rofin (or its nominees). Rofin is likely to be a related party of the Company because parties that are associated with Rofin will be appointed as directors of the Company. For this reason, approval is sought for the purposes of ASX Listing Rules 7.1 and 10,11 and Section 208 of the Corporations Act. Approval is also sought to allow Rofin and certain nominees to acquire a voting power in the Company in excess of 20%

Voling Exclusion: The Company will disregard any votes cast on this resolution by:

Rofin, the Nominees and a person who may participate in the proposed issue and any person taì who might obtain a benefit, except a benefit solely in the capacity of a security holder if the resolution is passed, and any associates of those persons; and
a person who is to receive securities in relation to the entity and their associates. (b)

RESOLUTION 2 - REMOVAL OF DIRECTORS

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passing of all other Resolutions, all of the directors and the company secretary of the Company as at the date of this Meeting be removed as officers of the Company, effective from the date of termination of the appointment of the deed administrator of the Company."

RESOLUTION 3 - ELECTION OF MR GREGORY FENDIS

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passing of all other Resolutions, Mr Gregory Fendis, being eligible and having consented to act, be elected as a director of the Company."

RESOLUTION 4 - ELECTION OF MR SACHLAN FRAVAL

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passing of all other Resolutions, Mr Sachian Fraval, being eligible and having consented to act, be elected as a director of the Company."

RESOLUTION 5 - ELECTION OF MR FALDI ISMAIL

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passing of all other Resolutions, Mr Faldi Ismail, being eligible and having consented to act, be elected as a director of the Company."

RESOLUTION 6 - ALLOTMENT AND ISSUE OF SHARES PURSUANT TO DOCA

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passing of all other Resolutions, for the purposes of Listing Rule 7.1 of the Listing Rules of Australian Stock Exchange Limited and for all other purposes, approval is given for the Company to allot and issue up to 20,000,000 fully paid ordinary shares in the capital of the Company in accordance with the terms of the Deed of Company Arrangement at an issue price of not less than \$0.01 and otherwise on the terms set out in the Explanatory Statement accompanying this Notice."

Short Explanation: Under the Listing Rules, the Company may seek shareholder approval prior to a placement to allow it the flexibility to make future issues of securities up to the threshold of 15% of its total ordinary securities in any 12 month period. Please refer to the Explanatory Statement for details.

Volling Exclusion: The Company will disregard any votes cast on this resolution by a person who may participate in the proposed issue and any person who might obtain a benefit, except a benefit solely in the copacity of a security holder if the resolution is passed, or any associate of those persons.

RESOLUTION 7 - CONSOLIDATION OF CAPITAL

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, subject to the passing of all other Resolutions, pursuant to Section 254H of the Corporations Act and for all other purposes, the issued capital of the Company be consolidated on the basis that:

every five (5) Shares be consolidated into one (1) Share; and $\sigma$
every five (5) Options be consolidated into one (1) Option, (b)

and where this consolidation results in a fraction of a Share or Option being held by a Shareholder or Optionholder (as the case may be), the Directors be authorised to round that fraction up to the nearest whole Share or Option."

DATED: 21 OCTOBER 2005

Voting Exclusion Note:

Where a voting exclusion applies, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote in accordance with the directions on the proxy form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the shareholders of Environmental Solutions International Limited (ESI or Company) in connection with the annual general meeting of the Company.

In considering the resolutions, shareholders must bear in mind the current financial circumstances of the Company. In this regard, shareholders should note that separate reports have been made by the Deed Administrators to creditors of the Company in accordance with the Corporations Act. The reports set out in detail the financial position of the Company, the actions and investigations taken by the Deed Administrators, the reasons for the failure of the Company and the Deed Administrators' recommendations for the future of the Company. The creditors of the Company approved the terms of the restructure on 30 September 2005.

If all of the resolutions are passed and the proposed re-structuring set out in the recapitalisation proposal is completed, the Company will be in a position to seek the reinstatement of its securities to official quotation on ASX. This reinstatement is, of course, subject to the discretion of ASX.

If shareholders reject the proposed restructuring the Company may be placed into llavidation. In this circumstance, it is likely that there would be no return to shareholders.

$\overline{\mathbf{1}}$ . OVERVIEW

$1.1$ Background

A general background and history in respect of the appointment of the Deed Administrators is set out in the letter to shareholders at the beginning of this Memorandum.

The ENERSLUDGETM Technology Assets $1.2$

Pursuant to the DOCA, the Company will retain the "Enersludge Technology Assets" free of any encumbrances. These assets comprise:

all patents and pending application for patents; $\blacktriangleright$
all design information including hard copy and electronic design files; $\triangleright$
all other hard copy or electronic files: Þ
all rights of ESI to the pilot plant in Germany and all files and other assets $\mathbf{p}$ relating to it;
the PDU (lab scale process development unit) and Perspex reactor in $\blacktriangleright$ storage; and
all rights to the name 'Enersludge'. $\mathcal{L}$

Background on the ENERSLUDGETM technology $1.3$

ENERSLUDGETM is derived from a technology developed by the late Professor Bayer at Tubingen University in Germany in the mid 1980s. The Bayer lab scale technology was originally sold to the Canadian Government (Environment Canada) before being purchased by ESI in 1989. Over the next 5 years, ESI, in close cooperation with the inventor, Professor Bayer, embarked on a

comprehensive development programme for the newly named ENERSLUDGE™ technology which included:

a demonstration pilot plant built in conjunction with Sydney Water; and $(a)$
extensive Process Development Unit (PDU) trials to research, test and $(b)$ characterise a variety of feed materials in order to determine the optimum process configuration and operating parameters for new plants.

In 1996, ESI was awarded its first order for a commercial scale 'demonstration' ENERSLUDGE™ plant for sewage sludge from the Water Corporation of Western Australia. This contract included one year of plant operation and was successfully completed in 2001.

Shortly thereafter, ESI won a second contract for a pilot demonstration project to process waste sludge from tanneries in Europe and Brazil. This project was funded by the German Government and included 2 years of tannery sludge testing/demonstration. This project is described in more detail in section 2.4.

Since the successful completion of both of these projects. ESI has continued to refine and improve its ENERSLUDGE™ technology and in particular, build upon the lessons learned from its 'first-generation' plant designs. A much simpler and more robust design, based on not condensing the oil, but rather combusting the hot vapours has been successfully demonstrated on a 1 tonne per day ("tod") pilot plant in Germany. As a result, a series of lower cost and more flexible 'second-generation' designs are now ready for market,

In the last few years, ENERSLUDGETM has won a number of industry awards including the West Australian Industry and Export Award for Research and Development, and the Inaugural Banksia Foundation Award for Research and Development.

$1.4$ How it works

The concept

The key to ENERSLUDGETM is molecular re-arrangement by heating - achieved by a process of slow pyrolysis plus intimate contacting of the product streams in the main conversion reactor to obtain the optimum quality of products. In this process, the sludge molecules are heated in an oxygen free environment (no combustion), and re-ordered into syngas and char. The syngas can be condensed to produce an oil product

The conversion products capture all the energy that is in the incoming dry sludge. ENERSLUDGETM requires dry waste or sludge as feedstock (typically not more than 10% water by weight) and, since most sludge has a relatively high water content, the incoming sludge usually requires mechanical dewatering and thermal drying (or equivalent) before entering the ENERSLUDGETM process.

One of the key strengths of ENERSLUDGETM is its ability to handle pollutants. With a sludge containing a number of pollutants such as heavy metals, organochlorines, pathogens, toxins and/or Endocrine Disrupting Compounds (EDC's). The majority of the heavy metals partition into the char and, when this is combusted, the heavy metals become tightly bonded to the resulting ash. Unlike almost all other thermal processes, the heavy metals remain in the solid phase and are neither vaporised nor leachable all organochlorines, toxins, pathogens and EDC's are destroyed.

Rofin has identified a licensed technology using electrolysis on a scaleable basis which can recover the mineralization producing recovery rates approximating to \$3 per tonne and also a dewatering technology that may more efficiently produce a hybrid pellet. Further review of these technologies will be conducted after the Company's securities are reaupted on ASX.

Product usage

This partitioning and 'cleaning' of the incoming sludge provides enormous environmental, operational and commercial flexibility and the ENERSLUDGE™ products can thus be used in a variety of ways.

The syngas can be used as:

a source of process heat on site, primarily for sludge drying; and $(a)$
a fuel on site to raise steam or produce electricity. $(b)$

The oil can be used as:

a 'areen' alternative to fuel oil; for example for the upstream drying unit; (a) for firing boilers, kilns, incinerators and other direct combustion devices offsite; or as a fuel for slow speed diesel internal combustion engines to generate electricity; and
$(b)$ a chemical feedstock.

The char can be used as:

a 'green' alternative to coal; for example, for the upstream drying unit $\Box$ or for firing boilers, kilns, incinerators and other direct combustion devices offsite:
an absorbent; as an alternative to carbon in filters and other clean-up $(b)$ systems;
a row material in the manufacture of brick: during firing, the char $|c\rangle$ releases small amounts of vapours which result in a lightweight brick with excellent insulating properties;
$(d)$ a slow release phosphorus/potassium fertilizer in agriculture; and
a reductant (as well as a fuel) in metallurgical processes. $\Theta$

The use of the syngos, oil and char can result in avoidance of climate change levies and/or generation of Emission Reduction Units (or equivalent).

The variety of potential uses for the ENERSLUDGE™ products from a particular sludge or waste give the technology considerable market and commercial flexibility.

Plant design

The technology can be designed and delivered in a number of different ways to suit the circumstances. In general, the complete ENERSLUDGETM solution will comprise of:

sludge/waste dewatering and drying facilities: this is established $(a)$ technology and widely available in the market;

the core ENERSLUDGETM conversion facilities: producing syngas and $(b)$ char or oil and char; and
if required, syngos, oil and char combustion facilities with associated $|C|$ ancillary systems.

ENERSLUDGE™ can meet the most stringent emissions requirements including the new European Waste Incineration Directive (WID) and the US EPA 503 Reaulations.

A typical ENERSLUDGETM conversion 'train' is designed to process 30 to 50 drv tod which is equivalent to the sewage sludge produced by 500,000 people. This neatly fits into the growing desire to dispose of sewage sludge within the community. Smaller plant sizes, down to as low as 5 tpd can readily be built, and for higher flow rates / larger communities, a number of conversion trains are used.

Waste and sludge types

ENERSLUDGE™ has been tested with a number of wastes and sludge, including sewage sludge, tannery sludge, oily sludge (from refineries), the organic fraction of municipal solid waste (MSW), food waste, agricultural sludge, pulp and paper siudge, used tyres, plastics, chemical and petrochemical wastes.

The quality and yield of the ENERSLUDGE™ products inevitably differs from feedstock to feedstock. ESI's main experience is with dirty feeds such as sewage sludge and tannery sludge.

Australian sewage sludge demonstration plant $1.5$

In 1996. ESI, in conjunction with a local engineering contractor, entered into a contract with the Water Corporation of Western Australia to build an integrated sewage sludge dewatering, drying and energy recovery facility at one of Perth's main wastewater treatment plants. The project also included a demonstration of the ENERSLUDGETM technology at commercial scale.

The plant was built in phases and was successfully operated by ESI for one year prior to handover to the client in June 2001. The plant met all contractual, performance and legislative requirements.

The Water Corporation of Western Australia decided in late 2002 not to operate the conversion portion of the plant, opting instead to recycle the dried pellets to arable land close to Perth as a fertiliser supplement since this is a much cheaper means of sludge disposal.

Where such recycling is possible, ENERSLUDGETM is unlikely to be competitive.

The Water Corporation stress that this decision was simply based on economics and did not reflect any lack of confidence in the ENERSLUDGE™ process.

$1.6$ Tannery sludge demonstration project

Tannery sludge is produced as a by-product in the production of leather from cow hides and, owing to the number of chemicals used in the curing of hides, it is highly polluted.

In 1998, ESI was awarded a contract by the German Government to demonstrate that ENERSLUDGE™ provides a long-term sustainable solution for tannery sludge. The project included the purchase of a small sludge dryer unit Pago 11

and the construction of a new 20kg/hr dual reactor pilot plant, based on the design applied at the Australian demonstration plant.

The project was successfully completed in 2002 following two years of operational testing in Germany and Brazil.

