FIRST LITHIUM LIMITED — AGM Information 2008

Oct 15, 2008

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ADVANCED ENGINE COMPONENTS LIMITED

ACN 009 081 770

NOTICE OF ANNUAL GENERAL MEETING AND EXPLANATORY STATEMENT TO SHAREHOLDERS

TIME: 2.00PM DATE: THURSDAY, 27 NOVEMBER 2008 PLACE: THE CELTIC CLUB, 48 ORD STREET, WEST PERTH

IMPORTANT INFORMATION

This is an important document that should be read in its entirety. If you do not understand it, or any part of it, you should consult with your professional advisers without delay.

You are encouraged to attend the meeting, but if you cannot, you are requested to complete and return the enclosed Proxy Form without delay to Advanced Engine Components Limited at 14 Energy Street, Malaga WA 6090 or by mail to Advanced Engine Components Limited, PO Box 3126, Malaga WA 6090 or by facsimile on facsimile number (+61 8) 9209 6999.

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ADVANCED ENGINE COMPONENTS LIMITED

ACN 009 081 770

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Shareholders of Advanced Engine Components Limited (“AEC” or “the Company”) will be held as specified below:

TIME: 2.00pm

DATE: Thursday, 27 November 2008

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

This is an important document that should be read in its entirety. If you do not understand it, you should consult with your professional advisers without delay.

If you wish to discuss any aspects of this document with the Company, please contact Mr Antony Middleton, Managing Director, on telephone +61 8 9209 6900.

Terms and abbreviations used in this Notice of Annual General Meeting and the Explanatory Statement are defined in Section 10 of the accompanying Explanatory Statement.

ORDINARY BUSINESS

Financial Reports

To receive and consider the financial report and the Directors’ and auditors’ reports for the year ended 30 June 2008.

RESOLUTION 1: Remuneration Report

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

“That the Remuneration Report for the year ended 30 June 2008 be adopted.”

Note – the vote on this Resolution is advisory only and does not bind the Directors or the Company.

RESOLUTION 2: Re-election of Director – Mr Thomas Liu

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That Mr Thomas Liu being a Director of the Company who retires by rotation pursuant to Rule 8.1(e)(2) of the Company’s Constitution, and being eligible, is re-elected as a Director of the Company.”

NOTICE OF ANNUAL GENERAL MEETING

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SPECIAL BUSINESS

RESOLUTION 3: Issue of Options to 698 Capital Asia Pacific (or nominee)

To consider, and if thought fit, pass the following resolution as an ordinary resolution:

“That pursuant to Listing Rule 10.11 and Section 208 of the Corporations Act and for all other purposes, that approval be given to issue 5,000,000 Options to 698 Capital Asia Pacific (or nominee) on the terms and conditions set out in the Explanatory Statement.”

VOTING EXCLUSION STATEMENT: The Company will disregard any votes cast on this Resolution by 698 Capital Asia Pacific and its associates (including 698 Capital International).

RESOLUTION 4: Issue of Options to Graham Keys (or nominee)

To consider, and if thought fit, pass the following resolution as an ordinary resolution:

“That pursuant to Listing Rule 10.11 and Section 208 of the Corporations Act and for all other purposes, that approval be given to issue 275,000 Options to Graham Keys (or nominee) on the terms and conditions set out in the Explanatory Statement.”

VOTING EXCLUSION STATEMENT: The Company will disregard any votes cast on this Resolution by Graham Keys and his associates.

RESOLUTION 5: Ratification of Prior Issue of Options to Michael Hill (or nominee)

To consider, and if thought fit, pass the following resolution as an ordinary resolution:

“That pursuant to Listing Rule 7.4 and for all other purposes, Shareholders ratify the issue of 80,000 Options to Michael Hill (or nominee) on the terms and conditions set out in the Explanatory Statement”.

VOTING EXCLUSION STATEMENT: The Company will disregard any votes cast on this Resolution by Michael Hill and his associates.

