ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD

ABN 28 009 120 405

10 April 2006

Company Announcements Office Australian Stock Exchange Limited

Dear Sir / Madam,

By e-Lodgement

NOTICE OF MEETING

Environmental Solutions International Limited ("ESI") are pleased to enclose the Notice of Meeting to be held on Friday 12 May 2006 at 11 am (EST) at the Institute of Chartered Accountant, Level 3, 600 Burke Street, Melbourne, Victoria.

We also note that the only outstanding condition precedent to completion of the Asia Pacific Coal & Steel Pty Ltd Transaction, as announced on 10 February 2006, is ESI obtaining the required Shareholder approvals as set out in this Notice of Meeting.

Ends.

For further information please contact:

MR SACHLAN FRAVAL

Chairman

Contact: 0408 574 252

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED ABN 28 009 120 405 NOTICE OF GENERAL MEETING

TIME: $11$ am (EST)

DATE: Friday, 12 May 2006

PLACE: The Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria.

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 will be held at 11am (EST) on Friday, 12 May 2006 at The Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria.

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 11am (EST).

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:

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

so that it is received not later than 11am (EST) on 10 May 2006.

Proxy forms received later than this time will be invalid.

LETTER TO SHAREHOLDERS

Dear Shareholders.

At the Annual General Meeting of your Company, held on 7 March 2006, I informed you of the acquisition Asia Pacific Coal & Steel Pty Ltd (APCS).

APCS is a privately owned Australian environmental technology company which was formed to commercialise its licensed patented Coldry Process® and Matmor Process®.

APCS currently holds exclusive licences for the Coldry and Matmor patents and associated intellectual property (the coal dewatering and steel production technologies).

The acquisition of this unique process will mean the Company will be able to pursue commercialisation of transportable ENERSLUDGE™ units which can be applied in cooperation with contract holders or waste management authorities.

The securing of APCS will also enable ESI to continue APCS's business strategy of commercialising its strategically important technology for the dewatering of brown coal. As I explained in my address at the Annual General Meeting, this will enable brown coal to be used in existing power generators, and when mixed with low-grade iron ore, a composite pallet for smelting and production of high quality low cost steel. The technology has also been identified to have other potential applications which the Company will continue to investigate.

As part of the acquisition, the Directors have invited certain nominees of APCS to join the Board. We believe that these nominees bring outstanding quality to the Board bringing the necessary talent to deliver internationally recognized major projects to Australia in the form of waste treatment, composite low cost steel production and a previously unattainable transportable energy product.

The Board of your Company unanimously recommends that all shareholders vote in favour of all Resolutions the subject of the Notice of Meeting.

We look forward to an exciting future representing you, the shareholders, in attaining the potential shareholder value and significant environmental benefits which often represent opposite and conflicting agendas.

Before voting on any of the Resolutions, I urge you to read the Explanatory Statement and Expert's Report that accompanies that Notice of Meeting.

Yours faithfully

SACHLAN FRAVAL CHAIRMAN

NOTICE OF GENERAL MEETING

Notice is given that a General Meeting of Shareholders of Environmental Solutions International Limited will be held at 11am (EST) on Friday, 12 May 2006 at The Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria.

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 Meetina.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders of the Company on 10 May 2006 at 5.00pm (EST).

Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the Glossary.

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 - ACQUISITION OF ASIA PACIFIC COAL & STEEL PTY LTD

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 Rules 7.1 and 10.1 of the Listing Rules of Australian Stock Exchange Limited and Section 208 of the Corporations Act and for all other purposes, approval is given for the Company to allot and issue 16,000,000 fully paid ordinary shares in the capital of the Company to the shareholders of Asia Pacific Coal & Steel Pty Ltd in consideration for the acquisition of all of the issued capital of Asia Pacific Coal & Steel Pty Ltd and otherwise on the terms set out in the Explanatory Statement accompanying this Notice."

Short Explanation: Pursuant to the Terms Sheet, 16,000,000 Shares are to be issued to the APCS Shareholders as consideration for their APCS Shares. It is likely that the Mr and Mrs O'Keefe, who are shareholders in APCS and will receive Shares pursuant to Resolution 1, will be deemed related parties of the Company because it is likely that Mr O'Keefe will be appointed as a director of the Company on settlement of the Terms Sheet and Mrs O'Keefe is his spouse. Further, some of the beneficial interests of the Rofin Nominees are also APCS Shareholders and are entitled to more than 10% of the shares in the Company – making the transaction fall with the ambit of ASX Listing Rule 10.1. For these reasons. approval is sought for the purposes of ASX Listing Rules 7.1 and 10.1 and Section 208 of the Corporations Act.

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

the APCS Shareholders and a person who may participate in the proposed issue and any person ${\alpha}$ 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 - ELECTION OF MR NEIL O'KEEFE

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 and the occurrence of settlement pursuant to the Terms Sheet, Mr Neil O'Keefe, being eligible and having consented to act, be elected as a director of the Company."

RESOLUTION 3 - ELECTION OF MR MURRAY D'ALMEIDA

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 and the occurrence of settlement pursuant to the Terms Sheet, Mr Murray D'Almeida, being eligible and having consented to act, be elected as a director of the Company."

RESOLUTION 4 - ELECTION OF DR JOHN WHITE

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 and the occurrence of settlement pursuant to the Terms Sheet, Dr John White, being eligible and having consented to act, be elected as a director of the Company."

RESOLUTION 5 - ACQUISITION OF RELEVANT INTEREST

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 Item 7 of Section 611 of the Corporations Act and for all other purposes, approval is given for the acquisition of a relevant interest in the voting shares of the Company by the Relevant Persons and the Controllers by virtue of the issue of 16,000,000 Shares pursuant to APCS Transaction and otherwise on the terms set out in the Explanatory Statement accompanying this Notice."

Short Explanation: Approval is sought to allow the Relevant Persons and Controllers to increase their voting power in the Company from a point above 20%.

Voting Exclusion: The Company will disregard any votes cast on this resolution by the persons proposing to make the acquisition, the person from whom the acquisition will be made and any other their associates.

DATED: 6 April 2006

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 yote 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 aeneral meeting of the Company.

$\mathbf{1}$ . OVERVIEW

$1.1$ Acquisition of Asia Pacific Coal & Steel Pty Ltd

The Company, APCS and the major shareholders of APCS have entered into a terms sheet (Terms Sheet) for the acquisition of all of the fully paid ordinary shares in the capital of APCS for a consideration of 16,000,000 fully paid ordinary ESI shares (APCS Transaction).

APCS is a privately owned Australian environmental technology company which was formed to commercialise its licensed patented Coldry Process® and Matmor Process®.

APCS currently holds exclusive licences for the Coldry and Matmor patents and associated intellectual property (the coal dewatering and steel production technologies). The licences and associated Participant's Agreement with a privately owned Victorian aroup, provide for APCS to further develop and commercialise the technologies. The agreements provide that APCS can call upon the owners to transfer the intellectual property to APCS by the issue of equity (by APCS or some other listed entity) on the achievement of certain milestones over the course of the next 3 years. Alternatively, the intellectual property can currently be transferred to APCS on the payment of \$30 million cash to the owners. The agreements also provide for an ongoing royalty payment based on revenues generated from commercialisation of the technologies.

Under the Participant's Agreement, APCS has certain obligations to further develop existing pilot plants and build small scale production facilities as part of the process of proving up and commercialising the technologies.

ESI anticipates that some of the Shares to be transferred to the Rofin Nominees (refer to Section 4.2.5) will be used to fund (in part or in whole) the future acquisition by APCS of the intellectual property under the Participant's Agreement (assuming APCS satisfies the milestones).

The patented Coldry Process® is a unique process that dewaters brown coal and similar materials by as much as 85% in a mechanically simple and economic way creating an equivalent high energy value feedstock to black coal. The Matmor Process® utilises mixes wet brown coal with low grade un-marketable ores such as iron and nickel and produces high quality steel and nickel via a low cost. Iow emission retort.

The only outstanding condition precedent to completion of the APCS Transaction is ESI obtaining the required Shareholder approvals as set out in this Notice of Meeting.

On completion of the APCS Transaction, Mr Neil O'Keefe, Mr Murray D'Almeida and Mr John White will be appointed as directors of the Company (nominees of APCS) provided Shareholder approval is obtained pursuant to Resolutions 2, 3 and 4.

This strategic acquisition will secure the key dewatering technology identified by ESI in the notice of meeting sent to Shareholders in respect of the shareholders' meeting held on 5 December 2005. The dewatering process that APCS has the rights to enables highly efficient dewatering of sewage waste and brown coal and can reduce moister content by as much as 85% resulting in a stable, transportable, exportable high energy feedstock for power generation and other uses.

The acquisition of APCS should enable the. Company to pursue commercialisation of transportable ENERSLUDGE™ units using the dewatering process which can be applied in cooperation with contract holders or waste management authorities.

The securing of APCS will also enable ESI to continue APCS's business strategy of commercialising its strategically important technology for the dewatering of brown coal. As explained in the Chairman's address at the Annual General Meeting of the Company held on 7 March 2006, this will enable brown coal to be used in existing power generators, and when mixed with low-grade iron ore, a composite pallet for smelling and production of high quality low cost steel. The technology has also been identified to have other potential applications which the Company will continue to investigate.

$\overline{2}$ . RESOLUTION 1 - ACQUISITION OF ASIA PACIFIC COAL & STEEL PTY LTD

$2.1$ Backaround

Pursuant to Resolution 1, the Company proposes to issue 16,000,000 Shares to APCS Shareholders in consideration for their APCS Shares. This resolution is required to be approved in accordance with ASX Listing Rules 7.1.

$2.2$ ASX Listing Rule 7.1

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.

Pursuant to Resolution 1 it is proposed that Shares will be issued to all the shareholders of APCS as set out in Schedule 1.

Certain of the APCS Shareholders will be prohibited from selling or dealing with the Shares which they are to be issued pursuant to Resolution 1 for a period of 12 months from the date of issue of those Shares. Please refer to Schedule 1 for further details.