$1.7$ Latest Technology Development

Based on the knowledge gained from both the Australian demonstration plant and the tannery pilot plant, ESI continued development of the technology to simplify the process, make it more robust, and most importantly, reduce capital and operating costs. The concept of a single paddle reactor and syngas combustion in a Hot Vapour Combustor (HVC) was thoroughly investigated and shown to provide superior performance. As a result, ESI purchased the tannery pilot plant and converted it into a 1 tpd single paddle reactor pilot plant. This new demonstration plant is configured to operate both in oil condensation and syngas combustion (HVC) modes. Extensive test work in Germany has shown the simplicity and robustness of the new system, particularly when operating in HVC mode. The pilot plant is housed in a standard ISO container and can be readily transported by road and ship to any location.

$1.8$ ENERSLUDGE™ commercialisation

$1.8.1$ Strategy

Since the completion of the Australian demonstration plant two years ago, ESI has been pursuing a strategy to commercialise ENERSLUDGEIM in as many markets as possible by:

engaging business partners to issue Medium Term Notes providing $\overline{a}$ infrastructure finance in the key markets around the world: . and thereby secure and implement ENERSLUDGE™ enhanced by additional technology projects in their exclusive licence greas (in return for a Licence Agreement sign-on fee and a project by project Technology Fee / Royalty) in addition to fees derived from the building of turnkey plants by supplying a technology package for each project: comprising of the concept design for the facility, key pieces of proprietary equipment and key support services (included as part of the project Technology Fee / Royalty); and
$(b)$ pursuing projects in its own capacity whilst the network of business partners is being set up.

Current Status $1.8.2$

Sewage Sludge

The current status of commercialising the ENERSLUDGE™ technology in the sewage sludge disposal market is as follows:

$(a)$ a Technology Licence Agreement is in place with Ondeo-Degremont (the world's leading water management company) for France on an exclusive basis and elsewhere on a case by case basis. This Agreement was in put in place in July 2002 after a technology review by Ondeo-Degremont including a fact finding and due-diligence visit to Perth and the Australian demonstration plant; and

a Technology Licence Agreement is in place with Mitsubishi Electric $(b)$ Corporation for Japan on a non-exclusive basis. The original Agreement was put in place in October 2000.

The status of these agreements needs to be reviewed given that the Company has gone into administration.

ESI entered into a cooperation agreement with ZWT Wasser und Abwassertechnik GmbH (ZWT), a small German wastewater company, to get a commercial demonstration plant up and running in Bavaria supported by the Bavarian Government.

Tannery Sludge

EU regulations regarding the disposal of tannery sludge are currently in a state of flux and the future direction is not clear. Currently, most of the tannery sludge from Germany is used in old mine site reclamation and whilst this is under threat, no firm legislative direction has yet emerged.

ESI has had extensive discussions with Germany's main tannery, Sudleder GmbH (Sudleder). Whilst Sudleder acknowledges that the Tannery demonstration project established that ENERSLUDGETM does provide a long-term sustainable solution for the disposal of tannery sludge, Sudleder is reluctant to make the necessary investment in a commercial scale facility until there is further clarity in the leaslation.

Oily Sludge

All oil refineries produce small quantities of oily sludge that is so polluted that it cannot be returned to any part of the refining process. ESI has had discussions with refineries in Singapore and looked at the business case for entering the contract oily sludge waste disposal market. However, the waste incineration market in Singapore currently has significant over-capacity and whilst incinerators are not ideally suited to oily sludge (due to its high calorific value and hence resulting higher temperatures in the incinerators), the business case is currently fragile.

ESI has not reviewed the European or North American oily sludge markets in significant detail. This could be an exciting niche build-own-operate opportunity for ENERSLUDGETM given that the oil companies generally want to outsource the disposal and treatment of oily sludge.

Interest has been shown in providing ESI with technology to make this sludge economically usable and of significant commercial value.

$1.9$ Purpose of Capital Raisings

The purpose of the capital raisings is to:

provide funds for the further development of the Company's Enersludge $(a)$ Assets:
provide funds for the acquisition and development of additional $(b)$ opportunities in the waste management sector, as identified by the Company;
provide funds for the further acquisition and development of other $\mathcal{L}$ investments, as identified by the Company; and

meet the administration costs of the Company and the expenses of the $(d)$ recapitalisation of the Company.

An estimated budget is set out below.

Use of Funds - Expenditure Budget

	Year 1 5000	Year 2 \$000
Total funds raised	2.390
Used as follows:	380	250
Review and development of Enersludge Assets.	100	100
Review of new projects General working capital	145	145
Payment to Creditors/Trustee	1.150
Expenses of the Recapitalisation Proposal	120
Total funds used	1.895	495

Pro-forma Capital Structure

			Note
Existing Shares on issue (pre consolidation)				77,097.512
Existing Shares (post consolidation)			(0)	15,419,502
Promoter shares				190.000,000
Trustee shares				20,000,000
Capital raising			(d)	220,000,000

Total Fully Paid Shares				445,419,502
New Promoter Options			(b)	30,000,000
Employee Existing	Options	(oost	(C)	393,000
consolidation)

Pursuant to Resolution 7, the Company is seeking Shareholder approval to $\left( a\right)$ consolidate the Company's issued capital on a 1:5 basis.
The Promoter options will be exercisable at not less than 1 cent each on or $\omega$ before 1 November 2008.
After the consolidation, the employee options will comprise 196,500 options $\left( c \right)$ exercisable at \$3.25 by 19 March 2007 and 196,500 options exercisable at \$3.75 by 20 March 2007. It is presumed the existing employee options will expire unexercised due to the quantum of monies outstanding.
Assumes that the Shares are issued at a price of \$0.01 each. The actual $\left( d \right)$ issue price may be more than \$0.01 per Share.

1.10 About Rofin Australia Pty Ltd

Rofin is a world market leader in forensic science technology and has sold its products into over 60 countries worldwide. Since 1994, Rofin has been involved in the recycling industry providing equipment for identification using spectrometry and the sorting of recycled plastics. The company has sold its technology into the City of Melbourne and Visy Plastics.

The directors of Rofin are:

Dr. Hadrian Fraval - Managing Director: $(\square)$

$\mathcal{F}_{\mathcal{A}}$

Vernon Fraval Chairman: $(b)$
Sachlan Fraval Finance Director; and $(c)$
Justin Liberman Director. $(d)$

Summary of the terms of the Recapitalisation Proposal and Deed of Company 1.11 Arrangement

Set out below is a detailed summary of the Recapitalisation Proposal and Deed of Company Arrangement.

Details of Recapitalisation Proposal $1.12$

The recapitalisation proposal was put forward by Rofin and accepted by the creditors on 30 September 2005. The Varied Deed of Company Arrangement was subsequently signed on 11 October 2005.

Terms of the Recapitalisation Proposal

Rofin wishes to confirm that the recapitalisation proposal provides for a new board of directors and does not in any way provide for the continuing involvement of the existing directors in any capacity.

The essential terms of the recapitalisation proposal are as follows:

Rofin will directly subscribe for or procure the subscription for up to $\Box$ 190,000,000 Shares at an issue price of \$0.001 each, together with up to 30,000,000 free attaching Options, to raise up to \$190,000; and
in addition to the funds raised as set out in paragraph (a), Rofin will assist $(b)$ with the completion by the Company of a capital raising. The Notice provides for the allotment and issue of up to 220,000,000 Shares by the Company at a price of not less than \$0.01 per Share to raise up to \$2,200,000. Therefore, up to \$2,390,000 will be raised pursuant to the recapitalisation proposal.

The assets that will be available for the secured creditor (being Commonwealth Bank of Australia) of the Company pursuant to the terms of the DOCA are as follows:

\$630,000 in cash that is payable to a secured creditor's trust on $\left( \alpha \right)$ completion of the capital raisings the subject of Resolution 1; and
various residual assets of the Company (other than the Enersiudge $(b)$ Assets), as well as the rights to various potential claims against third parties.

The assets that will be available for the unsecured creditors of the Company pursuant to the terms of the DOCA are as follows:

the unexpended balance of: $(a)$
the advance payment of \$220,000 that has already been $\vert$ (i) made by Rofin to the Deed Administrators to facilitate certain payments required to protect the assets of the Company; and
a \$50,000 cash payment that will be paid to the unsecured $(i)$ creditors' trust on completion of the capital raisings contemplated by Resolution 1; and
\$250,000 as a deferred payment within 120 days of reinstatement of the $(b)$ Company's securities to trading on ASX. This payment may in part (up to \$200,000) be satisfied through the issue of Shares (refer to Resolution 6).

$1.13$ Details of Deed of Company Arrangement

An amended Deed of Company Arrangement has been entered into by the Company and the Deed Administrators. The DOCA incorporates the terms of the recapitalisation proposal.

Settlement and effectuation of the DOCA may only occur once shareholders approve all of the resolutions set out in the Notice.

$1.14$ ASX Listing

ASX has advised the Company that upon completion of the capital raising contemplated by Resolution 1 and the satisfaction of various other conditions, the suspension of trading on the Company's shares will be lifted.

It is considered by the investment group that the conditions are capable of being satisfied and are not unusual in matters of this nature.

$1.15$ Conclusion

The resolutions set out in the Notice are important and affect the future of the Company. Shareholders are therefore urged to give careful consideration to the Notice and the contents of this Explanatory Statement.

RESOLUTION 1 - ALLOTMENT AND ISSUE OF SHARES AND OPTIONS $\overline{2}$ .

$2.1$ Background

The Shares and Options under this resolution are being issued in accordance with the recapitalisation proposal and the DOCA.

$2.2$ ASX Listing Rules

This resolution is required to be approved in accordance with ASX Listing Rules 7.1 and 10.11.

ASX Listing Rule 7.1 provides that a company must not, subject to certain exceptions, issue during any 12 month period any equity securities, or other securities with rights of conversion to equity (such as an option), if the number of those securities exceeds 15% of the number of ordinary shares on issue at the commencement of that 12 month period.

One circumstance where an issue is not taken into account in the calculation of this 15% threshold is where the issuer has the prior approval of shareholders in general meeting.

ASX Listing Rule 10.11 requires a company to obtain shareholder approval by ordinary resolution prior to the issue of securities to a related party of the Company.

Pursuant to Resolution 1 it is proposed that Shares and Options will be issued to Rofin (or its nominees).

Rofin is related party because it is associated with the proposed directors of the Company.

For this reason, approval for the issue of the Shares and Options to Rofin (or its nominees) is required pursuant to ASX Listing Rules 7.1 and 10.11.

The following information is provided to shareholders for the purposes of obtaining shareholder approval pursuant to the ASX Listing Rules for Resolution 1:

the maximum number of securities to be issued by the Company to $(a)$ Rofin (or its nominees) is:
190,000,000 Shares at an issue price of \$0.001 each together $(i)$ with 30,000,000 free attaching Options to raise \$190,000; and
220.000.000 Shares at an issue price of not less than \$0.01 each $(ii)$ to up to raise \$2,200,000:
$(b)$ all of the Shares and Options are proposed to be issued to Rofin (or its nominees). Rofin has confirmed that it intends to nominate the following parties as allottees of the Options:
Gamed Pty Ltd (an entity controlled by Mr Greg Fendis, a $(i)$ proposed director of the Company) - 6,000,000 Options;
Romfal Sifat Pty Ltd (an entity controlled by Mr Faldi Ismail, a $(i)$ proposed director of the Company) - 6,000,000 Options;
Research and Development Consulting Services Pty Ltd (not a $(iii)$ related party of the Company - 6,000,000 Options;
Research and Development Consulting Services Pty Ltd as bare $(iv)$ trustee - 7,960,000 Options (6,000,000 of which are held on trust for Mr Sachlan Frayal, a proposed director of the Company);
MSF Foundation (not a related party of the Company) - $(v)$ 2,000,000 Options:
M Fraval Pty Ltd (not a related party of the Company) 900,000 $(v)$ Options:
Yarralumla Foundation (not a related party of the Company) -(Vii) 340,000 Options: and
Hadrian Fraval Nominees Pty Ltd (controlled by Mr Hadrian $\overline{|\mathsf{v}||}$ Fraval who is not a related party of the Company but is a substantial shareholder in Rofin) - 800,000 Options,

(together, the Options Nominees);

Rofin may nominate third parties to subscribe for the Shares or Options. $(C)$ The proposed nominees for the Options are set out in (b) above. Any third party nominee for the Shares must not be a related party of the Company and following the issue of the Shares no nominee will acquire voting power in greater than 20% of the Company;

$(d)$ the Shares and Options will be issued on or about settlement under the DOCA. It is anticipated that the issue of the Shares and Options will occur on one date and will not be later than 1 month after the date of this meeting:
the Shares issued will rank equally with the existing Shares on issue. The $\left( \bigoplus \right)$ Options will be granted on the terms set out in Section 2.3 below; and
the funds raised from the issue of the Shares will be used in accordance $(f)$ with the DOCA and for the purposes set out in Section 1.1.3.