RESOLUTION 6: Issue of Other Options

To consider, and if thought fit, pass the following resolution as an ordinary resolution:

“That pursuant to Listing Rule 7.1 and for all other purposes, approval be given to issue up to 320,000 Options to specified parties on the terms and conditions set out in the Explanatory Statement.”

VOTING EXCLUSION STATEMENT: The Company will disregard any votes cast on this Resolution by a person who may participate in the proposed issue and a person who may obtain a benefit, except a benefit solely in the capacity of a shareholder, if the resolution is passed, and an associate of those persons.

VOTING EXCLUSION STATEMENTS

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

NOTICE OF ANNUAL GENERAL MEETING

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EXPLANATORY STATEMENT

Shareholders are referred to the Explanatory Statement accompanying and forming part of this Notice of Annual General Meeting for further information in relation to the Resolutions.

PROXIES

Members are encouraged to attend the meeting, but if you are unable to attend the meeting, we encourage you to complete and return the enclosed proxy form.

In accordance with section 249L of the Corporations Act, Shareholders are advised that:

• each Shareholder has the right to appoint a proxy;

• the proxy need not be a Shareholder of the Company; and

• a Shareholder who is entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise.

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

• send the Proxy Form by facsimile to the Company on +61 8 9209 6999;

• post the Proxy Form to the Company at PO Box 3126, Malaga WA 6090; or

• deliver the Proxy Form to the registered office of the Company at 14 Energy Street, Malaga WA 6090.

Proxy Forms must be received by the Company not later than 48 hours before the time specified for the commencement of the Annual General Meeting.

DATE FOR DETERMINING SHAREHOLDERS

For the purposes of regulation 7.11.37 of the Corporations Act, the Directors have set 2.00pm (WST) on Tuesday 25 November 2008 as the time and date to determine who are the registered Shareholders in the Company for the purposes of the Annual General Meeting. Accordingly Share transfers registered after that time will be disregarded in determining entitlements to attend and vote at the Annual General Meeting.

Dated: 2 October 2008.

By order of the Board

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Susan Hunter Company Secretary

NOTICE OF ANNUAL GENERAL MEETING

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EXPLANATORY STATEMENT TO SHAREHOLDERS ADVANCED ENGINE COMPONENTS LIMITED

ACN 009 081 770

This Explanatory Statement has been prepared to assist Shareholders of the Company in understanding the business to be put to Shareholders for their consideration at the forthcoming 2008 Annual General Meeting of the Company. The Directors recommend that you read this Explanatory Statement and attend the 2008 Annual General Meeting.

1. ANNUAL FINANCIAL REPORTS

The Corporations Act requires the Company’s financial statements and reports of the Directors and of the auditors for the year ended 30 June 2008 to be laid before the Annual General Meeting. The financial statements and the reports of the Directors and of the auditors are contained in the Company’s 2008 Annual Report, a copy of which accompanies this Notice of Annual General Meeting. The 2008 Annual Report is also available on the Company’s website www.advancedengine.com.

While no resolution is required in relation to this item, Shareholders should consider the documents and raise any matters of interest with the Directors when this item is being considered.

2. RESOLUTION 1: ADOPTION OF REMUNERATION REPORT

The Remuneration Report is required to be considered for adoption in accordance with section 250R of the Corporations Act. The Remuneration Report which details the Company’s policy on the remuneration of non-executive Directors, executive Directors and senior executives is part of the Directors Report contained in the Company’s 2008 Annual Report distributed to Shareholders with this Notice of Annual General Meeting. The 2008 Annual Report, including the Remuneration Report, is also available on the Company’s website www.advancedengine.com.

The vote on the resolution is advisory only and does not bind the Directors or the Company.

3. RESOLUTION 2: RE-ELECTION OF DIRECTOR - MR THOMAS LIU

It is a requirement under Rule 8.1(e)(2) of the Company’s Constitution that one third of all directors, other than the Managing Director, retire at each annual general meeting. Accordingly, Mr Thomas Liu retires from office, and being eligible, offers himself for re-election as a Director of the Company.