The following information is provided to Shareholders for the purposes of obtaining Shareholder approval pursuant to ASX Listing Rule 7.3 for Resolution 1:

the maximum number of Shares to be issued by the Company to the $(a)$ APCS Shareholders is 16,000,000;
$(b)$ the Shares are proposed to be issued to the APCS Shareholders as set out in Schedule 1:
the deemed issue price of the Shares is \$0.10 each: $\left( c\right)$
$(d)$ the Shares will be allotted and issued on the settlement date pursuant to the Terms Sheet:
the Shares issued will rank equally with the existing Shares on issue; and $(e)$
$(f)$ no funds will be raised by the issue of the Shares.

$2.3$ ASX Listing Rule 10.1

ASX Listing Rule 10.1 provides that an entity must not acquire a substantial asset from, or dispose of a substantial asset to, a substantial holder, if the person and the person's associated have a relevant interest, or had a relevant interest at any time in the 6 months before the transaction, in at least 10% of the total votes attached to the voting securities of the company.

A "substantial asset" is an asset valued at greater than 5% of the equity interests of the Company as set out in the last accounts given to ASX. For the purpose of ASX Listing Rule 10.1, Shareholder approval is required for the APCS Transaction for the following reasons:

the value of APCS (based on the consideration being paid by ESI) is $(a)$ greater than 5% of the equity interests of the Company as set out in the last accounts given to ASX; and
$(b)$ due to the fact that the majority of the APCS Shareholders or associates are also entitled to Shares under the Rofin Transfer, the acquisition of APCS will constitute an acquisition from a substantial holder.

Where Shareholder approval is sought for the purposes of ASX Listing Rule 10.1, the Notice of Meeting sent to Shareholders must include a report on the proposed transaction from an independent expert. Accompanying this Explanatory Statement is an Independent Expert's Report prepared by Stanton Partners Corporate Pty Ltd concluding that the APCS Transaction is not fair but. may, on balance, be considered reasonable in the circumstances to the nonassociated Shareholders.

In coming to the conclusion that the APCS Transaction is not fair, the Expert notes that a fair value for APCS can not be determined with any certainty.

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.

$2.4$ 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:

$(a)$ a director;

$(b)$ an entity over which a director has control:
an entity which believes, or has reasonable arounds to believe, that it is $(C)$ likely to become a related party in the future; and
spouses and de facto spouses of the persons referred to in paragraphs $(d)$ $(a)$ , $(b)$ and $(c)$ .

For the purposes of Chapter 2E of the Corporations Act, the following persons are related parties of the Company:

Mr Neil O'Keefe: and $(\circ)$
$(b)$ Mrs Rhonda O'Keefe (wife of Mr O'Keefe).

Mr O'Keefe is a related party of the Company by virtue of the fact that he has reasonable grounds to believe he will become a related party of the Company as he may be elected as directors of the Company if Resolution 2 is passed and settlement pursuant to the APCS Transaction occurs.

Mrs O'Keefe is a related party of the Company by virtue of the fact that she is the spouse of Mr O'Keefe.

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:

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

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 proposed to be issued to Mr and Mrs O'Keefe under Resolution 1.

In accordance with the requirements of Chapter 2E of the Corporations Act the following information is provided in relation to the financial benefit to be provided to Mr and Mrs O'Keefe jointly as trustees of the O'Keefe Solutions Superannuation Fund (of which Mr and Mrs O'Keefe are beneficiaries) to satisfy the requirements of Sections 217 to 227 of the Corporations Act:

$(a)$ the proposed financial benefit to be given to Mr and Mrs O'Keefe jointly pursuant to Resolution 1 is 240,147 Shares:
$(b)$ no funds will be raised from the issue of the Shares as they are being issued as consideration for the APCS Shares held by the Mr and Mrs O'Keefe:
Mr and Mrs O'Keefe currently have no interests in the securities of the $\left( \mathrm{c}\right)$ Company;
$(d)$ no remuneration has been paid to Mr and Mrs O'Keefe over the past 12 months:
it is proposed that Mr O'Keefe be entitled to a directors' fee of \$2,000 $(e)$ per month following his appointment as a director;

$(f)$ since the Company's shares were reinstated to trading on 19 January 2006, the highest, lowest and latest trading price of Shares on ASX are as set out below:

Highest	\$0.920
Lowest	\$0.100
Last	\$0.865

if shareholders approve the issue of Shares to Mr and Mrs O'Keefe, the $(q)$ effect will be to dilute the shareholding of existing Shareholders by less than 1%; and
$(h)$ the purpose of the issue of Shares to Mr and Mrs O'Keefe is to provide consideration to Mr and Mrs O'Keefe for acquisition of their APCS Shares. The number of Shares to be issued to Mr and Mrs O'Keefe are in the same proportion to the Share to be issued to the non-related parties of the Company for the acquisition APCS Shares.

In accordance with the requirements of Chapter 2E of the Corporations Act the following information is provided in relation to the financial benefit to be provided to Mrs O'Keefe (in her personal capacity) to satisfy the requirements of Sections 217 to 227 of the Corporations Act:

$(a)$ the proposed financial benefit to be given to Mrs O'Keefe pursuant to Resolution 1 is 159,588 Shares:
$(b)$ no funds will be raised from the issue of the Shares as they are being issued as consideration for the APCS Shares held by Mrs O'Keefe;
$\lfloor c \rfloor$ Mrs O'Keefe currently has no interests in the securities of the Company;
no remuneration has been paid to Mrs O'Keefe over the past 12 $(d)$ months:
since the Company's shares were reinstated to trading on 19 January $(e)$ 2006, the highest, lowest and latest trading price of Shares on ASX are as set out below:

Highest	\$0.920
Lowest	\$0.100
Last	\$0.865

$(f)$ if shareholders approve the issue of Shares to Mrs O'Keefe, the effect will be to dilute the shareholding of existing Shareholders by less than 1%; and
the purpose of the issue of Shares to Mrs O'Keefe is to provide $\left( 9 \right)$ consideration to Mrs O'Keefe for acquisition of her APCS Shares. The number of Shares to be issued to Mrs O'Keefe are in the same proportion to the Share to be issued to the non-related parties of the Company for the acquisition APCS Shares.

$\overline{3}$ . RESOLUTIONS 2, 3 AND 4 - ELECTION OF DIRECTORS

Resolutions 2, 3 and 4 seek the election of Mr O'Keefe, Mr Almeida and Mr White as directors of the Company following settlement of the APCS Transaction pursuant to the Terms Sheet.

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

Murray D'Almeida

Mr D'Almeida is currently a director of APCS.

He has 30 years national and international business experience. He began his career with a firm of Chartered Accountants in Perth. He founded Retail Food Group Australia and was instrumental in the arowth of that company's brands Donut King and BB's Coffee to in excess of 300 stores in Australia and in 9 other countries.

He has also been involved in the restaurant, wholesaling, farming and liquor industries. Murray is currently extensively involved in Food Importation and Distribution.

He sits on several Boards, is the Chairman of Bartercard Australia and is a Director of the London Stock Exchange listed, Bartercard International P.L.C. He has also recently been appointed Chairman of The Institute of Business Leaders.

Murray was formerly a Director of the Australian Small Business Association, the Franchisors Association of Australia and New Zealand, Capricorn Resources N.L. (an Australian Stock Exchange listed mining company), Queensland Rugby Union and Gold Coast & District Rugby Union and has held a variety of nonexecutive positions with the Queensland Branch of the Liberal Party of Australia.

Neil O'Keefe

Mr O'Keefe is currently Project Leader for the Coldry Commercialisation Team at APCS.

He has a unique background, which includes 30 years of public and private sector experience, including 17 years as a highly regarded Federal Labor MP. During that time he held federal frontbench responsibility for Transport, Primary Industry, Resources & Energy.

Neil is acknowledged as having played a key role in the introduction and development of the compulsory superannuation capital pool in the Australian economy and has local, state, national and international experience in capital finance, infrastructure, transport, trade, media, water, and enerav. telecommunications, agriculture and resources.

His public sector Current and/or recent appointments include: Director, Water for Rivers (Joint Government Enterprise), Chairman, Victorian Government Motorcycle Advisory Council (VMAC), Chairman, Royal Melbourne Showarounds Re-Development Project (2003-4) and Director, Melbourne University Private $(2002 - 2005)$ .

The Maddingley Brown Coal Mine at Bacchus Marsh was located in Neil's electorate whilst a Member Parliament and he has followed and supported the development of the Coldry and Matmor technologies.

Dr John White

Dr White has a distinauished career as an Australian business leader, developer of large scale infrastructure projects and government advisor.

He is Chairman of Global Renewables Ltd ("GRL"), a subsidiary of the public listed GRD Limited, having only recently stepped down, after 5 years, as Managing Director of GRL. During his tenure John has been responsible for GRL developing the waste-to-resource facility in Sydney's Eastern Creek, processing over 0.26 million t.p.a. of municipal solid waste ("MSW") (12% of all Sydney's waste) and in September 2005 being awarded the Public Private Partnership ("PPP") project in Lancashire, UK, to process 0.765 million t.p.a. of MSW, a 25 year contract worth over A\$6 billion. GRL is also in working partnership with the Melbourne's Western Region Waste Management Group to process 0.225 million t.p.a. MSW over 20 years.

Dr White holds a Bachelor of Civil Engineering (1st Class Honours) from University of Adelaide and a Doctor of Philosophy from University of Cambridge, in the United Kingdom.

He commenced his management career with Woodside Petroleum supervising design, construction and installation of the North Rankin 'A' gas platform then supervising completion design of North West Shelf domestic gas plant, in the Netherlands, and leading the conceptual study team for the North West Shelf LNG Project. Then moving to General Manager of Elco Engineering he was responsible for \$50-100 million p.a. marine and heavy engineering contracts, tender for the RAN Submarine Contract and privatisation of Williamstown Naval Dockyard.