$2.3$ Terms and Conditions of Options

The material terms and conditions of the Options will be as follows:

$(a)$ the Options will be exercisable at any time prior to 5,00pm WST on 1 November 2008. Options not exercised on or before the expiry date will automatically lapse;
$(b)$ the exercise price of each Option will be \$0.01 each;
$(c)$ the Options may be exercised wholly or in part by completing an application form for Shares (Notice of Exercise) delivered to the Company's Share Registry and received by it any time prior to 5.00pm. WST on 1 November 2008:
$(d)$ upon the exercise of an Option and receipt of all relevant documents and payment, the holder will be allotted and issued a Share ranking paripassu with the then issued Shares. The Company will apply to ASX to have the Shares granted official quotation;
$(e)$ a summary of the terms and conditions of the Options, including the Notice of Exercise, will be sent to all holders of Options when the initial holding statement is sent:
$(1)$ any Notice of Exercise received by the Company's share registry on or prior to the expiry date will be deemed to be a Notice of Exercise as at the last Business Day of the month in which such notice is received;
$(g)$ there will be no participating entitlements inherent in the Options to participate in new issues of capital which may be offered to Shareholders during the currency of the Options. Prior to any new prorata issue of securities to Shareholders, holders of Options will be notified by the Company and will be afforded 7 Business Days before the record date (to determine entitlements to the issue), to exercise Options;
$(h)$ in the event the Company proceeds with a pro rata issue (except a bonus issue) of securities to the holders of Shares after the date of issue of the Options, the exercise price of the Options will be adjusted in accordance with the formula set out in ASX Listing Rule 6.22.2;
in the event of any reconstruction (including consolidation, sub-division, $\left(\mathbf{i}\right)$ reduction or return) of the issued copital of the Company prior to the expiry date, all rights of an optionholder are to be changed in a manner consistent with the ASX Listing Rules: and
$(i)$ Shares issued pursuant to the exercise of an Option will be issued not more than 14 days after the date of the Notice of Exercise.

$2\Delta$ Chapter 2E of the Corporations Act

Chapter 2E of the Corporations Act regulates the provision of financial benefits to related parties by a public company. Section 208 of the Corporations Act prohibits a public company giving a financial benefit to a related party unless one of a number of exceptions applies.

A "financial benefit" is defined in the Corporations Act in broad terms and includes a public company issuing securities.

For the purpose of this meeting, a "related party" includes:

$\left( \bigcirc \right)$ a director;
$(b)$ an entity over which a director has control; and
an entity which believes, or has reasonable grounds to believe, that it is $\left( \Box \right)$ likely to become a related party in the future.

For the purposes of Chapter 2E of the Corporations Act, Rofin is a related party of the Company by virtue of the fact that it is associated with the proposed directors of the Company.

Section 208 of the Corporations Act provides that for a public company to give a financial benefit to a related party of that company, the public company must:

obtain the approval of members in the way set out in Sections 217 to $(a)$ 227; and
give the benefit within 15 months after the approval. $(b)$

For the avoidance of doubt, the Company is seeking shareholder approval for the purposes of Chapter 2E of the Corporations Act in respect of the Shares and Options proposed to be issued to Rofin (or its nominees) under Resolution 1.

The following information is provided to satisfy the requirements of Section 219 of the Corporations Act:

$\left( \alpha \right)$ the proposed financial benefit to be given to Rofin (or its nominees) is:
190,000.000 Shares at an issue price of \$0.001 each together $\mathbf{ii}$ with 30,000,000 free attaching Options to rajse \$190,000; and
$(i)$ 220,000,000 Shares at an issue price of not less than \$0.01 each to up to raise \$2,200,000:
Rofin has confirmed that the allottees of the Options will be the Options $(b)$ Nominees (refer to Section 2.3 of this Explanatory Statement);
as the Company has been placed into voluntary administration and a $\left( \circ \right)$ Deed of Company Arrangement has now been executed, the existing Directors have no authority to act on behalf of the Company. Accordingly, the Directors make no recommendation to shareholders in respect of the resolution:
$(d)$ if shareholders approve the allotment and issue of the Shares and Options to Rofin (or its nominees) and all or any of the Options are exercised, the effect will be to dilute the shareholding of existing

shareholders. The market price of Shares during the term of the Options would normally determine whether or not those parties exercise the Options. If at the time any of the Options are exercised the Shares are trading on ASX at a price which is higher than the exercise price of the Options, there may be a perceived cost to the Company. Subject to any adjustments arising from further issues of securities by the Company. up to 30,000,000 Shares may be allotted and issued upon the exercise of the Options that may be issued to these related parties with the effect that the shareholding of existing shareholders may be diluted by up to 6.7% (based upon there being 445.419,562 Shares on issue and assuming no other Options are exercised);

$(e)$ a valuation of the Options proposed to be issued is set out below; and
$(f)$ additional information in relation to Resolution 1 is set out throughout this Explanatory Statement. In particular, an independent expert's report has been provided which sets out a valuation of the Company and concludes that the proposed transaction is fair and reasonable to nonassociated shareholders. Shareholders should therefore read this Explanatory Statement in its entirety before making a decision as to how to vote in relation to Resolution 1.

For the purpose of the related party provisions of the Corporations Act, the following additional information is disclosed:

no remuneration has been paid to Rofin, any of the proposed directors $(a)$ or the Options Nominees over the past 12 months:
$(b)$ it is proposed that each of the directors will be entitled to a directors' fee of \$2,000 per month after the Company's securities have been reinstated to trading on ASX;
$(c)$ the Company's shares have been suspended from trading on ASX since 17 November 2004, accordingly, no information can be provided as to recent price history; and
$(d)$ neither Rofin nor any of the proposed directors have any interest in Shares or Options as at the date of this Notice.

$2.5$ Valuation of Options

The Options issued pursuant to Resolution 1 have been valued using the Black & Scholes pricing model. The assumptions that have been used to value the Options are as follows:

$(a)$ the expiry date of the Options is 1 November 2008;
$(b)$ all of the Options have an exercise price of \$0.01;
$(c)$ the market price of a Share is \$0.01;
$(d)$ a common volatility factor of 100%;
$(e)$ an interest rate of 5.31%;
$(f)$ the valuation ascribed to the Options may not necessarily represent the market price of the Options at the date of the valuation; and

$(q)$ the valuation date for the Options is as at 1 January 2006 (assumes options will be issued in early 2006).

On the basis of the above assumptions, each Option has been ascribed a value of 0.63 cents.

$2.6$ Section 611 of the Corporations Act

Pursuant to Section 606(1) of the Corporations Act, a person must not acquire a relevant interest in issued voting shares in a listed company if the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person and because of the transaction, that person's or someone else's voting power in the company increases:

$(a)$ from 20% or below to more than 20%; or
(b) from a starting point above 20% and below 90%.

The voting power of a person in a body corporate is determined in accordance with Section 610 of the Corporations Act. The calculation of a person's voting power in a company involves determining the voting shares in the company in which the person and the person's associates have a relevant interest,

The "associate" reference includes a reference to a person whom a primary person is acting in concert or proposes to act in concert.

A person has a relevant interest in securities if they:

$\Box$ are the holder of the securities;
$(b)$ have the power to exercise, or control the exercise of, a right to vote attached to securities; or
$\left( \bigcirc \right)$ have power to dispose of, or control the exercise of a power to dispose of, the securities.

It does not matter how remote the relevant interest is or how it arises. If two or more people can jointly exercise one of these powers, each of them is taken to have that power.

Pursuant to the terms of the recapitalisation proposal, the Company has agreed to allot and issue a total of 190,000,000 Shares to Rofin (or its nominees) together with 30,000,000 free attaching Options. In addition, Rofin may subscribe for additional Shares and Options under the issue of securities contemplated by limb (b) of Resolution 1.

Therefore, the maximum number of Shares that may be taken up Rofin (or its nominees) is:

190,000,000 Shares at an issue price of \$0.001 each together with $(\circ)$ 30,000,000 free attaching Options to raise \$190,000; and
$(b)$ 220,000,000 Shares at an issue price of not less than \$0.01 each to raise up to raise \$2,200,000.

Rofin has entered into arrangements with the Nominees which may result in Rofin transferring Shares to the Nominees in the amounts set out below:

Nominee	No. of Shares	% of Company's Issue capital
RC Johnson in trust for Caleja Group Pty Ltd	20,000,000	4.5%
Pat Giles & Associates	21,833,333	4.9%
Graham Bell	43,148,889	9.6%
RC Johnson unit trust atf Jack. Smit	43,148,889	9.6%
Jogeanwatodo Sovereign Capital Holdings att B.C. Unit Trust	3,000,000	0.7%
RC Johnson Pty Ltd	43,148,889	4.9%
RC Johnson as trustee. Peter Hewitt	5,000,000	1.1%
David Wilson	6,550,000	1.5%
Total	185,830,000	36.8%

The percentages in the table above are based on the issued capital of the Company as set out in Section 1.9 of the Explanatory Statement and assumes that no options are converted into Shares.

Rofin will retain the remaining 4,170,000 Shares that are not transferred to the Nominees. The Options, the subject of Resolution 1(a), will be issued to the Options Nominees as nominees for Rofin.

If Rofin transfers Shares to the Nominees in accordance with the table set out above, it will be at a price of \$0.001 each (being the same price that the Shares will be issued to Rofin in accordance with Resolution 1),

The Nominees have been assisting Rofin with the recapitalisation proposal and have also identified other technologies that may enhance or be complimentary to the Enersludge technology. In the event the Nominees introduce a new technology to the Company that Rofin considers to be of significant value to the Company and the Company subsequently acquires the new technology, then Rofin will transfer the Shares to the Nominees in the amounts set out in the table above.

Shareholder approval under Item 7 of Section 611 of the Corporations Act is required because:

$(\Box)$ at the time of settlement under the DOCA, Rofin (and its nominees) will have a relevant interest in more than 20% of the issued shares of the Company and this interest may increase if Rofin converts all of the Options; and
$(b)$ if Rofin transfers Shares to the Nominees in the amounts set out above. the Nominees (together with Rofin) will have a relevant interest in more than 20% of the issued shares of the Company.

Information is required to be provided to shareholders under ASIC Policy Statement 74 and the Corporations Act. Shareholders are also referred to the independent expert's report prepared by Stanton Partners Corporate Pty Ltd.

For the purposes of the Corporations Act, the following information is disclosed:

Identity of persons who will hold a relevant interest in the Shares to be allotted and issued.

Also set out below are the matters required to be disclosed in accordance with Item 7 of Section 611 of the Corporations Act being:

$(a)$ Identity of persons who will hold a relevant interest in the Shares to be allotted and issued:

Initially, Rofin will be the only party that will hold a relevant interest in the Shares. Each of Hadrian Fraval Nominees, Jagen Pty Ltd and Vemon Fraval will also have a relevant interest in any Shares held by Rofin by virtue of the operation of Section 608(3) of the Corporations Act.

If Rofin transfers the Shares to the Nominees, then each of the Nominees will hold a relevant interest in the Shares. For the purposes of preparing this Explanatory Statement, an assumption has been made that all of the Nominees are associates of each other as defined in the Corporations Act. This does not mean that the Nominees will remain associates in the future. Details on some of the Nominees are set out below:

Rodney C Johnson has a long and distinguished career in road transport and aviation, serving the mining industries of Western Australia as a senior manager and later in the operation of his own companies. During his twenty years in WA he was elected to the Meekatharra Shire Council and later as a Justice of the Pegce, He established a Cellphone company before branching into Car Rental Agencies. In the past four years Rod has established a commodities trading company and a tyre importer.

Graham D Bell comes from the Bell Family of Western Australia who were "Pilbara Pioneers" and one of the first big suppliers of transport services to the mining industry. Graham entered the family business, Bell Bros. Pty Ltd in 1954. The company diversified and floated in 1965 as Bell Bros. Holdings Ltd following which Graham became Managing Director in 1970 and sold his shareholding in 1974.