Mr Liu is the Director and Head of the Beijing office of Aetos Capital, a real estate private equity fund, responsible for identifying and making investments in real estate projects and assets in the greater China region. Before joining Aetos, he was the Executive Director and Head of the real estate investment group with CDIB Capital Limited, a subsidiary of China Development Industrial Bank in Taiwan. Previously, Mr Liu was the Managing Director of 698 Capital Holdings Limited and also the Chief Operating Officer of a real estate development company, He Qiao, in Beijing, China. Before moving to Beijing in 2004, Mr Liu held various senior management positions in investment banking and management consulting firms in Hong Kong. He has a Master of Business Administration from the Kellogg School of Management from Northwestern University in Chicago and the Hong Kong University of Science and Technology and also dual Bachelor of Science degrees from Boston University. Mr Liu was appointed a Non-executive Director of the Company on 7 August 2003. During the past three years Mr Liu has not served as a director for any other Australian listed companies.

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EXPLANATORY STATEMENT

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4. RESOLUTION 3: ISSUE OF OPTIONS TO 698 CAPITAL ASIA PACIFIC (OR NOMINEE)

Resolution 3 seeks Shareholder approval pursuant to Listing Rule 10.11 and section 208 of the Corporations Act to issue 5,000,000 Options to 698 Capital Asia Pacific (or nominee) .

As announced on 12 August 2008, 698 Capital Asia Pacific agreed to provide a $2,000,000 Financing Facility to the Company to support known and future sales growth. Interest will be charged on the balance drawndown at a rate of 12.43% per annum which represented the base rate equivalent to that published by the “National Australia Bank Indicator Rate - business lending” at the date of execution of the formal documents. In connection with the Facility the Company agreed, subject to Shareholder approval, to issue 5,000,000 Options to 698 Capital Asia Pacific (or nominee).

If Shareholders approve the issue of the Options, 698 Capital Asia Pacific will reduce the base interest rate on the Facility by 0.75% retrospectively. Further, the Options are exercisable at a substantial premium to the current share price and have a relatively short term to expiry.

Listing Rule 10.11 provides that a company must not issue equity securities to a Related Party without the approval of shareholders. Pursuant to Listing Rule 7.2 exception 14, where approval under Listing Rule 10.11 is obtained, approval is not required under Listing Rule 7.1 and the issue of securities will not be included in the Company’s 15% limit.

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 the company obtains the prior approval of Shareholders in general meeting or an exception applies. A “financial benefit” is defined in the Corporations Act in broad terms and includes a public company issuing securities.

The following information is provided in accordance with Listing Rule 10.13 and section 219 of the Corporations Act to help shareholders assess the merits of this Resolution:

Maximum Number : 5,000,000 Options.

Issue Price : The Options will be granted for nil consideration.

Allottee : 698 Capital Asia Pacific (or nominee). The Company has been advised by 698 Capital Asia Pacific that, upon Shareholder approval, the Options should be issued to 698 Capital International as its nominee.

Related Party/Relationship : Mr Albert Pun, a Director of the Company, is a director of 698 Capital Asia Pacific and 698 Capital International, the major shareholder of AEC. For the purposes of this Resolution, 698 Capital Asia Pacific and 698 Capital International are deemed to be Related Parties of the Company.

Terms : The Options are unlisted and exercisable at $0.20 each on or before 31 December 2010. Full terms and conditions are set out in Annexure A to this Explanatory Statement.

Allotment Date/Date of Issue : It is likely that the allotment will occur on a single date, no later than 1 month after the Annual General Meeting or such later date to the extent permitted by an ASX waiver of the Listing Rules.

Intended Use of Funds : No funds will be raised through the issue of the Options.

Voting Exclusion : An appropriate voting exclusion statement is included in the Notice of Annual General Meeting.

Nature of the Financial Benefit : The issue of 5,000,000 Options.

Value of the Financial Benefit : The Options proposed to be issued pursuant to this Resolution are being issued for nil consideration. The quantum of the benefit attributable to the Options is dependent, in part, on the price at which the underlying Shares can be traded on ASX. As the current market price for a Share on ASX is less than the exercise price of the Options, their intrinsic value at the date of the Explanatory Statement, has been assessed as nil. The indicative value of the Options has been determined under a theoretical pricing model in Section 4.1 below to be 3.86 cents per Option for a total indicative value of $193,000. The Options will only have value if on the date that the Options are exercised, the market price of the Shares exceeds the exercise price of the Options. In these circumstances, the holder of the Options will obtain a financial benefit equivalent to the difference between the market price and exercise price at that time.

