Design Capital Limited — Proxy Solicitation & Information Statement 2011

May 25, 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in King Stone Energy Group Limited (the ‘‘Company’’), you should at once hand this circular and the accompanying forms of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agents through whom the sale or transfer was effected for transmission to the purchaser or transferee.

KING STONE ENERGY GROUP LIMITED

金 山 能 源 集 團 有 限 公 司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 00663)

(1) PROPOSED CAPITAL REORGANISATION AND CHANGE IN BOARD LOT SIZE;

(2) REDUCTION OF SHARE PREMIUM ACCOUNT;

• (3) PROPOSED GRANT OF GENERAL MANDATES TO ISSUE NEW SHARES AND REPURCHASE BY THE COMPANY OF ITS OWN SHARES;

(4) PROPOSED RE-ELECTION OF DIRECTORS;

• (5) NOTICE OF EXTRAORDINARY GENERAL MEETING; AND

(6) NOTICE OF ANNUAL GENERAL MEETING

A notice convening the extraordinary general meeting of the Company to be held at Suite 3603, 36th Floor, One Exchange Square, Central, Hong Kong at 11:30 a.m. on Friday, 24 June 2011 and a notice convening the annual general meeting of the Company to be held at Suite 3603, 36th Floor, One Exchange Square, Central, Hong Kong at 12:00 noon on Friday, 24 June 2011 (or immediately following the extraordinary general meeting of the Company held earlier on the same date or any adjournment thereof) are set out on pages 23 to 25 and pages 26 to 29 respectively of this circular. Whether or not you are able to attend and vote at the meetings in person, you are requested to complete the forms of proxy in accordance with the instructions printed thereon and return the same to the Registrar, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the relevant meeting and any adjournment thereof. Completion and return of the forms of proxy will not prevent you from attending and voting in person at the EGM and AGM or any adjournment thereof should you so wish.

25 May 2011

CONTENTS

		Page
Definitions . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Appendix I —	Explanatory statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix II —	Details of Directors proposed to be re-elected at the AGM . . . . . . . . . . . . .	20
Notice of EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Notice of AGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26

– i –

DEFINITIONS

In this circular, the following expressions have the following meanings, unless the context otherwise requires:

• ‘‘Accumulated Losses’’

• the accumulated losses of the Company as at 31 December 2010 in the amount of HK$2,953,243,000, based on the audited financial statements of the Company for the year ended 31 December 2010

• ‘‘Adjusted Share(s)’’ ordinary share(s) of HK$0.10 each in the share capital of the Company immediately after the Capital Reorganisation becoming effective

• ‘‘AGM’’

• the annual general meeting of the Company to be held at Suite 3603, 36th Floor, One Exchange Square, Central, Hong Kong at 12:00 noon on Friday, 24 June 2011 (or immediately following the extraordinary general meeting of the Company held earlier on the same date or any adjournment thereof), a notice of which is set out on pages 26 to 29 of this circular

• ‘‘Articles of Association’’

• the articles of association of the Company, and ‘‘Article’’ shall mean an article of the Articles of Association

• ‘‘associate(s)’’

• has the meaning ascribed to it under the Listing Rules

• ‘‘Board’’

• the board of Directors

• ‘‘Capital Reduction’’

the proposed reduction of the share capital of the Company, upon the Share Consolidation becoming effective, by cancelling HK$0.10 of the paid up capital in each of the Consolidated Shares and reducing the nominal value of each issued and unissued share in the capital of the Company from HK$0.20 each to HK$0.10 each

• ‘‘Capital Reorganisation’’

• the proposed reorganisation of the share capital of the Company involving the Share Consolidation and the Capital Reduction

• ‘‘CCASS’’

the Central Clearing and Settlement System operated by HKSCC

• ‘‘Companies Ordinance’’

• the Companies Ordinance, Cap. 32 of the Laws of Hong Kong

• ‘‘Company’’

King Stone Energy Group Limited, a company incorporated in Hong Kong with limited liability and the issued Shares of which are listed on the main board of the Stock Exchange

• ‘‘connected person’’

• has the meaning ascribed to it under the Listing Rules

• ‘‘Consolidated Share(s)’’

ordinary share(s) of HK$0.20 each in the share capital of the Company immediately after the Share Consolidation but before the Capital Reduction becoming effective

– 1 –

DEFINITIONS

‘‘Court’’ The Court of First Instance of the High Court of Hong Kong

• ‘‘Director(s)’’ director(s) of the Company

‘‘EGM’’ the extraordinary general meeting of the Company to be held at Suite 3603, 36th Floor, One Exchange Square, Central, Hong Kong at 11:30 a.m. on Friday, 24 June 2011, or any adjournment thereof, a notice of which is set out on pages 23 to 25 of this circular

• ‘‘General Mandate’’ the general mandate proposed to be granted to the Directors at the AGM to allot, issue and otherwise deal with additional Shares up to a maximum of 20% of the aggregate nominal share capital of the Company in issue as at the date of the passing of such resolution

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘HKSCC’’ the Hong Kong Securities Clearing Company Limited