In 1988 he moved to the Transfield Defence Group and during an 8 year tenure was responsible for international business development and operations of Transfield Shipbuilding in Victoria, WA and NZ, and tendering and implementation of the \$5 billion ANZAC Frigate Contract

Between 1996 to 1999 he was Global CEO of Visy Industries, responsible for global business development and operations of the Pratt Group. Immediately prior to joining GRL John was Managing Director of ASX listed Siddons Ramset, successfully positioning the company and managing the takeover of Siddons by the US giant, Illinois Tool Works.

He has been an advisor to Asia Pacific Coal & Steel Pty Ltd for the last several months.

John has held position in a number of industry and government advisory boards throughout his career. His more recent, and current appointments include Chairman of the Federal Government's Uranium Industry Framework Steering Group, the Defence Industry Advisory and Defence Procurement Advisory Boards, the Victorian Sustainability Advisory Council and Advisory Board for Environment Business Australia.

He is currently a director of GRD Limited and has held director positions in a number of other ASX listed companies including Resolute Limited, McPhersons Limited and National Consolidated Limited.

4. ACQUISITION OF A RELEVANT INTEREST

$4.1$ Backaround

Rofin originally subscribed for 185,830,000 Shares and agreed to hold those Shares beneficially for the Rofin Nominees. On 5 December 2005, the Company obtained Shareholder approval for the Rofin Nominees and their associates (in aggregate) to acquire above 20% voting power in the Company pursuant to this transaction.

As the Rofin Nominees were acting beneficially for some of the APCS Shareholders and APCS directors, the issue of Shares pursuant to the APCS Transaction will result in some of the APCS Shareholders and their associates (in aggregate) increasing their voting power in the Company from a point above 20%. Shareholder approval must be obtained for this to occur.

$4.2$ 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%.

$4.2.1$ Voling Power

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.

$4.2.2$ Associate

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:

are the holder of the securities: $(a)$
have the power to exercise, or control the exercise of, a right to vote $(b)$ attached to securities: or
$(c)$ 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.

$4.2.3$ Deemed Voling Power

Section 608(3) of the Corporations Act provides that a person has the relevant interests in any securities held by a body corporate, in which the person's voting power is above 20%.

Accordingly, the persons referred to as "Controllers" in the following table have the voting power in ESI that each of the following corporate APCS Shareholders have.

CORPORATE APCS SHAREHOLDERS	CONTROLLER	VOTING POWER
Paldar Nominees Pty Ltd	Graham Bell	100%
R C Johnson Pty Ltd	Rodney Charles Johnson	100%
Caracob Pty Ltd	Patrick Giles	100%
D Wilson Investments Pty Lfd
	David Wilson	100%
Big Heart Productions Pty Ltd (formally Markstone Pty Ltd)	Shane Michael Howard	100%
Jogenwatodo Pty Ltd <atf B.C. Unit Trust></atf	George John Nowak	100%
Wilaway Pty Ltd
	Michael John Burrell,	100%
Rerori Pty Ltd
	Renate Chadler, Richard Chadler	50% each
MSV Energy Pty Ltd	Mark Vernuccio	100%

$4.2.4$ Associates

A person (second person) will be an "associate" of the other person (first person) if:

$(a)$ the first person is a body corporate and the second person is:
$\left{ i\right}$ a body corporate the first person controls;
$(ii)$ a body corporate that controls the first person; or
a body corporate that is controlled by an entity that controls $(iii)$ the person;
the second person has entered or proposed to enter in a relevant $(b)$ agreement with the first person for the purpose of controlling or influencing the composition of the Company's board or the conduct of the Company's affairs; and
$(C)$ the second person is a person with whom the first person is acting or proposed to act, in concert in relation to the Company's affairs.

Applying these principles, the persons set out below have been deemed associates of the corporate shareholders of APCS as they are acting in concert with the corporate shareholder's affairs.

NAME OF PERSONS TO WHOM THE ASSOCIATE REFERENCE APPLIES	NAME OF ASSOCIATE
Paldar Nominees Pty Ltd	Graham Bell Pamela Bell
R C Johnson Pty Ltd	Rodney Johnson
Caracob Pty Ltd	Patrick Giles
D Wilson Investments Pty Ltd	David Wilson
Big Heart Productions Pty Ltd (formally Markstone Pty Ltd)	Shane Howard
Jogenwatodo Pty Ltd <atf b.c.="" unitTrust>	George Nowak
Wilaway Pty Ltd	Michael Burrell Yvette Burell
Rerori Pty Ltd	Renate Chadler Richard Chadler Roy Chandler
MSV Energy Pty Ltd	Mark Vernuccio

For the purposes of preparing this Explanatory Statement, an assumption has been made that all of the Relevant Persons and the Controllers are associates of each other as defined in the Corporations Act. This does not mean that these persons will remain associates in the future.

$4.2.5$ APCS Shareholder Entitlements

The table below sets out the percentage of the issued capital of the Company that each of the APCS Shareholders and Rofin Nominees have before and after the issue of the Shares pursuant to the APCS Transaction.

Table 1.

Name of APCS Shareholder or Rofin Nominee	Number of Shares to be transferred pursuant to Rofin Transfer	Number of Shares to be issued pursuant to APCS Transaction	% of Company's issued Share capital prior to issue of Shares pursuant to APCS Transaction	$%$ of Company's issued Share capital after APCS Transaction
Paldar Nominees Pty Ltd		3,997,349		1.64
R C Johnson Pty Ltd (1)	86,397,778	7,794,637	37.95	38.66
RC Johnson (2)	20,000,000		8.79	8.21
Caracob Pty Ltd		1,489,032		0.61
D Wilson Investments Pty Ltd		476,219		0.20
Rhonda O'Keefe		159,588		0.07
Markstone Pty Ltd		159,588		0.07
Adam David Giles		159,588		0.07
John Hutchinson		159,588		0.07
John Graham		159,588		0.07
Jogenwatodo Pty Ltd <atf B.C. Unit Trust></atf	3,000,000	240,147	1.32	1.33
Neil & Rhonda O'Keefe		240,147		0.10
Colin Rawdon & Felicity Macnamara		96.059		0.04
Wilaway Pty Ltd		88,054		0.04
Mr Tom O'Brien		80,049		0.03
Rerori Pty Ltd		80,049		0.03
Mr Alan Moody		80,049		0.03
MSV Energy Pty Ltd		200.122		0.08
Johnson Pty Ltd RC. C ₅ trustee for Peter Hewitt	5,000,000	240,147	2.20	2.15
Pat Giles & Associates	21,833,333		9.59	8.96
Graham Bell	43,148,889		18.96	17.71
David Wilson	6,550,000		2.88	2.69
Total	185,830,000	16,000,000	81.6	82.8

Notes:

(1) The majority of these Shares are held on trust for the APCS Shareholders.
(2) These Shares are held in a nominee capacity for various parties associated with the Calleja Group (refer to Section 1.1).

The percentage of issued share capital that each of the APCS Shareholders and the Rofin Nominees hold after the issue of Shares pursuant to the APCS Transaction has been calculated using the issued share capital of the Company after the issue of the 16,000,000 Shares pursuant to Resolution 1.

The Shares to be issued pursuant to the APCS Transaction will be issued as consideration for the acquisition of APCS Shares in the proportions set out in Schedule 1.

Shareholder approval under Item 7 of Section 611 of the Corporations Act is required because following the APCS Transaction the Relevant Persons and the Controllers will increase their voting power in the Company from a point above $20%$

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:

$(a)$ The identity of each person proposing to make the acquisition of a relevant interest (in this section, an "Acquirer") is set out in the table above. Where relevant, their associates are set out below (in this section, an "Associate") is:

ACQUIRER	ASSOCIATES
Paldar Nominees Pty Ltd	Graham Bell Pamela Bell
R C Johnson Pty Ltd	Rodney Johnson
Caracob Pty Ltd	Patrick Giles
D Wilson Investments Pty Ltd	David Wilson
Big Heart Productions Pty Ltd (formally Markstone Pty Ltd)	Shane Howard
Jogenwatodo Pty Ltd <aff b.c.="" unitTrust>	George Nowak
Wilaway Pty Ltd	Michael Burrell Yvette Burell
Rerori Pty Ltd	Renate Chadler Richard Chadler Roy Chandler
MSV Energy Pty Ltd	Mark Vernuccio
Graham Bell
Rodney Johnson
	$\overline{a}$
George Nowak	$\overline{a}$
Michael Burrell
Renate Chadler Richard Chadler
Mark Vernuccio

Table 2.

$(b)$ The maximum extent of the increase in each of the Acquirers voting power in the Company that would result from the APCS Transaction:

The maximum increase in the voting power that each of the Acquirers will have as a result of the APCS Transaction is 1.2%.

$|c|$ The voting power that the Acquirers would have as a result of the APCS Transaction:

The voting power that the Acquirers will have has a result of the APCS Transaction is set out in Table 1 in Section 4.2.5.

The maximum extent of the increase in the voting power of each of the (d) Associates that would result from the APCS Transaction:

The maximum increase in voting power of each of the Associates that would result from the APCS Transaction is set out in Table 1 in Section $4.2.5.$

The voting power that each of the Associates would have as a result of $(e)$ the APCS Transaction:

The voting power that the Associates would have as a result of the APCS Transaction is set out in Table 1 in Section 4.2.5.

$4.2.6$ Other Reaulred Information

The following further information is disclosed:

it is proposed that the Company will continue to develop its current $(\alpha)$ waste management business using its Enersludge technology together with the newly acquired dewatering technology form APCS. Mr O'Keefe, Mr D'Almeida and Mr White will be appointed to the Board if Shareholder approval is acquired pursuant to Resolutions 2, 3 and 4. Mr Faldi Ismail will resian as a director:
$(b)$ the directors are examining all options available to ensure there is adequate funding in place to commercialise the dewatering technology and its application to the Enersludge, brown coal and steel production:
$\lfloor$ C) 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
$(d)$ there is no current intention to redeploy any other fixed assets of the 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.