Graham currently manages his own investment company specialising in property development, stocks and commodity import/export.

Jacobus (Jack) Smit is a graduate in Electronics Engineering from RMIT. He served in the Australian Defence Force and on discharge opened an electronic retail and service business in Sunbury Victoria. He sold the business in 1987. He started his own property development and construction company, HS Building Industries Pty Ltd. This company builds domestic townhouses for its own residential estates as well as development and refurbishing of city office blocks.

$(b)$ Shares to which the allottee will be entitled immediately before and after the allotment

As at the date of this Notice, Rofin and its associates do not have a relevant interest in any Shares or Options.

The maximum number of securities that may be issued to Rofin (or its nominees) is:

(a) 190,000,000 Shares at an issue price of \$0.001 each together with 30,000,000 free attaching Options to raise \$190,000; and
$(b)$ 220,000,000 Shares at an issue price of not less than \$0.01 each to up to raise \$2,200,000.

As at the date of this Notice, none of the Nominees (or their associates) have a relevant interest in any Shares or Options.

If Rofin transfers Shares to the Nominees, then the Nominees will hold Shares in the amounts set out in the table above.

$\left( c\right)$ the maximum extent of the increase in the relevant allottee's voting power in the Company that would result from the acquisition:

As at the date of this Notice, Rofin and its associates do not have a relevant interest in any Shares or Options.

The maximum number of securities that may be issued to Rofin (or its nominees) is:

190.000,000 Shares at an issue price of \$0.001 each together $\mathbf{I}$ with 30,000,000 free attaching Options to raise \$190,000; and
$(ii)$ 220,000,000 Shares at an issue price of not less than \$0.01 each to up to raise \$2,200,000.

If Rofin transfers Shares to the Nominees, then the Nominees will hold Shares in the amounts set out in the table above.

$|d|$ the voting power that the relevant allottees would have as a result of the acquisition:

Assuming Rofin is issued all of the Shares the subject of Resolution 1 and also converts all of the Options the subject of Resolution 1 into Shares, the voting power of Rofin will be 92.5%.

If Rofin transfers Shares to the Nominees, then the voting power of each of the Nominees will be as set out in the table above.

$(e)$ the maximum extent of the increase in the voting power of each of the allottee's associates that would result from the acquisition:

Assuming Rofin is issued all of the Shares the subject of Resolution 1 and also converts all of the Options the subject of Resolution 1 with Shares, the maximum extent of the increase in the voting power of Rofin's associates will 92.5%.

If Rofin transfers Shores to the Nominees, then the maximum extent of the increase in the voting power of each of the Nominee's associates

will be as set out in the table above.

$(f)$ the voting power that each of the allottee's associates would have as $\alpha$ result of the acauisition:

Assuming Rofin is issued all of the Shares the subject of Resolution 1 and also converts all of the Options the subject of Resolution 1 with Shares. the voting power of Rofin's associates will be 92.5%.

If Rofin transfers Shares to the Nominees, then the voting power of each of the Nominee's associates will be as set out in the table above.

Other Reauired Information

The following further information is disclosed:

$\overline{a}$ it is proposed that the Company will continue to develop its current waste management business and, in particular, the Enersludge Assets. As part of this process, it is proposed that new directors will be appointed to the Board. These appointments form the subject of separate resolutions in the Notice. The existing directors will be removed as directors:
if the Shares are transferred to the Nominees, then it is likely that the $(b)$ Nominees will seek to appoint new directors to the Board. The names of these nominees is not known as at the date of preparing this Notice;
$(c)$ the Company will be required to raise sufficient capital to fund its existing and future operations. To this end, the Company is seeking shareholder approval to proceed with a capital raising. Shareholders should refer to Resolution 1 for further details regarding this capital Neither Rofin nor the Nominees currently have any other raisina. intention to raise further funds for the Company;
$(d)$ there is no current intention to change the employment policies of the Company, although it is recognised that additional employees may be required in the future as the Company's operations expand; and
there is no current intention to redeploy any other fixed assets of the $(e)$ Company or to change the Company's existing policies in relation to financial matters or dividends. At present, the Company does not pay a dividend. The dividend policy of the Company will be assessed in accordance with the future profitability of the business.

$2.7$ Directors' Recommendations

As the Company is subject to a DOCA, the existing Directors of the Company who were appointed prior to the Company proceeding into Voluntary Administration do not make any recommendation in respect of the proposal. Shareholders should read this Memorandum in full, including the letter from the Deed Administrators and the independent expert's report referred to below to form an opinion on the merits of the proposal.

$2.8$ Independent Expert's Report

The independent expert's report prepared by Stanton Partners Corporate Pty Ltd sets out a detailed examination of the proposed transaction to enable shareholders to assess the merits and decide whether to approve the proposal,

To the extent that it is appropriate, the independent expert's report sets out further information with respect to the proposed transactions and concludes that:

the acquisition of a relevant interest in the voting shares of the $(a)$ Company by Rofin (through the issue of the Shares and conversion of the Options, the subject of Resolution 1); and
$(b)$ the acquisition of a relevant interest in the voting shares of the Company by the Nominees (assuming Rofin transfer the Shares to the Nominees),

is fair and reasonable to the non associated shareholders of the Company.

Shareholders are urged to carefully read the independent expert's report to understand the scope of the report, the methodology of the valuation and the sources of information and assumptions made.

2.9 Pro-Forma Consolidated Balance Sheet

Set out in Section 3.2 of the Expert's Report is a statement of financial position of the Company showing the expected financial position of the Company on completion of the recapitalisation proposal.

RESOLUTION 2 - REMOVAL OF DIRECTORS AND RESOLUTIONS 3. 4 AND 5 - $\overline{\mathbf{3}}$ . ELECTION OF DIRECTORS

The recapitalisation proposal provides that following completion of the proposal. the board will be comprised of nominees of the investment group. The existing directors will be removed.

Resolutions 3, 4 and 5 seek the election of Mr Gregory Fendis, Mr Sachlan Frayal and Mr Faldi Ismail as directors.

The background on each of these persons is set out below.

MR GREGORY FENDIS

Grea received a bachelors degree in Engineering from RMIT

He has had extensive experience in the design, installation and commissioning of large complex computer-based systems. In particular he specialises in Smart Card Technology and ID based card systems. He has an understanding of smart card products, technology issues, marketing and customer needs. His technology experience spans over 20 years.

Grea has attended and participated in numerous Smart Card conferences and training sessions and the following represents highlights of his involvement in this industry:

Greg has been instrumental in the establishment of technology transfer agreements with some of the largest Smart Card organisations in the world:

Innovatron (the smart card patent holder) - to introduce Innovatron's smart card based technology and payment terminals to the Asia Pacific region. Of major interest was the CityCard.

Gemplus (the largest smart card manufacturer in the world) to establish a joint sales marketing team and to establish a large state-of-the-art smart card manufacturing facility for the Asia Pacific region.
DataCard To distribute and integrate DataCard's world leading product range of card systems into the Australian and New Zealand market.
Card Services International to establish, promote, distribute and channel mangae CSI's EMV compliant payment products in Asia Pacific.

Grea was actively involved in the establishment and ongoing management of card bureau services. He assisted the largest security printer in the Asian Pacific region, to become the world's first third-party activator for VisaCash Smart Cords. His work continued in the establishment of similar card bureaus in other various countries. Grea project managed the Visa Cash product as a means to establishing a highly secure, high volume, Visa accredited bureau for the financial and other markets.

Greg was also involved in the logistics for the introduction of Visa's disposable VisaCash products on the Gold Coast. From this involvement he then established the relationships and technical knowledge to provide reloadable facilities to Visci.

Grea has extensive experience in the establishment of plastic card personalisation bureaus and in the design, development and implementation of technology for National ID systems, Driving Licence and Vehicle Registration Systems. He has established strategic relationships with Australian State Transport Departments, Australian Government agencies and other Australian manufactures to provide a total plastic card solution.

MR SACHLAN FRAVAL

Sachian is an accountant by training and a former Fellow of the Institute of Chartered Accountants, London. During 1966 to 1971 he was Articled to Turquand Young & Co, now Ernst & Young. During his term at TY&Co Sachlan carried out every aspect of large company audits, taxation, management accountancy and system development in a variety of industries.

For the last nine years Sachlan has been directly involved in the development and marketing of a range of Scientific Instruments and Components worldwide. His main focus during this period was in the field of forensic science particularly in the use of high powered tuneable light sources for trace evidence enhancement. He has introduced systems and provided business development strategies for all company divisions including:

Forensic Science
Light Guides
Automotic Waste plastic bottle sorting
· Biometrics

He has specialised in the development of innovation at the individual level, believing that Australia has great innovation which demands to be resourced to reach its full potential.

Sachlan has over 30 years experience in corporate and business development of private and public companies in the UK, USA and Australia. He has been Poge 27

actively involved as a director of high tech companies in development and marketing of lasers, hand held computers, forensic science equipment, biometrics solutions and light quide products.

MR FALDI ISMAIL

Faldi currently consults to a number of clients providing corporate advisory services in Australia and Indonesia. Prior to corporate consulting, Mr Ismail has spent over 4 years working as a tax senior with Pitcher Partners in Perth and a senior within their corporate restructuring division. Mr Ismail facilitated with a number of the ASX restructures including Matrix Oil NL and Deep Yellow Ltd during his term. Faldi resigned his position from Pitcher Partners in April 2004 and has no ongoing association with the firm.

Faldi is currently a director of Kalimantan Investment Corporation Limited (the major shareholder of Canadian public listed company Kalimantan Gold Corporation Limited), company secretary of unlisted public company Cascara Corporation Limited and recently resigned his position as company secretary of ASX listed Eldore Mining Corporation Limited (proposed ASX code: EDM) (formerly Riley Corporation Limited).

Faldi holds a Bachelor of Business from Edith Cowan University where he double maiored in Accounting and Finance and is currently part way through completing the CA program with the Institute of Chartered Accountants Australia.

$\overline{A}$ RESOLUTION 6 - ALLOTMENT AND ISSUE OF SHARES PURSUANT TO DOCA

ASX Listing Rule 7.1 provides that a company must not, subject to certain exceptions, issue during any 12 month period any equity securities or other securities with rights of conversion to equity securities (such as an option) if the number of those securities exceeds 15% of the number of fully paid securities on issue at the commencement of that 12 month period.

One circumstance where an issue is not taken into account in the calculation of this 15% threshold is where the issue has the prior approval of shareholders in a general meeting.

Pursuant to the terms of the DOCA, the Company has agreed to issue up to 20,000,000 Shares to any of:

the trustees of the unsecured creditors' trust to be held on behalf of the $(a)$ admitted creditors or the Deed Administrators subject to the terms of the Unsecured Creditors' Trust Deed:
the admitted creditors in such proportions or to such admitted creditors $(b)$ as notified to the Company by the Deed Administrators; and
$\mathsf{C}$ the Deed Administrators in part or full payment of fees and disbursements.

ASX Listing Rule 7.3 requires that the following information be provided to shareholders:

$(a)$ the maximum number of securities to be issued if Resolution 6 is passed is 20,000,000 Shares;
$(b)$ the Shares will be issued to the parties referred to above (as directed by the Deed Administrators);
$(c)$ the Shares will be issued at a price of not less than \$0,01 each and will be issued in partial satisfaction of a deferred payment required under the terms of the DOCA. The actual issue price of the Shares will be the same as the issue price of the Shares under paragraph (b) of Resolution 1.
the Shares will be issued no later than 3 months after the date of this $(d)$ Meeting (or such later date to the extent permitted by any ASX waiver of the Listing Rules) and it is anticipated that allotment will occur on one date:
$(e)$ the Shares allotted and issued will rank equally with the existing Shares on issue: and
$\vert f \vert$ there will be no funds raised from the issue of the Shares as they will be issued in partial satisfaction of a deferred payment required under the terms of the DOCA.

$\overline{s}$ . RESOLUTION 7 - CONSOLIDATION OF CAPITAL

The Directors are seeking Shareholder approval to consolidate the number of Shares and Options on issue on a one (1) for five (5) basis.

Section 254H of the Corporations Act provides that a company may, by a resolution passed in a general meeting of shareholders, convert all or any of its shares into a larger or smaller number of shares. ASX Listing Rule 7.22 also requires that the number of options on issue be consolidated in the same ratio as the ordinary capital and the exercise price amended in inverse proportion to that ratio.