EXPLANATORY STATEMENT

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Existing Interest in Securities : 698 Capital International is the major shareholder of the Company with 64,423,731 Shares and 4,258,153 options exercisable at $0.128 on or before 30 November 2009. 698 Capital Asia Pacific holds 3,000,000 convertible notes in the Company convertible into Shares at $0.40 per Share at any time on or before 31 December 2009. The notes are secured by a first fixed and floating charge over all present and future assets and undertakings of the Company. Interest is paid annually in arrears at a rate of 7.57%.

Dilution Effect : The initial issue of the 5,000,000 Options will have no dilution effect. However, upon the exercise of the Options, the effect would be to dilute existing shareholders interests by approximately 3.3% based on the issued shares at the date of this Explanatory Statement and assuming no other securities are issued by the Company prior to the exercise of those Options

Other Interests : 698 Capital Asia Pacific has an outstanding loan of $750,000 to the Company on which interest is payable quarterly in arrears at a rate of 9% per annum. In addition, 698 Capital Asia Pacific has provided a financing facility of up to $2,000,000 to the Company of which $1,100,000 has been drawndown at the date of the Explanatory Statement on which interest is payable quarterly in arrears at a base rate of 12.43% per annum.

Directors Recommendations and Interests in Outcome of the Resolution : Albert Pun declines to make a recommendation to Shareholders in relation to the issue of the Options as he has an interest in the outcome of this Resolution as he is a director of 698 Capital Asia Pacific and 698 Capital International. Each of the other Directors of the Company, who have no material interest in the outcome of the Resolution, consider that the proposed issue of Options in connection with the $2,000,000 financing facility provided by 698 Capital Asia Pacific to the Company is reasonable and recommend that Shareholders vote in favour of this Resolution.

4.1 Indicative Value of Options

In accordance with a policy requirement of ASIC, the Options have been valued using the Black & Scholes pricing model based on the following key inputs and assumptions:

• exercise price of $0.20;

• expiry date of 31 December 2010;

• valuation date of 30 September 2008;

• grant date of 30 November 2008;

• market price of $0.10;

• risk free interest rate of 5.095% (based on yield of 2-year Australian Government debt securities); and

• volatility factor of 99.1% (based on the volatility of the Company’s share price for the last 12 months).

The above parameters result in a derived value of approximately 3.86 cents per Option. It should be noted that the theoretical assumptions of the Black & Scholes model may result in a potentially misleading valuation of the Options and the value ascribed to the Options may not necessarily represent the market price of the Options at the date of the valuation.

5. RESOLUTION 4: ISSUE OF OPTIONS TO GRAHAM KEYS

Resolution 4 seeks Shareholder approval pursuant to Listing Rule 10.11 and section 208 of the Corporations Act to issue 275,000 Options to Graham Keys (or nominee) .

The purpose of issuing the Options is to recognise and reward Graham Keys for his past contribution as Chairman of the Company and to give him an incentive to provide dedicated and ongoing commitment to the Company. The Board (excluding Mr Keys) considers the grant to be reasonable in the circumstances, given his level of skill and experience whilst maintaining the Company’s cash reserves. Further, the Options are exercisable at a substantial premium to the current share price and have a relatively short term to expiry.

Listing Rule 10.11 provides that a company must not issue equity securities to a Related Party without the approval of shareholders. Pursuant to Listing Rule 7.2 exception 14, where approval under Listing Rule 10.11 is obtained, approval is not required under Listing Rule 7.1 and the issue of securities will not be included in the Company’s 15% limit.

EXPLANATORY STATEMENT

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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 the company obtains the prior approval of Shareholders in general meeting or an exception applies. A “financial benefit” is defined in the Corporations Act in broad terms and includes a public company issuing securities.