$4.3$ Directors' Recommendations

The Directors consider the APCS Transaction to be in the best interests of Shareholders for the reasons set out in the Explanatory Statement and the Independent Expert's Report prepared by Stanton Partners Corporate Pty Ltd and, where they are not restricted from voting, intend to vote in favour of all resolutions in respect to all shares controlled by them or their associates.

$4.4$ Independent Expert's Report

The Independent Expert's Report sets out a detailed examination of the APCS Transaction to enable Shareholders to assess the merits and decide whether to approve Resolutions 1 and 5.

To the extent that it is appropriate, the Independent Expert's Report sets out further information with respect to the APCS Transaction and concludes that the acquisition of a relevant interest in the voting shares of the Company by the issue of Shares to the APCS Shareholders pursuant to the APCS Transaction is, on balance, 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.

$4.5$ Pro-Forma Consolidated Balance Sheet

Set out in Section 6.13 of the Independent Expert's Report is a statement of financial position of the Company showing the expected financial position of the Company following settlement of the APCS Transaction.

SCHEDULE 1 - APCS Shareholders

</aff<>

APCS Shareholders	Number of Shares to be Issued as consideration for APCS Shares
Paldar Nominees Pty Ltd*	3,997,349
R C Johnson Pty Ltd*	7,789,637
R C Johnson Pty Ltd $\lt#2$ ^*	240,147
Caracob Pty Ltd*	1,489,032
D Wilson Investments Pty Ltd*	476,219
Rhonda O'Keefe*	159,588
Markstone Pty Ltd	159,588
Adam David Giles*	159,588
John Hutchinson	159,588
John Graham	159,588
Jogenwatodo Pty Ltd <aff< td="">	240,147	240,147
B.C. Unit Trust>
Nei & Rhonda O'Keefe*	240,147
Colin Rawdon & Felicity	96,059
Machamara
Wilaway Pty Ltd	88,054
Mr Tom O'Brien	80,049
Rerori Pty Ltd	80,049
Mr Alan Moody	80,049
MSV Energy Pty Ltd	200,122
Total	16,000,000

*These Shareholders will be prohibited from selling or dealing with the Shares which they are to be issued pursuant to Resolution 1 for a period of 12 months from the date of issue of those Shares.

SCHEDULE 2 - ROFIN NOMINEES

Nominee	No. of Shares
RC Johnson	20,000,000
Pat Giles & Associates	21,833,333
Graham Bell	43,148,889
Jogenwatodo Pty Ltd att B.C. Unit Trust	3,000,000
RC Johnson Pty Ltd	86.397.778
RC Johnson Pty Ltd as trustee Peter Hewitt	5.000.000
David Wilson	6.550.000
Total	185,830,000

GLOSSARY

APCS Shareholders means the persons which hold ordinary fully paid shares in the capital of APCS as set out in Schedule 1.

APCS Shares means the fully paid ordinary shares in the capital of APCS.

APCS Transaction has the meaning given in Section 1.1 of the Explanatory Statement.

APCS means Asia Pacific Coal & Steel Pty Ltd (ACN 111 577 041).

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 (ABN 28 009 120 405).

Constitution means the Company's constitution.

Controllers means Graham Bell, Rodney Johnson, Patrick Giles, David Wilson, Shane Howard, George Nowak, Michael Burrell, Renate Chadler, Richard Chadler and Mark Vernuccio.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

Explanatory Statement means the explanatory statement to this Notice.

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

Meeting means the meeting convened by the Notice.

Notice means the notice of meeting accompanying this Explanatory Statement.

Relevant Persons means the Rofin Nominees and the APCS Shareholders.

Rofin means Rofin Australia Pty Ltd (ACN 005 425 507).

Rofin Nominee means the persons set out in Schedule 2.

Rofin Transfer means the transfer of legal ownership of 185,830,000 Shares into the names of the Rofin Nominees as set out in Schedule 2 (or beneficial owners).

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

Shareholder means the holder of a Share.

Terms Sheet has the meaning given in Section 1.1 of the Explanatory Statement.

WST means Western Standard Time.

PROXY FORM

APPOINTMENT OF PROXY ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED 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 11 am (EST) on Friday, 12 May 2006 at The Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria 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

Resolution 1	Acquisition of Asia Pacific Coal & Steel Pty Ltd
Resolution 2	Election of Director - Mr O'Keefe
Resolution 3	Election of Director - Mr D'Almeida
Resolution 4	Election of Directors - Dr White
Resolution 5	Acquisition of a Relevant Interest

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:

day of

2006

Bv:

Individuals and joint holders

Sianature

Signed this

Signature

Companies (affix common seal if appropriate)

$FOR$

AGAINST ABSTAIN

$%$

Director

Director/Company Secretary

Sole Director and Sole Company Secretary

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED ABN 28 009 120 405

Instructions for Completing 'Appointment of Proxy' Form

$\mathbf{I}$ . 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 sian.
$\overline{3}$ . 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:
$\blacksquare$ directors of the company:
a director and a company secretary of the company; or
for a proprietary company that has a sole director who is also the sole $\bullet$ 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. $\ln$ 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.

1. Completion of a proxy form will not prevent individual shareholders from attending 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 meetina.
Where a proxy form or form of appointment of corporate representative is lodged 5. and is executed under power of attorney, the power of attorney must be lodged in like manner as this proxy.

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]

29 March 2006

The Directors Environmental Solutions International Limited c/- FJH Solutions Pty Ltd Ground Floor 21 Teddington Road BUSWOOD WA 6100

Dear Sirs

RE: ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED $(^{4}ESI"$ OR "COMPANY") (ACN 009 120 405) MEETING OF SHAREHOLDERS PURSUANT TO LISTING RULE 10.1 OF THE LISTING RULES OF THE AUSTRALAIN STOCK EXCHANGE ("ASX") ON THE PROPOSAL TO ISSUE 16,000,000 SHARES IN ESI TO ACQUIRE ALL OF THE SHARE CAPITAL OF ASIA PACIFIC COAL & STEEL PTY LTD AND A MEETING PURSUANT TO SECTION 611 (ITEM 7) OF THE CORPORATIONS ACT ("TCA") ON THE PROPOSAL TO APPROVE THE ACOUISITION OF A RELEVANT INTEREST IN THE VOTING SHARES OF THE COMPANY BY RELEVANT PERSONS AND CONTROLLERS (AS DEFINED) BY VIRTUE OF THE ISSUE OF 16 MILLION SHARES PURSUANT TO THE ASIA PACIFIC COAL & STEEL PTY LTD TRANSACTION (REFER BELOW)

$\mathbf{I}$ . Introduction

$1.1$ We have been requested by the Directors of ESI to prepare an Independent Expert's Report to determine the fairness and reasonableness relating to the proposals pursuant to resolutions 1 and 5 as detailed in the March/April 2006 Notice of Meeting to ESI shareholders (the "Notice") and the Explanatory Statement to Shareholders accompanying the Notice.
$1.2$ Under resolution 1 it is proposed that ESI will acquire 100% of the issued capital of Asia Pacific Coal & Steel Pty Ltd ("APCS") for a purchase consideration of 16,000,000 ordinary shares in ESI (at a deemed value of 10 cents per share). Pursuant to the Term Sheet, 16,000,000 shares are to be issued to the APCS Shareholders as consideration for their APCS shares. It is likely that Mr and Mrs O'Keefe, who are shareholders in APCS and will receive ESI shares pursuant to resolution 1, will be deemed to be related parties of the Company because it is likely that Mr O'Keefe will be appointed as a director of ESI on settlement of the Term Sheet and Mrs O'Keefe is his spouse. Further, some of the beneficial interests of the Rofin Nominees (refer 1.3 below) are also APCS shareholders and are entitled to more than 10% of the shares in the Company, making the transaction fall within the ambit of ASX Listing Rule 10.1.

For these reasons, approval is being sought for the purposes of ASX Listing Rule 10.1. The Listing Rules require an independent expert to report whether the related party transaction is fair and reasonable to the non associated shareholders (refer section 2.3 of the Explanatory Statement to Shareholders accompanying the Notice). We have been requested to report to the non associated shareholders of APCS on the fairness and reasonableness of the acquisition of APCS pursuant to ASX Listing Rule 10.1 and in determining our opinion on the proposal pursuant to resolution 5, we have considered the acquisition in determining our conclusion relating to resolution 5.

The Vendors of 100% of APCS are set out in Schedule 1 ("APCS Shareholders") to the $1.3$ Notice and Explanatory Statement of March/April 2006. Section 4.2.5 of the Explanatory Statement also lists those persons/entities ("Rofin Nominees") who are also to receive shares in ESI via transfers of 185,830,000 shares currently held by Rofin Australia Pty Ltd ("Rofin") in ESI.
$1.4$ Currently, Rofin holds 190,000,000 shares in ESI and in December 2005, shareholders approved such issue to Rofin or nominees. The nominees are the Rofin Nominees noted in section 4.2.5 of the Explanatory Statement to Shareholders of March/April 2006. We are advised that the Rofin Nominees have at all times acted on behalf of or for the benefit of APCS shareholders, directors or parties with whom the APCS has contacted. Stanton Partners Corporate Pty Ltd prepared an Independent Expert's Report in October 2005 that concluded that it was fair and reasonable to allot up to 190,000,000 shares (post consolidated) to Rofin or nominees as part of a recapitalisation proposal for ESI. At the time of preparing the October 2005 Expert's Report, ESI was in Administration, subject to a Deed of Company Arrangement and had a Receiver and Manager appointed. The shareholders approved the allotment of 190,000,000 post consolidated ordinary shares to Rofin or nominees in December 2005 and following a further capital raising, the Company obtained re-quotation of its shares on the Australian Stock Exchange ("ASX") on 18 January 2006. Post re-quotation, Rofin holds 83.47% of the issued capital of ESI (as at 17 February 2006). The top 20 shareholders of ESI hold as at 17 February 2006 94.90% of the issued capital.
1.5 If Rofin proceeds with the transfer of 185,830,000 ESI shares (refer section 4.2.5 of the March 2006 Explanatory Memorandum accompanying the Notice) to the nominated Rofin Nominees, along with those shareholders in APCS (two of which are Rofin Nominees) the combined shareholding in ESI of the Rofin Nominees and APCS shareholders will hold 82.84% of the shares in ESI. The transfer of 185,830,000 shares in ESI in itself does not require shareholder approval as ESI shareholders already approved the issue of 190,000,000 shares to Rofin or its nominees and the subsequent transfer of up to 185,830,000 ESI shares to the Rofin Nominees at a meeting of shareholders held on 5 December 2005. However, the combined shareholding of the Rofin Nominees and APCS shareholders will become $82.841\%$ an increase of 1.206% from the proposed $81.635\%$ shareholding of the Rofin Nominees alone (before the acquisition of APCS). Even though the increase in voting power is less than 3%, the "Creep" exemption under the Corporations Act 2001 is not available because the acquisition will take place inside of six months from the last approval (the approval of December 2005 referred to above). Rofin intends to transfer 185,830,000 of its shares to the Rofin Nominees. On 5 December 2005 the Company obtained shareholder approval for a number of the Rofin Nominees to acquire above 20% voting power in the Company pursuant to this transaction. The issue of shares pursuant to the APCS Transaction will result in the APCS Shareholders increasing their voting power in the Company from a point above 20% and to a point below 90%. Shareholder approval must be obtained for this to occur.