The effect on the capital structure as a result of the consolidation is set out in Section 1.9 of this Explanatory Statement.

From the date of effect of the consolidation, all holding statements for Shares and Options will cease to have any effect, except as evidence of entitlement to a certain number of post-consolidation Shares and Options, After the consolidation becomes effective, the Company will arrange for new holding statements to be issued to Shareholders and Optionholders.

Not all Shareholders and Option holders will hold that number of Shares and Options which can be evenly divided by 5. Where a fractional entitlement occurs, the Directors will round that fraction up to the nearest whole Share or Option.

It is not considered that any taxation consequences will exist for Shareholders or Option holders arising from the consolidation. However, Shareholders and Option holders are advised to seek their own tax advice on the effect of the consolidation and neither the Company, nor the Directors (or the Company's advisers) accept any responsibility for the individual faxation consequences arising from the consolidation.

$\overline{1}$

GLOSSARY

ASIC means Australian Securities and Investments Commission.

ASX means Australian Stock Exchange Limited.

ASX Listing Rules or Listing Rules means the Listing Rules of ASX.

Board means the board of directors of the Company.

Company and ESI means Environmental Solutions International Limited (subject to Deed of Company Arrangement) (ABN 28 009 120 405).

Constitution means the Company's constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

DOCA means the amended deed of company arrangement approved by the creditors of the Company on 30 September 2005.

Explanatory Statement means the explanatory statement to the Memorandum.

Independent Expert's Report means the independent expert's report prepared by Stanton Partners Corporate Pty Ltd which is annexed to this Memorandum.

Deed Administrators means Mr Bryan Hughes and Mr Vincent Smith both of care of Pitcher Partners, Accountants Auditors and Advisors, Level 17, 140 St Georges Terrace Perth, Western Australia.

Meeting means the meeting convened by the Notice.

Memorandum means this information memorandum.

Nominees means those parties referred to in the table in Section 2.6 of the Explanatory Statement.

Notice means the notice of meeting accompanying this Memorandum,

Option means an option to acquire a Share.

Options Nominees has the meaning given to that term in Section 2.2 of the Explanatory Statement.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means the holder of a Share.

WST means Western Standard Time.

PROXY FORM

APPOINTMENT OF PROXY ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) ABN 28 009 120 405

I/We

being a Member of Environmental Solutions International Limited entitled to attend and vote at the Meeting, hereby

Appoint

Name of proxy

or failing the person so named or, if no person is named, the Chairman of the Meeting or the Chairman's nominee, to vote in accordance with the following directions or, if no directions have been given, as the proxy sees fit at the General Meeting to be held at 10.00am (WST) on 5 December 2005 at The Celtic Club, 48 Ord Street, West Perth, Western Australia and at any adjournment thereof. If no directions are given, the Chairman will vote in favour of all of the resolutions.

Voting on Business of the General Meeting
		FOR	AGAINST	ABSTAIN
Resolution 1 Resolution 2 Resolution 3 Resolution 4 Resolution 5 Resolution 6 Resolution 7	Issue of Shares and Options Removal of Directors Election of Mr Gregory Fendis Election of Mr Sachlan Fraval Election of Mr Faldi Ismail Issue of Shares pursuant to DOCA Consolidation of Capital

If you do not wish to direct your proxy how to vote, please place a mark in this box

By marking this box, you acknowledge that the Chairman may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of the interest. The Chairman will vote in favour of all of the resolutions if no directions are given,

If you mark the abstain box for a particular item, you are directing your proxy not to vote on that item on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll.

If two proxies are being appointed, the proportion of voting rights this proxy represents is:

Signed this	day of	70. 2005
Βy. Individuals and joint holders		Companies (affix common seal if appropriate)
Signature		Director
Signature		Director/Company Secretary
Signature		Sole Director and Sole Company Secretary

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed) ABN 28 009 120 405

Instructions for Completing 'Appointment of Proxy' Form

$1.$ A member entitled to attend and vote at a Meeting is entitled to appoint not more than two proxies to attend and vote on their behalf. Where more than one proxy is appointed, such proxy must be allocated a proportion of the member's voting rights. If the shareholder appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half the votes.
$\overline{2}$ A duly appointed proxy need not be a member of the Company. In the case of joint holders, all must sign.
1. Corporate shareholders should comply with the execution requirements set out on the proxy form or otherwise with the provisions of Section 127 of the Corporations Act. Section 127 of the Corporations Act provides that a company may execute a document without using its common seal if the document is signed by:
directors of the company: $\bullet$
a director and a company secretary of the company; or
for a proprietary company that has a sole director who is also the sole company secretary - that director.

For the Company to rely on the assumptions set out in Section 129(5) and (6) of the Corporations Act, a document must appear to have been executed in accordance with Section 127(1) or (2). This effectively means that the status of the persons signing the document or witnessing the affixing of the seal must be set out and conform to the requirements of Section 127(1) or (2) as applicable. In particular, a person who witnesses the affixing of a common seal and who is the sole director and sole company secretary of the company must state that next to his or her signature.

Completion of a proxy form will not prevent individual shareholders from attending $\mathbf{4}_{i}$ the meeting in person if they wish. Where a shareholder completes and lodges a valid proxy form and attends the meeting in person, then the proxy's authority to speak and vote for that shareholder is suspended while the shareholder is present at the meeting
1. Where a proxy form or form of appointment of corporate representative is lodged and is executed under power of attorney, the power of attorney must be lodged in like manner as this proxy.

TELEPHONE: (08) 9481 3188 FACSIMILE: (08) 9321 1204

e-mail: [email protected]

20 October 2005

Environmental Solutions International Limited (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed) C/- Rofin Australia Ptv Ltd Level 6 42-44 Garden Boulevard DINGLEY VICTORIA 3172

Dear Sirs

RE: ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ABN 28 009 120 405) MEETING OF SHAREHOLDERS PURSUANT TO SECTION 611 (ITEM 7) OF THE CORPORATIONS ACT 2001 RELATING TO THE PROPOSAL TO ISSUE UP TO 410,000,000 POST CONSOLIDATED ORDINARY SHARES TO ROFIN AUSTRALIA PTY LTD OR THIRD PARTIES NOMINATED BY ROFIN AUSTRALIA PTY LTD AND THE ISSUE OF 30,000,000 POST CONSOLIDATED OPTIONS TO ROFIN AUSTRALIA PTY LTD OR THIRD PARTIES NOMINATED BY ROFIN AUSTRALIA PTY LTD.

$\mathbf{1}$ . Introduction

$1.1$ We have been requested by the directors of Rofin Australia Pty Ltd ("Rofin") to prepare an independent expert's report to determine the fairness and reasonableness of the transactions referred to in Resolution 1 as detailed in the Notice of Meeting ("the Notice") to Environmental Solutions International Limited ("ESI" or "Company") shareholders.

Resolution 1(a) relates to the proposal for the Company to allot and issue up to 190,000,000 fully paid post consolidated ordinary shares in the capital of the Company at an issue price of 0.1 cents per post consolidated ordinary share to Rofin or third parties nominated by Rofin to raise \$190,000. Resolution 1(a) also relates to the proposal for the Company to allot and issue 30,000,000 free attaching post consolidated share options for nil consideration to Rofin or third parties nominated by Rofin and each option is exercisable at 1.0 cent each, on or before 1 November 2008. Resolution 1(b) relates to the proposal to allot and issue up to 220,000,000 fully paid post consolidated ordinary shares in the Company at an issue price of 1.0 cent per post consolidated ordinary share to Rofin or third parties nominated by Rofin to raise \$2,200,000. Resolution 1(c) allows for

those parties set out in the Explanatory Statement accompanying the Notice to acquire a relevant interest in issued voting shares in ESI.

Further details are noted below and in the Explanatory Statement to Shareholders of ESI.

On 19 November 2004, insolvency specialists Messrs B Hughes and V Smith of Pitcher $1.2$ Partners were appointed as Joint and Several Administrators of the Company by the then directors of ESI pursuant to Section 436A of the Corporations Act ("Act"). This followed the appointment on 18 November 2004 of Messrs M Smith and S Fraser of McGrathNicol + Partners as Receivers and Managers of ESI and certain subsidiaries of ESI by the secured creditor, the Commonwealth Bank of Australia ("Bank"). At a meeting held on 16 December 2004, the Administrators recommended to the creditors of the Company that it was in the interests of creditors to enter in a Deed of Company Arrangement ("DOCA"). On 6 January 2005 ESI and the Administrators (now as Deed Administrators) entered into a DOCA. Following expression of interest by various parties and after negotiation and agreement with the Bank a recapitalisation proposal was put to the Administrators of ESI by Rofin. The Rofin recapitalisation proposal was approved by the creditors of ESI on 30 September 2005 and a Varied DOCA subsequently signed.
$1.3$ The Varied DOCA requires that, subject to conditions being met, the following be made available for the satisfaction of the claims of creditors and to meet the costs of the Administrators and Deed Administrators.
\$220,000 to be made available to a Unsecured Creditors Trust Fund (this has $\left( i\right)$ already occurred via Rofin advancing \$220,000 to the Deed Administrators to facilitate certain payments required to protect the assets of the Company);
a further \$680,000 is payable to the Deed Administrators of which the Bank is to $(ii)$ receive \$630,000. A Secured Creditors Trust Deed has been set up for this purpose. The Secured Creditors Trust Fund has also the rights to certain other assets, including potential claims against other parties,
A further payment of \$250,000 is to be made available to the Unsecured Creditors $(iii)$ Trust Fund but is only payable within 120 days of reinstatement of ESI's securities on the Australian Stock Exchange ("ASX") (the Deed Administrators may elect to receive shares to the value of \$200,000 at the same price at which shares are issued under resolution 1 (b) being not less than 1.0 cents per share as part of the \$250,000); and
the transfer of such remaining assets of the Company as is capable of being $(iv)$ assigned to the Trustee of the Creditors Trust Fund pursuant to the DOCA and Listing Rule 11.2 of the Australian Stock Exchange ("ASX"). The Enersludge Technology Assets as referred to in the Explanatory Statement to Shareholders accompanying the Notice will remain with the Company.

Rofin has provided the funding to meet the costs associated with the Notice and funding to meet certain on-going costs of the business. Nominees of Rofin, being Mr Gregory Fendis, Mr Sachlan Fraval and Mr Faldi Ismail are to be appointed Directors of ESI and the existing Directors are to resign or be removed.

As part of the recapitalisation proposal put forward by Rofin, the shareholders are being asked to approve the following:

the consolidation of the capital of the Company on a 1 for 5 basis so that of the $\left( 1\right)$ 77,097,512 shares on issue as at 5 October 2005 it is estimated that the number of

Au: ENV0108A/October 2005 IER

shares on issue will reduce to approximately 15,419,520 before any further share issues (Resolution 7);

the issue and allotment of 190,000,000 post consolidated shares at an issue price of $(b)$ 0.1 cents per share to raise \$190,000 for working capital. The determination of the allottees is at the sole discretion of Rofin (Resolution $1(a)$ );
the issue of 30,000,000 free attaching post consolidated share options for nil $(c)$ consideration exercisable at 1.0 cents each on or before 1 November 2008. The determination of the allottees is at the sole discretion of Rofin (Resolution 1 (a));
the issue and allotment of up to 220,000,000 post consolidated ordinary shares at $(d)$ an issue price of not less than 1.0 cent per share to raise up to \$2,200,000 for working capital. The determination of the allottees is at the sole discretion of Rofin (Resolution 1 (b));
(e) the removal of all existing Directors (Resolution 2) and the election of Messrs G Fendis (Resolution 3), S Fraval (Resolution 4) and F Ismail (Resolution 5) as Directors of the Company: and
the allotment and issue of up to 20,000,000 post consolidated shares at an issue $(f)$ price of 1 cent per share in accordance with the Varied DOCA and possibly issued to the Unsecured Creditors Trust Fund (the Unsecured Creditors' Trustees or the Deed Administrators may elect to receive up to 20,000,000 shares as part of the \$250,000 referred to above) (Resolution 6).

The Enersludge Technology as more fully described in the Explanatory Statement to Shareholders accompanying the Notice is to be retained by the Company. The Bank will receive \$630,000 (via the Secured Creditors Trust Fund) and \$270,000 will be available to the Unsecured Creditors Trust Fund that will be used to repay the Deed Administrators fees and expenses and a possible small return to the unsecured creditors.