The following information is provided in accordance with Listing Rule 10.13 and section 219 of the Corporations Act to help shareholders assess the merits of this Resolution:

Maximum Number : 275,000 Options.

Issue Price : The Options will be granted for nil consideration.

Allottee : Graham Keys (or nominee).

Related Party/Relationship : Graham Keys is a Director of the Company.

Terms : The Options are unlisted and exercisable at $0.20 each on or before 31 December 2010. Full terms and conditions are set out in Annexure A to this Explanatory Statement. An additional term applies to these Options, being that if Mr Keys ceases to be a Director of the Company for any reason including resignation or termination prior to the expiry date of the Options, the Options must be exercised (unless the Directors otherwise determine) within 60 days from the date of that event, after which the Options will lapse.

Allotment Date/Date of Issue : The allotment will occur on a single date no later than 1 month after the Annual General Meeting or such later date to the extent permitted by an ASX waiver of the Listing Rules.

Intended Use of Funds : No funds will be raised through the issue of the Options.

Voting Exclusion : An appropriate voting exclusion statement is included in the Notice of Annual General Meeting.

Nature of the Financial Benefit : The issue of 275,000 Options.

Value of the Financial Benefit : The Options proposed to be issued pursuant to this Resolution are being issued for nil consideration. The quantum of the benefit attributable to the Options is dependent, in part, on the price at which the underlying Shares can be traded on ASX. As the current market price for a Share on ASX is less than the exercise price of the Options, their intrinsic value at the date of the Explanatory Statement, has been assessed as nil. The indicative value of the Options has been determined under a theoretical pricing model in Section 4.1 above to be 3.86 cents per Option for a total indicative value of $10,615. The Options will only have value if on the date that the Options are exercised, the market price of the Shares exceeds the exercise price of the Options. In these circumstances, the holder of the Options will obtain a financial benefit equivalent to the difference between the market price and exercise price at that time.

Existing Interest in Securities : Graham Keys has a relevant interest in a total of 3,655,000 Shares and 144,298 unlisted options exercisable at 12.8 cents on or before 30 November 2009 at the date of this Explanatory Statement.

Remuneration : Graham Keys currently receives remuneration as Chairman of the Company at the rate of $25,000 per annum.

Other Interests : Graham Keys is a director and major shareholder of Norvest Corporate Pty Ltd, which provides various corporate, capital raising, accounting and company secretarial services to the Company at normal commercial rates. During the 2008 financial year, the Company paid or accrued approximately $190,000 for these services.

Dilution Effect : The initial issue of the 275,000 Options will have no dilution effect. However, upon the exercise of the Options, the effect would be to dilute existing shareholders interests by approximately 0.2% based on the issued shares at the date of this Explanatory Statement and assuming no other securities are issued by the Company prior to the exercise of those Options.

Directors Recommendations and Interests in Outcome of the Resolution : Graham Keys declines to make a recommendation to Shareholders in relation to this Resolution due to his material personal interest in the outcome of the Resolution. Each of the other Directors of the Company, who have no material interest in the outcome of the Resolution, consider that the proposed issue of Options to Mr Keys is reasonable as a cost effective method of ensuring his ongoing dedication and commitment to the Company and recommend that Shareholders vote in favour of this Resolution.

EXPLANATORY STATEMENT

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6. RESOLUTION 5: RATIFICATION OF PRIOR ISSUE OF OPTIONS TO MICHAEL HILL

Resolution 5 seeks Shareholder approval pursuant to Listing Rule 7.4 to ratify the issue of 80,000 Options to Michael Hill (or nominee) on or about 18 October 2008.

The Company appointed Michael Hill as Chief Operating Officer in August 2008 to set up a formal sales operation process for the Company’s operations in China, oversee the appointment of senior sales management in China and implement a continuous improvement program to maximize sales opportunities. The Board has agreed to issue up to a total of 250,000 Options to Michael Hill subject to certain performance criteria to be set at the discretion of the Board. The 80,000 Options subject to this Resolution represent the first tranche. Approval for the remaining 170,000 Options is included in the Resolution below. The Board considers the grant of Options to be reasonable in the circumstances, given his level of skill and experience, and as an incentive to provide dedicated and ongoing commitment to the Company whilst maintaining the Company’s cash reserves. Further, the Options are exercisable at a substantial premium to the current share price and have a relatively short term to expiry.