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

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:

(a) 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
(c) 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.

Section $608(3)$ of the Corporations Act provides that a person has the relevant interests in any securities held by a body corporate, in which the person's voting power is above 20%.

Accordingly, the persons referred to as "Controllers" in the following table have the voting power in ESI that each of the following corporate APCS Shareholders have.

CORPORATE APCS SHAREHOLDERS	CONTROLLER	VOTING POWER
Paldar Nominees	Graham Bell	100%
R C Johnson Pty Ltd	Rodney Charles Johnson	100%
Caracob Pty Ltd	Patrick Giles	100%
D Wilson Investments Pty Ltd
	David Wilson	100%
Big Heart Productions Pty Ltd (formally Markstone Pty Ltd)
	Shane Michael Howard	$100\%$
Jogenwatodo Pty Ltd <atf b.c.="" unitTrust>	George John Nowak	$100\%$
Wilaway Pty Ltd
	Michael John Burrell,	100%
Rerori Pty Ltd	Renate Chadler, Richard Chadler	50% each
MSV Energy Pty Ltd	Mark Vernuccio	100%

A person (second person) will be an "associate" of the other person (first person) if:

the first person is a body corporate and the second person is: $(a)$ a body corporate the first person controls; a body corporate that controls the first person; or a body corporate that is controlled by an entity that controls the person;
$(b)$ the second person has entered or proposed to enter in a relevant agreement with the first person for the purpose of controlling or influencing the composition of the Company's board or the conduct of the Company's affairs; and
the second person is a person with whom the first person is acting or proposed to act. $(c)$ in concert in relation to the Company's affairs.

Applying these principles, the persons set out below have been deemed associates of the corporate shareholders of APCS as they are acting in concert with the corporate shareholder's affairs.

NAME OF PERSONS TO WHOM THE ASSOCIATE REFERENCE APPLIES	NAME OF ASSOCIATE
Paldar Nominees	Graham Bell Pamela Bell
R C Johnson Pty Ltd	Rodney Johnson
Caracob Pty Ltd	Patrick Giles
D Wilson Investments Pty Ltd	David Wilson
Big Heart Productions Pty Ltd (formally Markstone Pty Ltd) Jogenwatodo Pty Ltd <atf b.c.="" unitTrust>	Shane Howard George Nowak
Wilaway Pty Ltd	Michael Burrell Yvette Burell
Rerori Pty Ltd	Renate Chadler Richard Chadler Roy Chandler
MSV Energy Pty Ltd	Mark Vernuccio

For the purposes of preparing the Explanatory Statement and this Independent Expert's Report, an assumption has been made that all of the Relevant Persons and the Controllers are associates of each other as defined in the Corporations Act. This does not mean that these persons will remain associates in the future.

1.6 Accordingly, Stanton Partners Corporate Pty Ltd has been requested to report on the proposal under resolution 5 whereby the Rofin Nominees and Controllers (and their deemed associates) will acquire a relevant interest in the voting shares of ESI by virtue of the issue of 16,000,000 shares pursuant to the acquisition of APCS (the "APCS Transaction").

The following is an edited quote from the Explanatory Statement of March/April 2006.

"The Company, APCS and the major shareholders of APCS entered into a terms sheet (Terms Sheet) for the acquisition of all of the fully paid ordinary shares in the capital of APCS for a consideration of 16,000,000 fully paid ordinary ESI shares (APCS Transaction).

APCS is a privately owned Australian environmental technology company which was formed to commercialise its licensed patented Coldry Process® and Matmor Process®. APCS was incorporated on 28 October 2004.

APCS currently holds exclusive licences for the Coldry and Matmor patents and associated intellectual property (the coal dewatering and steel production technologies). The licences and associated Participant's Agreement with a privately owned Victorian group, provide for APCS to further develop and commercialise the technologies. The agreements provide that APCS can call upon the owners to transfer the intellectual property to APCS by the issue of equity (by APCS or some other listed entity) on the achievement of certain milestones over the course of the next 3 years. Alternatively, the intellectual property can be transferred to APCS at any time on the payment of \$30 million cash to the owners. The agreements also provide for an ongoing royalty payment based on revenues generated from commercialisation of the technologies.

ESI anticipates that some of the Shares to be transferred to the Rofin Nominees will be used to fund (in part or in whole) the future acquisition by APCS of the intellectual property under the Participant's Agreement, assuming APCS satisfies the milestones.

The patented Coldry Process® is a unique process that dewaters brown coal and similar materials by as much as 85% in a mechanically simple and economic way creating an equivalent high energy value feedstock to black coal. The Matmore Process® utilises mixes wet brown coal with low grade un-marketable ores such as iron and nickel and produces high quality steel and nickel via a low cost, low emission retort.

The APCS Transaction is conditional upon ESI completing due diligence on APCS, APCS obtaining certain written acknowledgements from the Calleja Group, each APCS Shareholder waiving any of its pre-emptive rights, ESI obtaining the required Shareholder approvals as set out in this Notice and Explanatory Statement and Rofin providing the documentation to facilitate the registration of the 185,830,000 Shares for the Rofin Nominees or beneficial owners. The Terms Sheet contains other standard clauses of the type usually included in a transaction of this type.

This strategic acquisition will secure the key dewatering technology identified by ESI in the notice of meeting sent to Shareholders in respect of the shareholders' meeting held on 5 December 2005. The APCS dewatering process enables highly efficient dewatering of sewage waste and brown coal and can reduce moister content by as much as 85% resulting in a stable, transportable, exportable high energy feedstock for power generation and other uses.

The acquisition of this unique process will mean the Company will be able to pursue commercialisation of transportable ENERSLUDGE^TM units which can be applied in cooperation with contract holders or waste management authorities.

and when mixed with low-grade iron ore, a composite pallet for smelting and production of high quality low cost steel. The technology has also been identified to have other potential applications which the Company will continue to investigate."

End of Quote from Draft Explanatory Statement to Shareholders

On 2 March 2006, the Company announced that APCS has signed a Deed for a forward order with Green Power Resources Pte Ltd of Singapore ("GPR") for the supply of 3,000,000 tonnes per annum of brown coal pellets formed from the patented APCS Coldry Process. The first shipment of 50,000 tonnes is scheduled to commence on or before November 2007 from the planned APCS production centre at JBD Industrial Park, Bacchus Marsh. A formal agreement is expected to be signed in the next few weeks following the signing of the Deed (per the announcement).

For the purpose of takeovers, Policy Statement 75 issued by the Australian Securities and $1.7$ Investments Commission ("ASIC") determines "fair and reasonable" as follows:
$\blacksquare$ Fair: an offer is fair if the value of the offer price or consideration is equal to or greater than the value for the securities the subject of the offer; and
Reasonable: an offer is reasonable if it is fair however it may also be reasonable, if despite not being fair after considering other significant factors, members accept the offer on absence of any higher bid before the closure of the offer.
1.8 There are three other resolutions being put to the shareholders of ESI. The shareholders should read the other resolution and the Explanatory Statement accompanying the Notice to consider the effect that the resolutions may have on the Company and the shareholders interests in the Company. We are not reporting on the merits of resolutions 2 to 4 but do note that resolution 5 is inextricably linked to resolution 1 as noted above and in the Explanatory Statement to Shareholders accompanying the Notice and that resolutions 2 to 4 regarding appointment of new directors are also linked to the proposed acquisition of APCS.

The Company has requested Stanton Partners Corporate Pty Ltd to prepare an Independent Expert's Report to determine whether the proposals outlined in resolutions 1 and 5 are fair and reasonable to the shareholders of ESI (not associated with Mr O'Keefe and his spouse and the Relevant Persons and Controllers).

1.9 Apart from this introduction, this report considers the following:
Summary of opinion; $\blacksquare$
Implications of the proposals;
$\blacksquare$ Basis of valuation of ESI Shares:
$\blacksquare$ Basis of valuation of APCS Shares:
Premium for control: $\blacksquare$
Conclusion as to fairness and reasonableness; $\blacksquare$
Sources of information; and $\blacksquare$
Appendix A and our Financial Services Guide.
In determining the fairness and reasonableness of the transactions pursuant to resolutions 1 $110$ and 5, we have had regard for the definitions 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 TCA, 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 allottees and whether a premium for potential control is being paid by the allottees.

Accordingly, our report relating to resolutions 1 and 5 is concerned with the fairness and reasonableness of the proposals with respect to the existing non associated shareholders of ESI.