Further details on the Company's history are referred to elsewhere in this report and the Explanatory Statement to Shareholders.

$1.4$ Under the DOCA, arrangements have been made with all creditors (secured and unsecured) for the settlement of their debts (as full and final settlement). Furthermore, upon successful completion of the DOCA, the Company would:
be released from the DOCA.
apply to be requoted on the ASX;
have approximately \$1,120,000 cash funds after the payment of \$250,000 that will be made up to 120 days after re-quotation of the Company's shares on the ASX; and
$\blacksquare$ have the rights to the Enersludge Technology for future exploitation.
$1.5 -$ There are six other resolutions (Resolutions 2 to 7) being put to the shareholders of ESI. We are not reporting on the fairness and reasonableness of such proposals. This report specifically addresses Resolution 1 only. However, we note the other Resolutions 2 to 7 are all part of the recapitalisation process of ESI.
Under Section 606 of Act, a person must not acquire a relevant interest in issued voting 1.6 shares in a company if because of the transaction, that persons or someone else's voting power in the company increases;
$(a)$ from 20% or below to more than 20%; or
$(b)$ from a starting point that is above 20% and below 90%.

Au: ENV0108A/October 2005 IER

Under Section 611 (Item 7) of Act, Section 606 does not apply in relation to any acquisition of shares in a company by resolution passed at a general meeting at which no votes were cast in favour of the resolution by the acquirer or the disposer or their respective associates. An independent expert is required to report on fairness and reasonableness of the transaction pursuant to a Section 611 (Item 7) meeting.

Following the consummation of the Resolutions relating to the share structure of the $1.7$ Company, the following table depicts the new share structure of the Company:

		Maximum No. of Shares to be issued pursuant to Resolution 1(n)	Maximum No. of Shares to be issued pursuant to Resolution 1(b)	Maximum No. of Ic Options to be issued pursuant to Resolution 1(a)
Rofin		190,000,000	220,000,000
G Fendis (or related party)				6,000,000
S Fraval (or related party)				6,000,000
F Ismail (or related party)				6,000,000
Rofin Group		190,000,000	220.000.000	18,000,000
Third Parties to be Nominated by Rofin (Nominees)		Refer Below	Refer Below	Refer below
Option Nominees (refer below) (other than proposed directors)				12.000,000
Existing shareholders	15,419.502
Total	15,419,502	190,000,000	220,000,000	30.000.000

The maximum shareholding interests of the Rofin Group (Rofin and the persons nominated by Rofin to be Directors of ESI or their controlled entities) would be as follows:

	Ignoring Options %	Including Options Exercised ₩
Rofin	96.376	90.027
G Fendis (or related party)		1.317
S Fraval (or related party)		1.317
F Ismail (or related party)		1.317
Rofin Group (rounded)	96.376	93.978
Options Nominees other than those associated with the proposed
directors Third Parties nominated by Rofin		2.635
(Nominees)	Refer Below	Refer Below

The total number of shares on issue (post-consolidated) would be 425,419,502 (before exercise of the 30,000,000 options to Options Nominees) and 455,419,502 (after exercise of the 30,000,000 options). It is assumed that the existing options that will be consolidated on a 5 to 1 basis will not be exercised. The details of such options are set out in section 1.9 of the Explanatory Statement to Shareholders attached to the Notice. It is possible that a further 20,000,000 shares may be issued to either the Unsecured Creditors' Trust Fund, the admitted creditors or the Deed Administrators (refer section 4 of the Explanatory Statement to Shareholders accompanying the Notice and Resolution 6). If this occurs, the number of shares will increase to 445,419,502 and if the 30,000,000 options are exercised, the number of shares could increase to 475,419,502. Rofin, the Rofin Group and parties nominated by Rofin could have a 92.048% to 92.549% interest in ESI.

NO.509

Therefore, an independent expert's report pursuant to the Section 611 (Item 7) of Act is required to report on the fairness and reasonableness of the transactions pursuant to Resolution 1. Rofin has requested Stanton Partners Corporate Pty Ltd to prepare an independent expert's report to assist the shareholders of ESI in determining as to whether they vote for or against Resolution 1 as outlined in the Notice.

The above percentages assume that all shares and options issued pursuant to Resolution 1 will be allotted to Rofin or the Option Nominees (and the options exercised only by the Option Nominees). The Options Nominees are set out in section 2.2 of the Explanatory Statement to Shareholders. However, a number of the shares will be required to be allotted to parties nominated by Rofin. As noted in the Explanatory Statement, in the event that certain Nominees of Rofin (who have assisted in the recapitalisation process) introduce a new technology that may enhance or be complimentary to the Enersludge Technology and Rofin considers to be of significant value to the Company and ESI subsequently acquires the new technology, then Rofin will transfer a total of 185,830,000 shares (from the 190,000,000 shares) to the Nominees. The Nominees due to the agreement to possibly transfer new shares to them from Rofin may also be deemed to be associated parties for the purposes of Resolution 1. The full names of the Nominees are set out in section 2.6 of the Explanatory Statement. If the transfers eventuate, Rofin will own 4,170,000 of the 190,000,000 shares. Thus, the actual percentage of Rofin may be as little as 0.98% (owning only to the 4,170,000 post consolidated shares). The percentages reduce if 20,000,000 shares are also issued pursuant to Resolution 6 in which case the Rofin interest may fall to as low as approximately 0.92%. The interests of the Nominees if the 185,830,000 shares are transferred from Rofin to the Nominees would total 43.68% (assuming all shares are issued pursuant to Resolution 1 and not Resolution 6) and 40.80% if only the Options Nominees exercised the 30,000,000 options.

Apart from this introduction, the report considers the following: $1.8$
$\blacksquare$ Summary of opinion
$\blacksquare$ Implications of the proposals
$\blacksquare$ Future directions of ESI
Basis of technical valuation of ESI $\blacksquare$
Premium for control $\blacksquare$
" Fairness and reasonableness of the proposals
Conclusion as to fairness and reasonableness $\blacksquare$
Sources of information
Appendix A and Financial Service Guide

$2.$ Summary of Opinion

In determining the fairness and reasonableness of the transactions pursuant to Resolution $2.1$ 1 we have had regard to the guidelines set out by the Australian Securities and Investments Commission ("ASIC") in its Policy Statements 75 and 74.

Policy Statement 75 states that an opinion as to whether an offer is fair and/or reasonable shall entail a comparison between the offer price and the value that may be attributed to the securities under offer (fairness) and an examination to determine whether there is justification for the offer price on objective grounds after reference to that value (reasonableness). Policy Statement 74 states that, where an acquisition of shares by way of an allotment is to be approved by shareholders pursuant to Section 611 (Item 7) of Act, it is desirable to commission a report by an independent expert stating whether or not the proposal is fair and reasonable, having regard to the interests of shareholders other than

the proposed allottee (in this case, Rofin, the Rofin Group or third parties nominated by Rofin) and whether a premium for potential control is being paid by the allottee(s). Accordingly, our report relating to Resolution I is concerned firstly with the fairness and reasonableness of the proposals with respect to the existing non associated shareholders of ESI, and secondly whether the price payable for a potential control includes a premium for control.

$2.2$ In our opinion:

The proposals as outlined in Resolution 1 that would allow Rofin and the Rofin Group or third parties nominated by Rofin to acquire 410,000,000 post consolidated shares and 30,000,000 share options in ESI and allow the possible transfer of up to 185,830,000 shares from Rofin to the Nominees outlined in section 2.6 of the Explanatory Statement are, on balance, fair and reasonable to the non associated shareholders of ESI. The opinions expressed above are to be read in conjunction with the more detailed analysis and comments made in this report.

$3₁$ Implications of the Proposals

$3.1$ Prior to the DOCA, the total number of shares on issue in ESI was 77,097,512. If all the resolutions are consummated, Rofin and the Rofin Group or third parties nominated by Rofin will own approximately 96.376% of the post consolidated capital of the Company (as depicted in paragraph 1.7). The third parties nominated by Rofin are only deemed under Act to be associated and the actual number of shares to be allotted to them is not yet determined, except for 185,830,000 shares that may be transferred to Nominees as outlined in section 2.6 of the Explanatory Statement and paragraph 1.7 of this report and 30,000,000 options to the Options Nominees as set out in section 2.2 of the Explanatory Statement to Shareholders. If the 30,000,000 options proposed to be issued pursuant to Resolution 1(b) are exercised, then Rofin and the Rofin Group or third parties nominated by Rofin may own up to approximately 96.614% of the post-consolidated capital of the Company. The actual final shareholding position of Rofin has not yet been determined as it is not known how many shares proposed to be issued pursuant to Resolution 1 will be allotted to Rofin and how many to other parties nominated by Rofin. As noted in paragraph 1.7 of this report up to 185,830,000 of the 190,000,000 shares may be transferred to Nominees if certain criteria are met.

It is estimated that the cost of the reconstruction process (legal fee, corporate fees, expert's report, capital raising fees and other) will be around \$120,000. The Deed Administrators and trustee fees are payable out of the Unsecured Creditors' Trust Fund.

$3.2$ Following the consummation of all terms and conditions of the various Deeds and assuming all Resolutions are consummated, ESI unaudited pro-forma Statement of Financial Position is expected to disclose:

	Notes	Summary of Directors Report As To Affairs ("RATA") s	Pro-forma after capital raisings and completion of DOCA s
Current Assets
Cash assets	ı	2,040,695	1,370,000
Receivables		141,207
Plant and Equipment		564,521
Works in progress Other Assets including		1,874,965
Enersludge Technology		1,835,463
Total Assets		6,456,851	1,370,000
Liabilities Owing under the DOCA Employee Entitlements Secured creditors Unsecured creditors Contingent Liabilities		(688, 248) (9,480,978) (8,295,300) (unknown)	(250,000)
Total Current Liabilities		(18, 464, 526)	(250,000)
Net Assets (Liabilities)		(12,007,675)	1,120,000
Equity Contributed equity (estimated)	$\overline{2}$	23,254,000
Option reserve		3,176,000	25,524,000
Accumulated losses		(38.437,675)	(24, 404, 000)
Total Equity (Deficiency)		(12,007,675)	1,120,000

In view of the above, it is reasonable to assume that the value of an ESI share prior to the recapitalisation proposal put forward by Rofin is nil. A Report to Creditors issued by the Deed Administrators dated 21 September 2005 indicated that the Bank would have a shortfall of approximately \$5,519,000 before the recapitalisation and the unsecured creditors would receive nothing. Thus, the value of an ESI share before the recapitalisation proposal of Rofin is nil.

Note

$\overline{\phantom{a}}$

$\overline{1}$

1. The movement in the cash assets is reconciled as follows:
Cash assets:
Opening balance	2,040,695
Transferred to receivers and Managers	(2,040,695)
Placement of Shares at 0.1 cents	190,000
Placement of Options
Placement of Shares at 1 cent - Public Issue	2,200,000
Payment to satisfy obligations under DOCA	(900,000)
Payment for costs of share issue	(120,000)
Closing balance (before deferred payment of \$250,000)	1,370,000

The movement in the contributed equity is reconciled as follows: Contributed equity: Opening balance (estimated and rounded) 23,254,000 Placement of Shares at 0.1 cents 190,000 Placement of Shares at I cent - Public Issue 2,200,000 Capital raising costs $(120,000)$ Closing balance (estimated and rounded) 25,524,000

The interest in the Enersludge Technology has not been independently valued for the purposes of the Statement of Financial Position. This asset was written down to nil as at 30 June 2004 as disclosed in the 2003/04 Annual Report of ESI. The asset would be subject to an impairment test under the Australian equivalents of International Financial Reporting Standards ("A-IFRS") and Rofin has not placed a current value on the asset. However, it proposes that ESI after the recapitalisation as proposed by Rofin will attempt to commercialise the Enersludge Technology and has earmarked \$380,000 for an initial review. For the purposes of this report, we have ascribed no value but note that the Enersludge Technology may have some value in the future but not enough to conclude that the current value of a share in ESI has any value. Further information on Enersludge Technology and proposals to evaluate are outline in section 1.8 of the Explanatory Statement to Shareholders accompanying the Notice.