Listing Rule 7.4 provides that a company can seek ratification of security issues made within the previous 12 month period. The issue must not have breached the Rule 7.1 limit at the time. Ratification through subsequent shareholder approval will have the effect of reinstating the 15% limit in Rule 7.1.

The Company confirms that the issue of the 80,000 Options did not breach Listing Rule 7.1. Shareholder approval is now being sought to reinstate the Company’s ability to issue up to 15% of its issued capital without shareholder approval under Listing Rule 7.1.

In accordance with Listing Rule 7.5 the following information is provided:

Number of Securities : 80,000 Options.

Issue Price : The Options were granted for no consideration.

Terms : The Options are unlisted and exercisable at $0.20 each on or before 31 December 2010. Full terms and conditions are set out in Annexure A to this Explanatory Statement. An additional term applies to the 80,000 Options, being that if Michael Hill resigns from his position with the Company prior to the expiry date of the Options, the Options must be exercised (unless the Directors otherwise determine) within 60 days from the date of that event, after which the Options will lapse.

Allottee : Michael Hill (or nominee).

Use of Funds : No funds were raised through the issue of the Options.

Voting Exclusion : an appropriate voting exclusion statement is included in the Notice of Annual General Meeting.

7. RESOLUTION 6: ISSUE OF OTHER OPTIONS

This Resolution seeks Shareholder approval pursuant to Listing Rule 7.1 for the issue of up to 320,000 Options to the parties set out below. The Board considers the grant of these Options to be reasonable in the circumstances, given their past contribution to the Company and as an incentive for their ongoing commitment, whilst maintaining the Company’s cash reserves. Further, the Options are exercisable at a substantial premium to the current share price and have a relatively short term to expiry.

Listing Rule 7.1 prohibits a listed company from issuing securities representing more than 15% of its issued capital in any 12 month period without prior shareholder approval (subject to certain exceptions). By obtaining approval, the securities will not be counted in the Company’s 15% limit and the capacity will be reinstated.

EXPLANATORY STATEMENT

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In accordance with Listing Rule 7.3 the following information is provided:

Maximum Number : 320,000 Options.

Allotment Date/Date of Issue : The 150,000 Options to be issued to parties other than Michael Hill will be allotted on a single date as soon as practicable after the Annual General Meeting. The 170,000 Options which may be issued to Michael Hill are subject to certain performance criteria to be set at the discretion of the Board. Accordingly, it is likely that these Options will be allotted in tranches progressively but not later than three months after the Annual General Meeting or such later date to the extent permitted by an ASX waiver of the Listing Rules.

Issue Price : The Options will be granted for nil consideration.

Allottees :

	Allottee (or nominee) Michael Hill Andy Wong Susan Hunter Monique Myers Total	Options 170,000 50,000 50,000 50,000
		320,000

Terms : The Options are unlisted and exercisable at $0.20 each on or before 31 December 2010. Full terms and conditions are set out in Annexure A to this Explanatory Statement.

An additional term applies to the 170,000 Options which may be issued to Michael Hill, being that if Mr Hill resigns from his position with the Company prior to the expiry date of the Options, the Options must be exercised (unless the Directors otherwise determine) within 60 days from the date of that event, after which the Options will lapse.

Intended Use of Funds : No funds will be raised through the issue of the Options.

Voting Exclusion : an appropriate voting exclusion statement is included in the Notice of Annual General Meeting.

8. SHARE PRICE HISTORY

The highest and lowest closing market sale prices of Shares on ASX in the last 12 months prior to the date of this Explanatory Statement were:

	Price Date High $0.20 7 November 2007 Low $0.06 31 March 2008 Last Sale $0.10 1October 2008

9. ASX AND ASIC

The fact that the Notice of Annual General Meeting and Explanatory Statement have been reviewed by ASX and ASIC is not to be taken as an indication of the merits of the Resolutions. ASX and ASIC and their officers take no responsibility for any decision a Shareholder may make in reliance on any of the documentation.