$1.11$ In our opinion, the proposals as outlined in resolution 5 are, on balance, fair and reasonable to the shareholders of ESI not associated with the Relevant Persons and Controllers. Due to the nature of the business of ESI and APCS, valuations are dependent upon the value placed on the technology and patent interests of the companies. The valuation of technology and patent interests and valuing future profitability and cash flows is extremely subjective as it involves assumptions regarding future events that are not capable of independent substantiation. As we cannot place a fair value or range of values on ESI and APCS (in particular), under ASX guidelines we conclude that the proposal under resolution 1 is not fair, however, in our opinion the proposal under resolution 1 may, on balance, be considered reasonable.

The opinions expressed above must be read in conjunction with the more detailed analysis and comments made in this report.

$\overline{2}$ . Implications of the Proposals

$2.1$ As at 22 March 2006, there were 227,634,534 ordinary fully paid shares on issue in ESI. The significant fully paid shareholders at 17 February 2006 were believed to be:

	No. of shares	% of capital
Rofin Australia Pty Ltd	190,000,000	83.47
Jackson Street Pty Ltd	21,790,000	9.57
Chuan Hup Ventures Pte Ltd	1,204,892	0.53
Bell Potter Nominees Pty Ltd	373,564	0.16
	213,368,456	93.73

The top 20 shareholders at 17 February 2006 owned approximately 94.90% of the Company. As advised by ESI, the Rofin Nominees have at all times acted on behalf of, or for the benefit of APCS shareholders, directors or parties with whom APCS has contacted.

$2.3$ If all resolutions are passed and the Rofin Nominees receive a total of 185,830,000 ESI shares from Rofin, the total number of shares on issue will increase to 243,634,534. The Relevant Parties and Controllers (that include the Rofin Nominees) along with the APCS Vendors/Shareholders will own a total of 201,830,000 ordinary shares in ESI representing approximately 82.841% of the expanded issued capital of the Company. The shareholding of Rofin will reduce to 4,170,000 shares (approximately 1.711%). Section 4.2.5 of the Explanatory Statement refers to the shareholdings of the APCS/Rofin Nominees shareholders post completion of resolutions 1 and 5.

$2.4$ The current Board of Directors is comprised of Sachlan Fraval, Greg Fendis and Faldi Ismail. If resolutions 1 to 5 are passed and consummated, Mr Neil O'Keefe, Murray D'Almeida and John White will be appointed to the ESI Board. Mr Faldi Ismail will resign from the Board.

$\overline{3}$ . Basis of Valuation of ESI Shares

$3.1$ Shares

$3.1.1$ As part of the consideration as to whether the proposals outlined in resolutions 1 and 5 are fair and/or reasonable, we have sought to determine if the consideration payable by the Relevant Persons and Controllers as part of the proposed acquisition of APCS is fair and reasonable to the existing non- associated shareholders of ESI. Accordingly, we have sought to determine a theoretical value that could reasonably be placed on ESI shares for the purposes of this Report.
$3.1.2$ The valuation methodologies we have considered in determining a theoretical value of an ESI ordinary share are:
Capitalise maintainable earnings/discounted cash flow;
Takeover bid the price at which an alternative acquirer might be willing to offer: $\blacksquare$
Adjusted net backing and windup value; and $\blacksquare$
$\blacksquare$ The weighted average market price of ESI shares.
$3.2$ Capitalise maintainable earnings and discounted cash flows.
ESI has only just come out of Administration (in December 2005) whereby the Company $3.2.1$ consolidated its capital on a 1 for 5 basis and issued 190,000,000 post consolidated shares to Rofin at 0.1 cent per post consolidated share. All debts up to the date of Administration were placed into a Creditors Trust and the Administrators of the Creditors Trust will partly pay out such creditors as a final settlement. No pre Administration creditors are the responsibility of the recapitalised ESI. As part of the recapitalisation process, ESI issued 22,000,000 post consolidated shares at 10 cents per share (originally planned to issue up to 220,000,000 post consolidated shares at not less than 1 cent each) to new investors to raise \$2.200.000. Although its plan is to commercialise its Enersludge^™ Technology and acquire APCS, no formal forecasts have been prepared for 2006 onwards and any draft forecasts at this stage may prove to be unreliable.
$3.3$ Takeover Bid
It is possible that a potential bidder for ESI could purchase all or part of the existing shares, $3.3.1$ however no certainty can be attached to this occurrence.
$3.3.2$ To our knowledge, there are no current bids in the market place and the directors of ESI have formed the view that there is unlikely to be any takeover bids made for ESI in the immediate future. However after the passing and consummation of all resolutions the Relevant Persons and Controllers interests may potentially increase to 82.841%, however shareholders have already voted on the possibility of 185,830,000 shares being transferred to the Rofin Nominees (representing approximately 81.635% of the issued capital at 29 March 2006 and 76.274% of the expanded capital of the company post the passing of resolutions $1$ to $5$ ).
$3.4$ Net Asset Backing

As the Company has only recently been recapitalised, as at 31 January 2006, the Company has as its book assets, cash at bank of \$1,209,000, receivables of \$7,000 and current liabilities of approximately \$30,000 for a net book value of \$1,186,000. This equates to The assets exclude any value attributable to the approximately 0.5 cents per share. Enersludge^TM Technology that had been written down to nil in June 2004 by prior management (pre recapitalisation). It is not vet determinable as to the current value of the Enersludge^TM Technology (and to its future value, if any). We note however that the Company has negotiated with Securities International Limited (investment banking advisers) to attract new investors to the register of ESI. However, the ability to raise capital under the facility is conditional on proving up the commercial application of the Enersludge technology and obtaining contracts. This has yet to be done and it has been identified that access to the dewatering technology currently controlled by APCS is a critical step in successful commercialisation. Since being requoted and recapitalised and following the announcement of the conditional facility, the share price of ESI has risen considerably to trade at between 10 cents and 55 cents prior to the announcement of the proposed acquisition of APCS. In these circumstances, it is reasonable to assume that the current net asset backing of an ESI share is not greater than 0.5 cents.

$3.5$ Weighted Average Market Price of ESI fully paid shares
Since being recapitalised in December 2005/January 2006 (after raising \$2,200,000 from $3.5.1$ the issue of 22,000,000 shares at 10 cents each) the shares have traded from 19 January 2006 to 8 February 2006 (immediately before the announcement of the proposal to acquire APCS) at between 10 cents (19 January 2006) and 60 cents (25 January 2006) with the majority of the sales in the 30's (cents). The Company was queried by the ASX on 25 January 2006 and the Company in its 27 January 2006 response noted that "in relation to the commercialisation of the Company's Enersludge assets, negotiations are still in progress with a third party and we are hopeful of reaching agreement on the terms of the acquisition in the coming weeks".

The last sale price prior to the announcement of the APCS proposal was 51 cents.

Generally, the market is a fair indicator of what a share is worth, however the theoretical $3.5.2$ technical value based on the underlying value of assets and liabilities may be lower or As at 8 February 2006, the market capitalisation of ESI approximated higher. \$116,000,000, notwithstanding its negligible asset backing and no business plan or profit and cash flow forecasts being released to the market. Without reliable cash flow and profit forecasts, we are not in a position to determine whether the market has correctly ascribed a fair value to the Company's shares (as at 8 February 2006) or since. It is noted that the share price has risen further since 13 February 2006 (date after the announcement of the proposed acquisition of APCS) to trade between 57 cents and 96 cents (1 March 2006). As at 28 March 2006, the share price closed at 90 cents. In the circumstances, it would be reasonable to assume that the market has taken a speculative position on the possibilities of the existing Enerslude Technology and more recently on the possibilities of the APCS technologies (assuming the APCS acquisition is consummated).
The future value of an ESI ordinary share will depend upon, inter alia: 3.5.3
The future prospects of its existing business activities (including commercialisation of $\blacksquare$ its Enersludge^TM Technologies) and the commercialisation of the APCS business and technologies (if the 100% interest is acquired);
The future of the environmental waste business in Australia and overseas; $\blacksquare$
The state of Australian and overseas stock markets;
Membership of the Board;

General economic conditions: and
Liquidity of shares in ESI.

We consider that it may be more suitable to ascribe a value to the ESI shares for the purposes of this report at between 0.5 cents being the estimated net asset backing and 10 cents being the price payable by new investors as part of a recapitalisation of ESI in December 2005/ January 2006. It is noted that the Directors of ESI have ascribed a deemed price of 10 cents per share to the 16,000,000 shares proposed to be issued to acquire all of the capital of APCS (if approved by shareholders). Refer comments at section 6.14 of this report.

$\overline{4}$ . Basis of Valuation of APCS

$4.1$ The usual approach to the valuation of an asset is to seek to determine what an informed, willing but not anxious buyer would pay to an informed, willing but not anxious seller in an open market.

To estimate the fair market value of the shares in APCS, we have considered valuation methodologies recommended by ASIC Practice Note 43 regarding valuation reports of independent experts and common market practice. These are discussed below.

$4.2$ Market based methods

Market based methods estimate a company's fair market value by considering the market price of transactions in its shares or market value of comparable companies. Market based methods include:

Capitalisation of maintainable earnings:
Analysis of a company's recent share trading history; and
Industry specific methods.

The capitalisation of maintainable earnings methods estimates fair market value based upon the company's future maintainable earnings and an appropriate earnings multiple. An appropriate earnings multiple is derived from market transactions involving comparable The capitalisation of maintainable earnings is appropriate where the companies. company's earnings are relatively stable. The most recent share trading history provides evidence on the fair market value of the shares in a company where they are publicly traded in an informed and liquid market.

Industry specific methods estimate market value using rules of thumb for a particular industry. Generally rules of thumb provide less persuasive evidence on market value of a company, as they may not account for company specific factors.

43 Discounted cash flow method

The discounted cash flow method estimates market value by discounting a company's future cash flows to their present value. This method is appropriate where a projection or forecast of future cash flows can be made with a reasonable degree of confidence. The discounted cash flow method is commonly used to value early stage companies or projects with a finite life

$4.4$ Asset based methods

Asset based methods estimate the market value of a company's shares based on the realisable value of its identifiable net assets.