We are advised by the directors of Rofin that following the consolidation of share options $3,3$ on issue and the proposal to issue share options pursuant to Resolution $l(a)$ , the number of share options on issue will be as listed in section 1.9 of the Explanatory Statements to Shareholders. The options under Resolution 1(a) will be 30,000,000 options exercisable at 1 cent each, on or before 1 November 2008.
It is proposed that the existing directors will resign or be removed and the nominated $3.4$ Directors Messrs G Fendis, S Fraval and F Ismail will be appointed to the Board of ESI.

$4.$ Future direction of ESI

$4.1$ We have been advised by a representative of Rofin that:
the short term intention is to complete the DOCA including the recapitalisation process:
at the time of preparation of this report they are not aware of any proposals currently contemplated whereby ESI will acquire any property or assets from Rofin, the Rofin Group or third parties nominated by Rofin or where ESI is to transfer any of its property or assets to Rofin, the Rofin Group or third parties nominated by Rofin other than the possible acquisition of new technology that may be introduced to ESI by the Nominees (refer section 2.6 of the Explanatory Statement and paragraph 1.7 of this report);
the Board of Directors of Rofin will change in the near future as noted in paragraph a li 3.4 above and further new directors may be appointed in the event of any significant new acquisition:
no dividend policy has been set and is not proposed to be set until such time as the $\blacksquare$ Company is profitable and has a positive cash flow;
as part of the recapitalisation process, the Company proposes to seek requotation of the Company's shares on the ASX; and
the proposal by Rofin is to evaluate and commercialise the Enersludge Technology. $\mathbf{m} = 0$ Also the Company may pursue new investments within Australia and overseas associated with environmental processes. As noted in section 2.6 of the Explanatory Statement, ESI may acquire further technology introduced by the Nominees if Rofin believes that the new technology enhances or compliments the Enersludge Technology and Rofin considers that the new technology to be of significant value to ESI.

5. Basis of Technical Valuation of ESI

$5.1$ Allotment of Shares

In considering the proposals as outlined in Resolution 1 we have sought to determine if 5.1.1 the potential considerations payable by Rofin and the Rofin Group or third parties nominated by Rofin (including the Nominees and Options Nominees) is fair and reasonable to the existing non-associated shareholders of ESI.
The proposals pursuant to Resolution 1 would be fair to the existing non-associated 512 shareholders if the value of the considerations being offered by Rofin, the Rofin Group or third parties nominated by Rofin are greater than the current implicit value of the shares and options of ESI immediately prior to the transactions. Accordingly, we have sought to determine a theoretical value that could reasonably be placed on ESI shares and options for the purposes of this report.
The valuation methodologies we have considered in determining the current technical 5.1.3 value of an ESI share are:
Capitalised maintainable earnings/discounted cash flow
Takeover bid the price which an alternative acquirer might be willing to offer
Adjusted net asset backing and windup value
$\bullet$ The weighted market value price of ESI shares
$5.2$ Capitalised maintainable earnings/discounted cash flows
$5.2.1$ As noted above, ESI is under a DOCA and under the control of Deed Administrators and has a Receiver and Manager appointed (to represent the interests of the Bank). Due to ESI's current state of affairs, the lack of a profit history arising from business undertakings and the immediate lack of a reliable future cash flow from a business activity, we have considered these methods of valuation not to be relevant for the purposes of this report (also refer paragraph 3.2 above).
5.3 Takeover bid

We have been advised by a Rofin representative that they do not believe that there would be any existing ESI shareholder or proposed shareholder that has an interest in taking over the Company by way of a formal takeover bid. However, we note that under the DOCA and recapitalisation process, Rofin and the Rofin Group or third parties nominated by Rofin would own up to approximately 96.376% of the post-consolidated capital of the Company. As noted under paragraph 1.7 of this report, the actual shareholding interest of Rofin may fall below 96.376% as part of the 220,000,000 shares to be issued at 1 cent each may be issued to other parties (nominated by Rofin) and under certain circumstances 185,830,000 shares (of the 190,000,000 shares) may be transferred to the Nominees listed in section 2.6 of the Explanatory Statement.

5.4 Net asset backing and windup value
As noted in the report to Creditors issued by the Deed Administrators prior to the DOCA 5.4.1 and recapitalisation process, ESI was insolvent and the Administrators of ESI considered that on a windup basis, there would be a deficiency in funds and the unsecured creditors may receive no return and the secured creditors a small return.

$\overline{1}$

5.4.2 As part of the re-capitalisation/DOCA process, ESI will retain an interest in the Enersludge Technology. We are unable to determine a fair value for such asset but consider the current value to be minimal (although it may have a future significant value if ESI raises new funds and is successful in commercialisation of the Enersludge Technology).
Purely based on the cash value of a reconstructed ESI, the net assets would be disclosed at 5.4.3 approximately \$1,120,000 which would be equivalent to approximately 0.26 cents per post consolidated share, assuming 425,419,502 shares would be on issue after the recapitalisation process. If the 20,000,000 shares are also issued pursuant to Resolution 6 the net asset backing would reduce to 0.25 cents per share. This compares with the current value of an ESI share of nil cents.
$5.5$ Weighted average market price of ESI shares
As the Company is suspended from the ASX, we do not believe it is appropriate to value 551 an ESI share based on prior quoted prices of ESI shares on the ASX.
After taking into account the matters referred to in the preceding paragraphs, we are of the 5.6 view that the current theoretical value of an ESI share (prior to the recapitalisation process) is nil cents.
If the DOCA and the recapitalisation process are finalised, the cash value of an ESI share 5.7 immediately post construction and recapitalisation would approximate 0.25 cents to 0.26 cents per share.

6. Premium for Control

$\mathbf{I}$

Premium for control for the purposes of this report has been defined as the difference $6.1$ between the price per share that a buyer would be prepared to pay to obtain a controlling interest in the Company and the price per share at which the same person would be required to pay per share which does not carry with it control of the Company.
Under Act, control may be deemed to occur when a shareholder or group of associated $6.2^{\circ}$ shareholders control more than 20% of the issued capital. In this case, Rofin and the Rofin Group or third parties nominated by Rofin (including the Nominees) would hold up to approximately 96.376% of the expanded post-consolidated issued capital of ESI (or Rofin and the Rofin Group could own as low as 42.656% before any transfer of 185,830,000 shares to Nominees as noted above.
The ESI shares that are proposed to be issued to Rofin and the Rofin Group or third 6.3 parties nominated by Rofin are deemed to be theoretically worth nil cents. Of the amount raised, \$900,000 will initially be paid to the Trustees of the Secured and Unsecured Creditors' Trust Funds to be made available to ESI's secured and unsecured creditors and to meet the Administrators and Deed Administrators fees and costs pursuant to the terms of the DOCA. A further \$250,000 is payable to the Unsecured Creditors trust Fund within 120 days of re-listing ESI on the ASX. After certain transaction costs, the cash balance of approximately \$1,120,000 will remain in the Company (after the payment of the \$250,000 and before new costs incurred after re-listing). In our opinion, it is possible that Rofin and the Rofin Group or third parties nominated by Rofin are paying a premium for control, however, the non associated shareholders of ESI are benefiting in that the theoretical value of a ESI share rises from nil cents (with significant liabilities) to a

company with a theoretical cash backed value of approximately 0.25 cents to 0.26 cents per share and all liabilities extinguished.

$\overline{7}$ . Fairness and Reasonableness of the Proposals

We have set out below some of the advantages, disadvantages and other factors pertaining to the proposals, pursuant to Resolution 1 and the recapitalisation proposals generally.

Advantages

The passing and consummation of Resolution 1 in conjunction with the completion of the $7.1$ DOCA and recapitalisation process would result in a net cash injection of approximately \$1,120,000 (after the payment of the deferred \$250,000) into the Company and having a company with no liabilities, compared with the current position whereby the Company is subject to a DOCA and is in a net liability position.
$7.2$ If the proposals per Resolution 1 are consummated along with the completion of the DOCA, the book value and cash asset backing of an ESI post consolidated share rises from nil cents to approximately 0.25 cents to 0.26 cents (refer paragraph 5.4.3 of this report).
If Resolution 1 is passed together with the completion of the DOCA and recapitalisation $7.3$ process, the Company's chances to seek re-quotation of its shares on the ASX are enhanced. By obtaining re-quotation of the Company's shares, the existing shareholders are offered liquidity to sell their shares (reduced on a 1 for 5 basis) on the ASX.
Rofin and the Rofin Group bring expertise to the Company in that Messrs G Fendis, S $7.4$ Fraval and F Ismail have all had experience as directors or managers of public listed companies or have experience in managing businesses in the technological industries, They will also seek new business opportunities in the environmental process industry. Further details on the new directors are outlined in the Explanatory Statement to Shareholders in Section 3.

Disadvantages

$7.5$ A significant shareholding in the Company is being given to Rofin and the Rofin Group or third parties nominated by Rofin. However, we note that ESI will be recapitalised with approximately \$1,120,000 in cash (before any commitments on funding the Enersludge Technology but after the payment of the deferred \$250,000), will have no debt and will have the opportunity to exploit the Enersludge Technology and consider acquisition of other assets.
7.6 ESI would only have approximately cash of \$1,120,000 after the consummation of the DOCA and the recapitalisation process is complete 9including paying the deferred \$250,000). Further fundraisings may be required to be undertaken in the near future. If further shares are issued, the percentage share holding of the existing shareholders of ESI may be diluted down even further. However as noted above, the shares in ESI prior to the recapitalisation process is considered to be of nil value.
The Enersludge Technology may not be commercially successful and the Company may $7.7$ incur new losses. Conversely, the Enersludge Technology may be successfully exploited and may lead to an increase in the value of an ESI share which may be worth more than

Au: ENV0108A/October 2005 IER

Rofin and the Rofin Group or third parties nominated by Rofin are to pay for the 410,000,000 shares to be subscribed for.

Other

7.8 The 30,000,000 options, if exercised by the Options Nominees would result in an inflow of funds to ESI of \$300,000. The exercise price of the 30,000,000 options is 1 cent each. The trading price of an ESI share (after re-quotation of the Company's shares on the ASX that is dependent upon completion of the recapitalisation process) at the date of exercise of the options would probably be in excess of 1 cents before option holders exercised the options.
The 30,000,000 options to be issued for no consideration have been valued using the 7.9 Black Scholes option valuation methodology as noted in section 2.5 of the Explanatory Statement to Shareholders attached to the Notice. We do not disagree with the range of values ascribed to the options on the basis of the assumptions made. The assumptions appear reasonable in the circumstances. It is noted that at a 100% volatility factor, the technical value of one of the 30,000,000 options would equate to approximately 0.63 cents.

8. Conclusion as to Fairness and Reasonableness

After taking into account the matters referred to in 7 above and elsewhere in this report, 8.1 we are of the opinion that, on balance, the proposals as outlined in Resolution 1 (that also allows for the possible transfer of up to 185,300,000 shares from Rofin to Nominees and the issue of 30,000,000 options to Options Nominees) are, on balance fair and reasonable to the non-associated shareholders of ESL.

9. Sources of Information

In making our assessment as to whether the proposals pursuant to Resolution 1 are fair $9.1$ and reasonable, we have reviewed relevant published available information and other unpublished information of ESI, which is relevant in the current circumstances. In addition, we have held discussions with a representative of the Rofin Group about the present state of affairs of ESI and the background of Rofin. Statements and opinions contained in this report are given in good faith, but in the preparation of this report, we have relied in part on information provided by Rofin and that information disclosed in the draft Explanatory Statement to Shareholders and that disclosed in reports to creditors by the Administrators.
Information we have received includes, but is not limited to: 9.2
Discussions with a representative of Rofin and the solicitors who prepared the Notice $\bullet$ and Explanatory Statement to Shareholders;
Shareholding details of ESI;
Drafts of the Notice of the Meeting to Shareholders and Explanatory Statement to $\bullet$ Shareholders of ESI;
The Administrator's Reports and Circulars to Creditors pursuant to Section 445F of Act for ESI of 21 September 2005 that included a Report as to Affairs as at the date of Administration;
DOCA dated 6 January 2005; $\bullet$
Annual Report of ESI for the year ended 30 June 2004;
Creditors Trust Deed: ٠
Secured Creditors Trust Deed:

$\overline{\phantom{a}}$

$\overline{1}$

$\overline{\phantom{a}}$

$\bar{1}$

$-P.47/52...$

$\overline{\phantom{a}}$

Varied Deed of Company Arrangement $\bullet$
Notices of meetings to creditors of ESI; $\bullet$
Correspondence with Solicitors and Rofin;
Announcements to the ASX by ESI or the Administrators and the Receivers and $\bullet$ Managers;
ASX information on ESI, $\bullet$

Our report includes Appendix A and Financial Services Guide, attached to this report. 9.3

Yours faithfully STANTON PARTNERS CORPORATE PTY LTD

$\gamma_c$ , $\mathcal{G}_{\boldsymbol{\nu}}$

J P Van Dieren, FCA Director

APPENDIX A

AUTHOR INDEPENDENCE

This annexure forms part of and should be read in conjunction with the report of Stanton Partners Corporate Pty Ltd dated 20 October 2005, relating to Resolution 1 outlined in the Notice of Meeting of Shareholders of ESI.