EXPLANATORY STATEMENT

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10. DEFINITIONS

In this Explanatory Statement:

AEC means Advanced Engine Components Limited, ACN 009 081 770.

Annual General Meeting means the meeting of the Shareholders convened for the purposes (including others) of considering the Resolutions contained in the Notice of Annual General Meeting.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited, ABN 98 008 624 691.

Board means the Board of Directors of the Company.

Company means Advanced Engine Components Limited, ACN 009 081 770.

Constitution means the constitution of Advanced Engine Components Limited, ACN 009 081 770.

Corporations Act means the Corporations Act 2001 (Cth).

Director means a director of the Company.

Explanatory Statement means the explanatory statement accompanying the Notice of Annual General Meeting.

Listing Rules means the Listing Rules of the ASX.

Notice of Annual General Meeting means the notice convening the Annual General Meeting accompanying this Explanatory Statement.

Option means an option to subscribe for Shares exercisable at $0.20 each on or before 31 December 2010 on the terms and conditions set out in Annexure A.

Proxy Form means the form of proxy accompanying the Notice of Annual General Meeting.

Related Party means a party so defined by section 228 of the Corporations Act.

Resolution means a resolution proposed to be passed at the Annual General Meeting and contained in the Notice of Annual General Meeting.

Share means a fully paid ordinary share in the Company.

Shareholder means a person entered in the Company’s register as a holder of a Share.

698 Capital Asia Pacific means 698 Capital Asia Pacific Ltd, a company incorporated in the British Virgin Islands.

698 Capital International means 698 Capital International Ltd, a company incorporated in the British Virgin Islands.

EXPLANATORY STATEMENT

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ANNEXURE A

TERMS OF THE OPTIONS (RESOLUTIONS 3, 4, 5 and 6)

• (a) The Options will not be quoted on the ASX.

• (b) The exercise price of each Option is $0.20 (“the Exercise Price”).

• (c) Each Option will automatically lapse if not exercised on or before 31 December 2010.

• (d) Each Option entitles the holder to subscribe for and be allotted one Share in the capital of the Company upon exercise of the Option and payment to the Company of the Exercise Price.

• (e) An Option may be exercised by the optionholder at any time prior to the expiry date by sending a completed and signed notice of exercise, together with the payment of the Exercise Price and the certificate for the Option, to the Company. The Options may be exercised in whole or in part.

• (f) Each certificate will bear a suitable form of notice of exercise of the Options, endorsed on the back of the certificate, for completion by the optionholder (if required). If the Options comprised in any such certificate are exercised in part only, before the expiry date, the Company will issue the optionholder with a fresh certificate for the balance of the Options held and not yet exercised.

• (g) A notice of exercise is only effective when the Company has received the full amount of the Exercise Price in cash or cleared funds.

• (h) Subject to any restrictions in the Listing Rules, within 10 business days of receipt of a properly executed notice of exercise and the required exercise moneys the number of Shares specified in the notice will be allotted.

• (i) Shares allotted pursuant to the exercise of the Options will rank equally with the then issued Shares of the Company.

• (j) Subject to the Company being listed on the ASX, the Company undertakes to apply for official quotation by the ASX of all Shares allotted pursuant to the exercise of any Options, within 10 business days of the date of allotment of those new Shares.

• (k) The optionholder is not entitled to participate in new issues of securities offered to shareholders without exercising the Options before the relevant record date for that new issue.

• (l) In the event of any reorganisation (including consolidation, subdivision, reduction, cancellation or return) of the issued capital of the Company before the expiry of any Options, all rights of the optionholder will be changed to the extent necessary to comply with the Listing Rules applying to a reorganisation of capital at the time of the reorganisation.

• (m) If from time to time before the expiry of the Options the Company makes an issue of Shares to shareholders by way of a bonus issue, other than in lieu of a dividend payment, then upon exercise of an Option the optionholder will be entitled to have issued to it (in addition to the Shares which it is otherwise entitled to have issued to it upon such exercise) additional Shares in the Company. The number of additional Shares is the number of Shares which would have been issued to the optionholder if the Options had been exercised before the relevant record date for the bonus issue.