Asset based methods include:

Orderly realisation of assets methods:
Liquidation of assets method; and
Net asset on a going concern basis.

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to shareholders, after payment of all liabilities, including realisation costs and taxation charges that arise, assuming the company is wound up in an orderly manner. The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the company may not be contemplated, these methods in their strictest form may not necessarily be appropriate. The net assets on a going concern basis, estimates the market values of the net assets of the company but does not take account of realisation costs.

These approaches ignore the possibility that the company's value could exceed the realisable value of its assets. Asset based methods are appropriate when companies are not profitable or a significant proportion of a company's assets are liquid.

$4.5$ Selection of Valuation Methodologies

All of the valuation methodologies considered above have significant limitations or restrictions in their application to APCS.

Capitalisation of maintainable earnings is not appropriate due to APCS presently still in early pre-commercialisation stage and not being profitable. Recent share trading is not applicable as there have been no trades in APCS since APCS was incorporated.

The discounted cash flow method has not been applied as no reliable prospective financial information is available (refer below). An asset based method is limited by the fact that APCS's primary asset is technology know how and patents described as a dewatering process named the Coldry Process and technology called the Maltmor Process (that utilises mixed wet brown coal with low grade un-marketable ores such as iron and nickel and produces high quality steel and nickel via a low cost, low emission retort). We have no reliable forecasts on the technologies owned by APCS and offer no opinion on the commercial value of the technologies.

4.6 In this section we consider the valuation of APCS. In forming our opinion on the value of APCS we have:
Considered the stage of development of APCS and the prospective financial information available:
Considered the appropriateness of the valuation methodologies available; and
Considered the ability of APCS to continue as a going concern without funding.

47 Valuation of APCS

As discussed, the capitalisation of maintainable earnings, discounted cash flow and assetbased methodologies have limitations in their application to APCS.

We do not consider it appropriate to rely on any preliminary forecasts prepared by APCS and/or ESI. For any company in a start up phase, it is notoriously difficult to be accurate with forecasted financial information.

4.8 Summary of valuation methodology and conclusion

We are unable to conclude upon a meaningful valuation range for APCS, due to the infancy stage of the Intellectual Property and associated licences, technology and patents and the lack of readily available, reliable financial projections and information.

4.9 We have relied on ESI undertaking the necessary due diligence to satisfy themselves on:
$\blacksquare$ Ownership of APCS:
No unrecorded liabilities in the books of APCS; $\mathbf{r}$
Current legal directors of APCS;
Ownership and interest of APCS in intellectual property and patents; and
Other factors that may affect the ultimate ownership and value of APCS. $\mathbf{u}^{\prime}$
We have been informed that all necessary due diligence has been completed to the best $4.10$ ability of the ESI directors. However, no guarantee can be given as to the long-term value of APCS (and ESI). This will depend upon many factors, including inter-alia:
Future commercial success or otherwise of APCS's business (and the existing business of ESD:
Foreign and Australian stock exchange markets;
$\blacksquare$ Ability to raise capital to develop the businesses:
Relationship with future customers; and $\blacksquare$
Quality of management.

5. Premium for Control

$51$ Premium for control for the purposes of this report, has been defined as the difference between the price per share, which a buyer would be prepared to pay to obtain or improve a controlling interest in the Company and the price per share which the same person would be required to pay per share, which does not carry with it control or the ability to improve control of the Company.
$5.2$ Under TCA, control may be deemed to occur when a shareholder or group of associated shareholders control more than 20% of the issued capital. In this case, the Relevant Persons and Controllers would hold up to 82.84% of the issued capital of ESI after the transfer of 185,830,000 shares are transferred from Rofin and 16,000,000 shares are issued to the vendors of APCS that include some Rofin Nominees. Controllers and their associates. Accordingly, we have addressed whether a premium for control will be paid for shares issued to the Relevant Persons and Controllers, pursuant to resolution 5.
$5.3$ As we cannot determine with any degree of accuracy, the value of APCS, we cannot determine whether the Relevant Persons and Controllers are to pay a premium for the potential control. However, we note that it is likely that if APCS is commercially successful (that requires sufficient capital and debt raisings), the potential for the share

price of a ESI ordinary fully paid share to continue to trade above the 10 cent price that new investors paid for in January 2006 is enhanced.

5.4 It is noted that the then shareholders of ESI already approved the transfer of 185,830,000 shares in December 2005. The Explanatory Statement to Shareholder of November 2005 noted the following:

"The Nominees have been assisting Rofin with the recapitalisation proposal and have also identified other technologies that may enhance or be complimentary to the Ensersludge technology. In the event that 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 (sic 185,830,000) to the Nominees. 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.

The Nominees are those persons (Rofin Nominees) set out in section 4.2.5 of the Explanatory Memorandum to Shareholders of March 2006. We have been advised that they are all associated with APCS.

It is noted that of the nineteen shareholders in APCS, three are to receive a total of $8,274,931$ shares (of the 16,000,000 shares to be issued pursuant to resolution 1) at a deemed price of 10 cents per share and are noted as being potential shareholders in ESI after the transfer of 185,830,000 shares from Rofin to the Rofin Nominees. 185,830,000 shares in ESI are being transferred at 0.1 cent per share to eight entities or persons (Rofin Nominees) so that the Rofin Nominees will control a total of 194,104,931 shares in ESI post passing and consummations of resolutions 1 and 5. This will represent a 79.671% Collectively, all of the Rofin Nominees and APCS shareholders post interest in ESI. consummation of resolutions 1 and 5 will control approximately 82.841% of the expanded issued capital of ESI. Mr and Mrs O'Keefe will collectively control approximately $0.197%$ .

It could be argued that the Rofin Nominees (as part of the Relevant Persons and Controllers) are not paying a premium for control as 185,830,000 of the shares are being transferred at 0.1 cents per share that is significantly less than the 10 cents to new investors in January 2006 and the market value pre the announcement of the proposed acquisition of APCS. However, shareholders back in December 2005 were aware that 185,830,000 shares may be transferred to the Rofin Nominees at 0.1 cent per share.

6. Conclusion as to Fairness and Reasonableness

6.1 Due to the nature of the business of ESI and APCS, valuations are dependent upon the value placed on the technology and licence interests of the companies. The valuation of technology and valuing future profitability and cash flows is extremely subjective as it involves assumptions regarding future events that are not capable of independent substantiation. We have been unable to determine a fair value for APCS and ESI although we note the asset backing per ESI share approximates 0.5 cents and a capital raising was completed in December 2005 at 10 cents per share.
However, our report specifically relates to resolutions 1 and 5 only and we have considered 6.2 a number of factors in determining our conclusion on the proposal pursuant to resolutions 1 and $5₁$

6.3 We set out below some of the advantages and disadvantages and other factors pertaining to the proposals pursuant to resolutions 1 and 5.

Advantages

6.4 There is definite upside potential to acquire 100% of APCS and there is a possibility that after a period, APCS may successfully commercialise its technologies, be profitable and cash flow positive. It is an opportunity for ESI to acquire a position in a company that has the potential to be cash flow positive. It may also enable ESI to access the dewartering technology essential for the commercialisation of its own Enersludge^TM Technology.
The proposed directors have commercial experience in developing and commercialising 6.5 technologies or in running successful businesses. A brief outline of the proposed directors are set out in section 3 of the Explanatory Statement to Shareholders accompanying the Notice.
6.6 If the APCS business is successful all shareholders should benefit as it would be expected that the APCS business will be profitable and the share price of an ESI ordinary share should continue to trade above the 10 cent issue price to new investors of January 2006. However, we cannot determine whether the current share price of around 80 cents will be able to be maintained or increased in the future. This will depend upon the future commerciality and profitability of the Enersludge^TM Technology and the technologies and licences owned or controlled by APCS.
6.7 Without the acquisition of a 100% interest in APCS (or some similar potentially profitable project), the share price of ESI may slide downwards. The future ability of ESI to raise new working capital may be limited without new investors who want to see that ESI has access to dewatering technology or for a new project to be placed into ESI (such as APCS). It is noted that the net asset backing per share of ESI approximates 0.5 cents.
6.8 The ESI shareholders of 4 December 2005 have already given conditional approval for control of the Company to pass to the Rofin Nominees who collectively will be transferred 185,830,000 shares in ESI (at a deemed value of 0.1 cent each). Currently one shareholder (Rofin) controls 83.47% of the Company and thus approval of the resolutions under resolutions 1 and 5 will result in 24 shareholders collectively controlling the Company. However not all of these 24 shareholders will necessarily act together in determining votes at general meetings of shareholders.

Disadvantages

6.9 There is a risk that ESI and APCS will not be commercially successful. ESI may need to lend funds to APCS in the short term in the event of non-commercialisation of the APCS business any funds lent may not be fully recoverable. The cash requirements of APCS as it is a project driven company may be quite high and further funds may need to be raised from shareholders and new investors in the future. Such new funds may dilute exiting shareholders interests and funds may be at risk.
6.10 Control of ESI could be given to the Relevant Persons and Controllers (as a group) as they will control up to 82.84% of the capital of the Company.
There is always a risk that ESI and APCS will not perform to expectations and that, in the 6.11 event that losses are incurred by ESI and APCS, the share price of an ordinary share in ESI may fall. Furthermore, ESI may be required to lend funds to APCS that could be at risk.

Other Factors and Information

$6.12$ There will be a significant non-associated shareholding in ESI after the passing of resolutions 1 and 5 and the Company will continue to have its shares quoted on the ASX. In addition, shareholders are not required to sell or dispose of their shares but are given the opportunity to retain a shareholding in a company (ESI) that is obtaining an interest a business that may have significant upside potential.
6.13 We set out below a pro-forma balance sheet of the ESI Group using the un-audited 31 January 2006 ESI figures and assuming the acquisition of a 100% shareholding interest in APCS by way of an issue of 16,000,000 shares in ESI (at a deemed 10 cents per share) and expensing the estimated acquisition costs at \$50,000. We also set out APCS's un-audited balance sheet at 31 December 2005, the latest set made available to us.

