21 October 2004

Company Announcements Office
The Australian Stock Exchange Limited
Exchange Centre
20 Bond Street
Sydney NSW 2000

Dear Sir/Madam

PROPOSED LODGEMENT OF PROSPECTUS

Advanced Engine Components Limited (“AEC” or “the Company”) propose lodging a public prospectus to raise $3.5 million through the issue of 17.5 million shares at 20 cents per share with the Australian Securities and Investments Commission on 21 October 2004. The capital raising, approved at the shareholders meeting of 8 September 2004, is the final stage in the Company restructure and recapitalization prior to seeking re-instatement of the Company shares for trading on the Australian Stock Exchange Limited.

The prospectus includes a priority right for existing shareholders to round up to a marketable parcel. In addition, the Company Directors, will use their best endeavours to satisfy all additional applications from existing shareholders.

The lead manager for the public raising is D J Carmichael Pty Limited.

All other resolutions, approved at the shareholders meeting of 8 September 2004, relating to the restructure and recapitalization have been completed. These include, the 1 for 10 consolidation of existing shares, the raising of $1.0 million in mezzanine capital and the conversion of $2.15 million in short term debt to equity.

As approved at the 8 September 2004 meeting, 698 Capital International Limited, the Company’s major shareholder, has entered into a shortfall agreement to subscribe for up to $1.0 million of the public offering should there be a shortfall and will convert a further $3.3 million short term debt to equity upon successful completion of the offer.

In addition, 698 Capital Asia Pacific Limited will convert $3.0 million of their remaining short term debt into a convertible note. The convertible note will have similar interest and security conditions to the existing debt, will not be redeemable prior to 1 July 2006 (subject to certain conditions) and is convertible into shares at 40 cents per share. Issue of the convertible note is subject to shareholder approval at the Company’s Annual General Meeting to be held on 25 November 2004.

The convertible note is further evidence of 698 Capital’s continuing support of AEC and their confidence in AEC’s future.

In preparation for the public prospectus and proposed re-quotation of the Company’s shares, the Company has restructured the Board of Directors. Mr. Graham Keys, a director since May 2003 and Perth based corporate advisor, has been appointed Chairman of the Company. Mr. William Fang, a Hong Kong based investment banker, has been added to the board and Dr Daniel Wu, Mr. George Long and Mr. Arthur Wang have resigned from the Board. The board wishes to express its thanks for the services and contributions provided by these three directors.

On 12 October 2004, Centre de Recherché en Machines Thermiques (“CRMT”), AEC’s French based contractor, commenced litigation against Irisbus for recovery of monies owing for installation of AEC’s NGVS components. Irisbus have counterclaimed against CRMT and requested an expert evaluation of the facts in relation to the dispute. CRMT has now joined AEC to the action. The expert evaluation is expected to take 6 to 12 months. Any subsequent action by either party could take a further 12 to 24 months. Currently neither Irisbus nor CRMT is claiming any specific quantum of loss from AEC. Should any claim be made against AEC it will be vigorously defended and AEC will also pursue all of its legal remedies against CRMT for any loss CRMT may have occasioned AEC.

Progress continues to be made on the Co-operation Agreement with First Auto Works, one of the world’s largest truck producers and China’s largest vehicle manufacturer, to design, develop, test and certify a natural gas engine for production by First Auto Works. The design work was completed in May 2004 and a First Auto Works engine, incorporating AEC’s NGVS components, has been trialed on the dynamometer at AEC’s Malaga facilities since July 2004. First Auto Works plan to install the first engine, in China, for road testing in December 2004. This road testing will be in parallel with ongoing dynamometer testing at AEC’s Malaga facilities and testing and certification in China.

The requirements of the Weichai Product Development Agreement have also commenced. AEC’s design phase of the Weichai gas engine is proceeding. Weichai are in the process of developing a base engine ready for testing prior to certification. Weichai is one of the largest diesel engine manufacturers in China.

For further information contact the Managing Director, Mr. Tony Middleton, on 61 8
9209 6900.

Yours faithfully

SIMON STORM
COMPANY SECRETARY

Back to Top