• (n) The Options do not confer the right to a change in Exercise Price, or a change to the number of underlying securities over which they can be exercised, other than under paragraphs (l) and (m) above.

• (p) The Options are not transferable without the prior written consent of the Company (which consent shall not be unreasonably withheld).

EXPLANATORY STATEMENT

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EXPLANATORY STATEMENT

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ADVANCED ENGINE COMPONENTS LIMITED ACN 009 081 770 2008 ANNUAL GENERAL MEETING FORM OF PROXY

I/We (print name) ……………………………………………………………………….………..…………………….. of

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a member/members of Advanced Engine Components Limited (ACN 009 081 770) hereby appoint

…………………………………………………………………………………………….………………………………...

of

…………………………………………………………………………………….…………………………………….…..

or failing him/her …………………………………………………………………….……..……………………………..

of ……………………………………………………………………………………………………………………………

or failing him/her, the Chairman of the meeting, as my/our proxy at the General Meeting of the Company to be held commencing at 2.00pm on Thursday, 27 November 2008 , and at any adjournment thereof and to vote for me/us on my/our behalf in respect of all/the following* (refer instructions over page)

………………………………………………………………………………………………………. of my/our Shares in the manner as set out below.

In relation to any undirected proxies the Chairman intends to vote in favour of all Resolutions.

If you do not wish to instruct your proxy how to vote, please place a cross in the box.

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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 that interest. If you do not mark this box and you have not directed your proxy how to vote, the chair will not cast your votes on the resolution and your votes will not be counted in calculating the required majority if a poll is called on the resolution.

			For	Against	Abstain
Resolution	1	Adoption of Remuneration Report	�	�	�
Resolution	2	Re-election of Director –Thomas Liu	�	�	�
Resolution	3	Issue of Options to 698 Capital Asia Pacific	�	�	�
Resolution	4	Issue of Options to Graham Keys	�	�	�
Resolution	5	Ratification of Prior Issue of Options to Michael Hill	�	�	�
Resolution	6	Issue of Other Options	�	�	�

Dated this ……… day of ………………………… 2008.

PLEASE SIGN HERE

Individual or Securityholder 1 Individual/Sole Director and Sole Company Secretary	Securityholder 2 Director	Securityholder 3
		Director/ Company Secretary

PROXY FORM

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INSTRUCTIONS FOR COMPLETING THE FORM OF PROXY

1. To vote by proxy, please complete and sign the Proxy Form enclosed with this Notice of Annual General Meeting as soon as possible and either:

2. send the Proxy Form by facsimile to the Company on +61 8 9209 6999;

3. post the Proxy Form to the Company at PO Box 3126, Malaga WA 6090; or

4. deliver the Proxy Form to the registered office of the Company at 14 Energy Street, Malaga WA 6090.

5. 1. Proxy Forms must be received by the Company not later than 48 hours before the time specified for the commencement of the Annual General Meeting.

6. A member entitled to attend and vote at the 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.

7. *If two proxies are appointed you may delete “all” and insert the relevant number or proportion of Shares in respect of which each such appointment is made. If the Shareholder appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half the votes.

8. Should you desire to direct your proxy how to vote, place a cross in the appropriate box for each item, otherwise your proxy may vote as your proxy thinks fit or abstain from voting.

9. A duly appointed proxy need not be a member of the Company. In the case of joint holders, all must sign.

10. Corporate Shareholders should comply with the execution requirements set out on the Proxy Form or otherwise with the provision 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:

11. 2 directors of the company;

12. a director and a company secretary of the company; or

13. for a proprietary company that has a sole director who is also the sole company secretary – that director.

14. 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, the proxy’s authority to speak and vote for that Shareholder is suspended while the Shareholder is present at the meeting.

15. Where a Proxy Form or form of corporate representative is lodged and is executed under power of attorney, the power of attorney must be lodged with this proxy.

PROXY FORM

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