	ESI	APCS
	28 February	31 December
	2006	2005
	(incorporating)
	100% of APCS)
	\$000's	\$000's
Current Assets
Cash assets	1,754	595
Receivables	72	65
Other- owing by Rofin		20
	1,826	680
Non Current Assets
Deposits	30	30
Technology interests/Goodwill	1,073
Other intangibles
	1,103	$\overline{30}$
Total Assets	2,929	710
Current Liabilities
Payables	193	183
Provision
	193	183
Total Liabilities	193	183
Net Assets	2,736	527

Represented by:
Equity
Issued Capital	27,266	1,229
Accumulated losses	(24, 530)	(702)
Net Equity	2,736	527

In the accounts of ESI, the cost of the 100% interest in APCS may be disclosed at $$1,600,000$ being the deemed cost of $16,000,000$ shares at 10 cents each. The net asset backing per share (including intangibles) would be approximately 1.1 cents (approximately 0.6 cents per tangible net assets). There would be 243,634,534 shares on issue before the exercise of any share options. It is noted that the asset backing per ESI share as at 31 January 2006 approximates 0.5 cents and the issue of 16,000,000 shares to the APCS

shareholders would have a "cost" of \$80,000 using asset backing as a fair value of a ESI share.

6.14 There is a possibility that the accounting issue price of the 16,000,000 shares to the vendors of APCS may be at market value at the date the shareholders approve the acquisition. Based on a share price as at 21 March 2006 (80 cents) the acquisition cost would be around \$12,800,000 and the interest in APCS technologies and patents on consolidation may be around $$12,273,000$ . We are not in a position to determine whether the interest in intangibles (on a group basis) and the cost of the investment in APCS are realisable at book values. An annual impairment test will need to be conducted at each year end.
6.15 It is the view of the board of directors of ESI that the investment in APCS will give its shareholders a great opportunity to participate in new markets, both in terms of the technical product and applications that will be supplied by APCS. Furthermore, there is the possibility that synergies can be developed through the integration of the ESI Enersludge™ Technology and the Coldry® and Matmor Process® Technologies of APCS.
6.16 In our opinion the proposals pursuant to resolution 5 are on balance fair and reasonable to the non associated shareholders of ESI. Due to the inability to arrive at a fair value of APCS (as noted above), we conclude under ASX guidelines that the proposal pursuant to resolution 1 is not fair but may, on balance, be considered reasonable based on a deemed issue price of the 16,000,000 shares at 10 cents per share.

$\overline{7}$ . Sources of Information

$7.1$ In making our assessment as to whether the proposals pursuant to resolution 5 are fair and reasonable, we have reviewed relevant published available information and other unpublished information of the Company and APCS that is relevant to the current circumstances. We have also held discussions with the management of ESI about the present and future operations of ESI and APCS. 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 the directors and consultants of ESI and APCS.
$7.2$ Information we have received includes, but is not limited to:
Draft Notices of General Meeting of Shareholders of ESI and draft Explanatory $\blacksquare$ Statements to Shareholders prepared in March 2006;
Discussions with management, directors and consultants of ESI; $\mathbf{u}$ .
Details of historical market trading of ESI ordinary shares recorded by ASX since re- $\bullet$ quotation in January2006 (to 28 March 2006);
$\bullet$ Shareholding details of ESI as at 17 February 2006;
Unaudited balance sheet of ESI as at 31 January 2006; $\bullet$
Announcements made by ESI to the ASX to 28 March 2006: $\blacksquare$
Heads of Agreement between ESI, APCS and the Vendors of APCS; $\blacksquare$
Unaudited management accounts of APCS for the period to 31 December 2005;

Preliminary cash flow forecasts of APCS on a planned project;
Pro-forma capital structure of ESI.

$7.3$ Our report includes Appendix A and our Financial Services Guide attached to this report.

Yours faithfully STANTON PARTNERS CORPORATE PTY LTD

÷, Ъø

J P Van Dieren FCA Director

AUTHOR INDEPENDENCE AND INDEMNITY

This annexure forms part of and should be read in conjunction with the report of Stanton Partners Coroorate Pty Ltd dated 29 March 2006, relating to resolutions 1 and 5 only 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 proposal. There are no relationships with ESI, APCS, the O'Keefe's or the Relevant Persons and Controllers 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 transaction 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 at \$15,000. The fee is payable regardless of the outcome. With the exception of that fee, neither, Stanton Partners Corporate Pty Ltd or 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 in October 2005 prepared an Independent Expert's Report ("IER") addressed to the then shareholders of ESI to determine the fairness and reasonableness of the then proposal to issue up to 190,000,000 post consolidated shares in ESI to Rofin or nominees, to issue up to 30,000,000 post consolidated options to Rofin or nominees, and issue up to 220,000,000 post consolidated shares in ESI at not less than 1 cent each to Rofin or nominees. We concluded in the October 2005 IER that the proposals were, on balance, fair and reasonable to the then shareholders of ESI.

Stanton Partners Corporate Pty Ltd does not hold any securities or interests in ESI, APCS or the Relevant Persons and Controllers.. 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. A number of the partners of Stanton Partners and Stantons International are the 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 valuation 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 task they have performed.

DECLARATION

This report has been prepared at the request of the Directors of ESI in order to assist the shareholders of ESI to assess the merits of the proposals (as noted in resolutions 1 and 5 only) to which this report relates. This report has been prepared for the benefit of ESI and those persons only who are entitled to receive a copy for the purposes of Section 611 (Item 7) of the Corporations Act and Listing Rule 10.1 of the ASX Listing Rules and does not provide a general expression of Stanton Partners Corporate Pty Ltd's opinion as to the longer term value of the current ESI, or APCS or the shares and options in such companies. Stanton Partners Corporate Pty Ltd does not imply, and it should not be construed, that is has carried out any form of audit on the accounting or other records of ESI or APCS. Neither the whole or 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, 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 ESI 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), ESI 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 ESI or APCS; and
(b) To indemnify Stanton Partners Corporate Pty Ltd against any claim arising (wholly or in part) from ESI or any of its officers providing Stanton Partners Corporate Pty Ltd any false or misleading information or in the failure of ESI 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 ESI directors 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.

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 29 March 2006

STANTON PARTNERS CORPORATE PTY LTD $\mathbf{1}$ .

Stanton Partners Corporate Pty Ltd ACN 063 036 331 ("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.

$2.$ 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:

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

FINANCIAL SERVICES WE ARE LICENSED TO PROVIDE $\overline{3}$ .

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 professional advisory and accounting practice. Our directors may be partners in Stanton Partners.

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

$\mathbf{Q}$ 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.

$9.2$ Referral to External Dispute Resolution Scheme

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 2006

64819_rns_2006-04-09_afc145c7-5eef-40bf-8df8-33696a08ccd8.pdf

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LTD

NOTICE OF MEETING

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED 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

NOTICE OF GENERAL MEETING

AGENDA

SPECIAL BUSINESS

RESOLUTION 1 - ACQUISITION OF ASIA PACIFIC COAL & STEEL PTY LTD

RESOLUTION 2 - ELECTION OF MR NEIL O'KEEFE

RESOLUTION 3 - ELECTION OF MR MURRAY D'ALMEIDA

RESOLUTION 4 - ELECTION OF DR JOHN WHITE

RESOLUTION 5 - ACQUISITION OF RELEVANT INTEREST

DATED: 6 April 2006

Voting Exclusion Note:

EXPLANATORY STATEMENT

$\mathbf{1}$ . OVERVIEW

$1.1$ Acquisition of Asia Pacific Coal & Steel Pty Ltd

$\overline{2}$ . RESOLUTION 1 - ACQUISITION OF ASIA PACIFIC COAL & STEEL PTY LTD

$2.1$ Backaround

$2.2$ ASX Listing Rule 7.1

$2.3$ ASX Listing Rule 10.1

$2.4$ Chapter 2E of the Corporations Act

$\overline{3}$ . RESOLUTIONS 2, 3 AND 4 - ELECTION OF DIRECTORS

Murray D'Almeida

Neil O'Keefe

Dr John White

4. ACQUISITION OF A RELEVANT INTEREST

$4.1$ Backaround

$4.2$ Section 611 of the Corporations Act

$4.2.1$ Voling Power

$4.2.2$ Associate

$4.2.3$ Deemed Voling Power

$4.2.4$ Associates

$4.2.5$ APCS Shareholder Entitlements

Table 1.

Table 2.

$4.2.6$ Other Reaulred Information

$4.3$ Directors' Recommendations

$4.4$ Independent Expert's Report

$4.5$ Pro-Forma Consolidated Balance Sheet

SCHEDULE 1 - APCS Shareholders

SCHEDULE 2 - ROFIN NOMINEES

GLOSSARY

PROXY FORM

APPOINTMENT OF PROXY ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED ABN 28 009 120 405

Voting on Business of the General Meeting

Individuals and joint holders

ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED ABN 28 009 120 405

Instructions for Completing 'Appointment of Proxy' Form

$\mathbf{I}$ . Introduction

End of Quote from Draft Explanatory Statement to Shareholders

$\overline{2}$ . Implications of the Proposals

$\overline{3}$ . Basis of Valuation of ESI Shares

$3.1$ Shares

$\overline{4}$ . Basis of Valuation of APCS

$4.4$ Asset based methods

47 Valuation of APCS

5. Premium for Control

6. Conclusion as to Fairness and Reasonableness

Advantages

Disadvantages

Other Factors and Information

$\overline{7}$ . Sources of Information

AUTHOR INDEPENDENCE AND INDEMNITY

QUALIFICATIONS

DECLARATION

DISCLAIMER

DECLARATION AND INDEMNITY

STANTON PARTNERS CORPORATE PTY LTD

FINANCIAL SERVICES GUIDE Dated 29 March 2006

ENVIRONMENTAL CLEAN TECHNOLOGIES LIMITED. Proxy Solicitation & Information Statement 2006