At the date of this report, Stanton Partners Corporate Pty Ltd does not have any interest in the outcome of the proposals. There are no relationships with ESI or Rofin other than acting as an independent expert for the purposes of this report. There are no existing relationships between Stanton Partners Corporate Pty Ltd and the parties participating in the transactions detailed in this report which would affect our ability to provide an independent opinion. The fee to be received for the preparation of this report is based on the time spent at normal professional rates plus out of pocket expenses and is estimated not to exceed \$8,500 (excluding GST). The fee is payable regardless of the outcome. With the exception of that fee, neither Stanton Partners Corporate Pty Ltd nor John P Van Dieren have received nor will or may they receive any pecuniary or other benefits, whether directly or indirectly for or in connection with the making of this report.

Stanton Partners Corporate Pty Ltd, Stanton Partners, Stantons International or any partners or directors of Stanton Partners and Stantons International do not hold any securities in ESI. There are no pecuniary or other interests of Stanton Partners Corporate Pty Ltd that could be reasonably argued as affecting its ability to give an unbiased and independent opinion in relation to the proposal. Stanton Partners Corporate Pty Ltd and Mr J Van Dieren have consented to the inclusion of this report in the form and context in which it is included as an annexure to the Notice.

QUALIFICATIONS

We advise Stanton Partners Corporate Pty Ltd is the holder of an Investment Advisers Licence (No 231201) under the Corporations Act relating to advice and reporting on mergers, takeovers and acquisitions involving securities. A number of the partners of Stanton Partners and Stantons International are Directors' of Stanton Partners Corporate Pty Ltd. Stanton Partners, Stantons International and Stanton Partners Corporate Pty Ltd have extensive experience in providing advice pertaining to mergers, acquisitions and strategic and financial planning for both listed and unlisted companies and businesses.

Mr John P Van Dieren, FCA, the person responsible for the preparation of this report, has extensive experience in the preparation of valuations for companies and in advising corporations on takeovers generally and in particular on the valuations and financial aspects thereof, including the fairness and reasonableness of the consideration offered.

The professionals employed in the research, analysis and evaluation leading to the formulation of opinions contained in this report, have qualifications and experience appropriate to the tasks they have performed.

DECLARATION

This report has been prepared at the request of Rofin in order to assist the shareholders of ESI to assess the merits of the proposals (Resolution 1) to which this report relates. This report has been prepared for the benefit of the ESI shareholders and those persons only who are entitled to receive a copy for the purposes of Section 611 (Item 7) of the Corporations Act and does not provide a general expression of Stanton Partners Corporate Pty Ltd's opinion as to the longer term value of ESI or the Enershudge Technology. Stanton Partners Corporate Pty Ltd does not imply, and it should not be construed, that it has carried out any form of audit on the accounting or other records of ESI or any of its subsidiaries. Neither the whole, nor any part of this report, nor any reference thereto may be included in or with or attached to any document, circular, resolution, letter or statement, without the prior written consent of Stanton Partners Corporate Pty Ltd to the form and context in which it appears.

DISCLAIMER

This report has been prepared by Stanton Partners Corporate Pty Ltd with due care and diligence. However, except for those responsibilities which, by law cannot be excluded, no responsibility arising in any way whatsoever for errors or omission (including responsibility to any person for negligence) is assumed by Stanton Partners Corporate Pty Ltd, Stanton Partners, Stantons International, its partners, directors, employees or consultants for the preparation of this report.

DECLARATION AND INDEMNITY

Recognising that Stanton Partners Corporate Pty Ltd may rely on information provided by Rofin and its officers (save whether it would not be reasonable to rely on the information having regard to Stanton Partners Corporate Pty Ltd experience and qualifications), Rofin has agreed:

a) to make no claim by it or its officers against Stanton Partners Corporate Pty Ltd to recover any loss or damage which ESI may suffer as a result of reasonable reliance by Stanton Partners Corporate Pty Ltd on the information provided by Rofin; and
(b) to indemnify Stanton Partners Corporate Pty Ltd against any claim arising (wholly or in part) from Rofin or any of its officers providing Stanton Partners Corporate Pty Ltd any false or misleading information or in the failure of Rofin or its officers in providing material information, except where the claim has arisen as a result of wilful misconduct or negligence by Stanton Partners Corporate Pty Ltd.

A draft of this report was presented to Rofin, the Deed Administrators and the Receivers and Managers for a review of factual information contained in the report. Comments received relating to factual matters were taken into account, however the valuation methodologies and conclusions did not alter. Whilst the Deed Administrators and the Receivers and Managers have viewed a draft of this report, neither the Deed Administrators, receivers and Managers and their professional advisers and their accounting firms or their employees are responsible for comments in this report. The Deed Administrators and Receivers and Managers do not accept any responsibility for any disclosures in or failure to include any disclosures in this report. The information contained in this report has not been verified independently by the Deed Administrators, the Receivers and Managers, their professional advisers and their accounting practices or their employees who expressly disclaim responsibility for the accuracy or completeness of the information in the report.

$\mathbf{I}$

STANTON PARTNERS CORPORATE PTY LTD A.C.N 063 036 331 1 HAVELOCK STREET WEST PERTH 6005 WESTERN AUSTRALIA

TELEPHONE: (08) 9481 3188 FACSIMILE: (08) 9321 1204

e-mail: [email protected]

FINANCIAL SERVICES GUIDE Dated 20 October 2005

1. STANTON PARTNERS CORPORATE PTY LTD

Stanton Partners Corporate Pty Ltd ABN 89 036 036 331 ("SPC" or "we" or "us" or "ours" as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you.

$\overline{2}$ . FINANCIAL SERVICES GUIDE

In the above circumstances we are required to issue to you, as a retail client a Financial Services Guide ("FSG"). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees.

This FSG includes information about:

$\blacksquare$ who we are and how we can be contacted;
the services we are authorised to provide under our Australian Financial $\blacksquare$ Services Licence, Licence No: 231201;
remuneration that we and/or our staff and any associated receive in $\blacksquare$ connection with the general financial product advice;
any relevant associations or relationships we have; and $\blacksquare$
our complaints handling procedures and how you may access them. $\blacksquare$

$3.$ FINANCIAL SERVICES WE ARE LICENCED TO PROVIDE

We hold an Australian Financial Services Licence which authorises us to provide financial product advice in relation to:

Securities (such as shares and options)

We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report.

Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report.

$\mathbf{A}$ GENERAL FINANCIAL PRODUCT ADVICE

In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product.

5. BENEFITS THAT WE MAY RECEIVE

We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis.

Except for the fees referred to above, neither SPC, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.

6. REMUNERATION OR OTHER BENEFITS RECEIVED BY OUR EMPLOYEES

All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report.

$7.$ REFERRALS

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

8. ASSOCIATIONS AND RELATIONSHIPS

Through a variety of corporate and trust structures, SPC is ultimately wholly owned by and operates as part of Stanton Partners and Stantons International professional advisory and accounting practices. Our directors may be partners in Stanton Partners and/or Stantons International.

From time to time, SPC Stanton Partners and Stantons International and/or their related entities may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business.

$9.$ COMPLAINTS RESOLUTION

$9.1$ Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to:

The Complaints Officer Stanton Partners Corporate Pty Ltd Level 1 1 Havelock Street WEST PERTH WA 6005

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaints within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

Referral to External Dispute Resolution Scheme $9.2$

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Industry Complaints Service Limited ("FICS"). FICS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about FICS are available at the FICS website www.fics.asn.au or by contacting them directly via the details set out below.

Financial Industry Complaints Service Limited PO Box 579 Collins Street West MELBOURNE VIC 8007

Toll Free: 1300 78 08 08 Facsimile: (03) 9621 2291

10. CONTACT DETAILS

You may contact us using the details set out at the top of our letterhead on page 1 of this FSG.

AI assistant

ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. — Proxy Solicitation & Information Statement 2005

64819_rns_2005-11-01_82c87363-670a-4533-85b8-e4e731e4df3e.pdf

ASX ANNOUNCEMENT

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) ACN 009 120 405 ("the Company")

ASX CODE "ESI"

DISPATCH OF NOTICE OF MEETING

ENVIRONMENTAL SOLUTIONS INTERNATIONAL

ABN 28 009 120 405

NOTICE OF GENERAL MEETING

CONTENTS PAGE

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

YOUR VOTE IS IMPORTANT

VOTING IN PERSON

VOTING BY PROXY

Proxy forms received later than this time will be invalid.

LETTER TO SHAREHOLDERS

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) ACN 009 120 405

NOTICE OF GENERAL MEETING

AGENDA

SPECIAL BUSINESS

RESOLUTION 1 - ALLOTMENT AND ISSUE OF SHARES AND OPTIONS

RESOLUTION 2 - REMOVAL OF DIRECTORS

RESOLUTION 3 - ELECTION OF MR GREGORY FENDIS

RESOLUTION 4 - ELECTION OF MR SACHLAN FRAVAL

RESOLUTION 5 - ELECTION OF MR FALDI ISMAIL

RESOLUTION 6 - ALLOTMENT AND ISSUE OF SHARES PURSUANT TO DOCA

RESOLUTION 7 - CONSOLIDATION OF CAPITAL

DATED: 21 OCTOBER 2005

Voting Exclusion Note:

EXPLANATORY STATEMENT

$\overline{\mathbf{1}}$ . OVERVIEW

$1.1$ Background

The ENERSLUDGETM Technology Assets $1.2$

Background on the ENERSLUDGETM technology $1.3$

$1.4$ How it works

The concept

Product usage

Plant design

Waste and sludge types

Australian sewage sludge demonstration plant $1.5$

$1.6$ Tannery sludge demonstration project

$1.7$ Latest Technology Development

$1.8$ ENERSLUDGE™ commercialisation

$1.8.1$ Strategy

Current Status $1.8.2$

Sewage Sludge

Tannery Sludge

Oily Sludge

$1.9$ Purpose of Capital Raisings

Use of Funds - Expenditure Budget

Pro-forma Capital Structure

1.10 About Rofin Australia Pty Ltd

Summary of the terms of the Recapitalisation Proposal and Deed of Company 1.11 Arrangement

Details of Recapitalisation Proposal $1.12$

Terms of the Recapitalisation Proposal

$1.13$ Details of Deed of Company Arrangement

$1.14$ ASX Listing

$1.15$ Conclusion

RESOLUTION 1 - ALLOTMENT AND ISSUE OF SHARES AND OPTIONS $\overline{2}$ .

$2.1$ Background

$2.2$ ASX Listing Rules

$2.3$ Terms and Conditions of Options

$2\Delta$ Chapter 2E of the Corporations Act

$2.5$ Valuation of Options

$2.6$ Section 611 of the Corporations Act

Identity of persons who will hold a relevant interest in the Shares to be allotted and issued.

Other Reauired Information

$2.7$ Directors' Recommendations

$2.8$ Independent Expert's Report

2.9 Pro-Forma Consolidated Balance Sheet

RESOLUTION 2 - REMOVAL OF DIRECTORS AND RESOLUTIONS 3. 4 AND 5 - $\overline{\mathbf{3}}$ . ELECTION OF DIRECTORS

MR GREGORY FENDIS

MR SACHLAN FRAVAL

MR FALDI ISMAIL

$\overline{A}$ RESOLUTION 6 - ALLOTMENT AND ISSUE OF SHARES PURSUANT TO DOCA

$\overline{s}$ . RESOLUTION 7 - CONSOLIDATION OF CAPITAL

GLOSSARY

PROXY FORM

ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. Proxy Solicitation & Information Statement 2005

$3₁$ Implications of the Proposals