• ‘‘Hong Kong’’ Hong Kong Special Administrative Region of the PRC

• ‘‘Latest Practicable Date’’ 20 May 2011, being the latest practicable date prior to the printing of this circular for the purposes of ascertaining the information contained herein

• ‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange

• ‘‘PRC’’ the People’s Republic of China (which for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region and Taiwan)

• ‘‘Reduction of Share Premium the proposed reduction of the share premium account of the Account’’ Company as set out in this circular

• ‘‘Registrar’’

Tricor Secretaries Limited, located at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, being the share registrar of the Company

• ‘‘Repurchase Mandate’’

• the repurchase mandate proposed to be granted to the Directors at the AGM to repurchase up to a maximum of 10% of the aggregate nominal amount of the issued share capital of the Company at the date of passing such resolution

• ‘‘SFO’’

the Securities and Futures Ordinance (Chapter 571 of Laws of Hong Kong)

– 2 –

DEFINITIONS

‘‘Share Consolidation’’ the proposed consolidation of every twenty (20) existing Shares into one (1) Consolidated Share

‘‘Share(s)’’ ordinary share(s) of HK$0.01 each in the share capital of the Company prior to the Capital Reorganisation becoming effective

‘‘Shareholder(s)’’ holder(s) of the Share(s) or the Consolidated Share(s) or the Adjusted Share(s) (as the case may be)

• ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

• ‘‘Takeovers Code’’ the Hong Kong Code on Takeovers and Mergers

‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong

‘‘%’’ per cent.

– 3 –

EXPECTED TIMETABLE

2011

Latest time for return of the forms of proxy for use at
the EGM and the AGM (Note 1) . . . . . . . . . . . . . . . . . . . .	. . 11:30 a.m. on Wednesday, 22 June
EGM and the AGM (Note 1) . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	. 11:30 a.m. on Friday, 24 June
Announcement of the poll results of the EGM
and the AGM to be posted on the Stock Exchange’s
website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not later than 11:00 p.m. on Friday, 24 June
Effective date of the Share Consolidation and the Capital Reduction . .		. . . . . . . . . . Monday, 27 June
Dealings in the Adjusted Shares commence . . . . . . . . . . . . . .	. . . . .	9:00 a.m. on Monday, 27 June
First day of free exchange of the existing Share certificates for the
Adjusted Share certificates . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . . . . . . . Monday, 27 June
Original counter for trading in existing Shares in board lots of
20,000 Shares (in the form of existing share certificates) closes . . . .		9:00 a.m. on Monday, 27 June
Temporary counter for trading in the Adjusted Shares in
board lots of 1,000 Adjusted Shares (in the form of existing
share certificates) opens . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	9:00 a.m. on Monday, 27 June
First day for designated broker to stand in the market to
provide matching service for selling and buying of odd lots of
the Adjusted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . . . . . . . Tuesday, 12 July
Original counter for trading in the Adjusted Shares in board lots	of
1,000 Adjusted Shares (in the form of new
share certificates) re-opens . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . 9:00 a.m. Tuesday, 12 July
Parallel trading in the Adjusted Shares (in the form of
new and existing Share certificates) commences . . . . . . . . . .	. . . . .	. . . . . . . . . . Tuesday, 12 July
Notice of the hearing date of the petition to confirm the Reduction of
Share Premium Account published in the newspaper (Note 2)	. . . . .	. . . . . . . . Wednesday, 27 July
Designated broker ceases to stand in the market to provide
matching service for selling and buying of odd lots of
the Adjusted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . . . . . . Monday, 1 August
Temporary counter for trading in the Adjusted Shares in board lots of
1,000 Adjusted Shares (in the form of existing
Share certificates) closes . . . . . . . . . . . . . . . . . . . . . . . . .	. . . .	4:00 p.m. on Monday, 1 August
Parallel trading in the Adjusted Shares (in the form of new and existing
Share certificate) ends . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . . . . . . Monday, 1 August

– 4 –

EXPECTED TIMETABLE

2011

Last day of free exchange of the existing Share certificates for the Adjusted Share certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 4 August Hearing of the Reduction of Share Premium Account (Note 2) . . . . . . . . . . . . . . Monday, 15 August

• Announcement of the result of hearing of the petition to confirm the Reduction of Share Premium Account and the effective date of the Reduction of Share Premium Account to be published (Note 2) . . . . . . . . . Tuesday, 16 August

• Registration of the order of the Court to confirm the Reduction of Share Premium Account and the minute thereof with the Registrar of Companies in Hong Kong . . . . . . . . . . . . . . . . . . . . . Wednesday, 17 August

Effective date of the Reduction of Share Premium Account (Note 3) . . . . . . . . Wednesday, 17 August

Notes:

1. The forms of proxy and, if required by the Company, the power of attorney or other authorities (if any) under which it is signed or a notarially certified copy or office copy of such power or authority, shall be deposited at the Registrar at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event, not later than 48 hours before the time appointed for holding the EGM and the AGM and taking the poll therein or the adjourned meeting thereof. Completion and return of forms of proxy for the EGM and the AGM will not preclude a Shareholder from attending and voting in person at the EGM and the AGM or any adjournment thereof should the Shareholder so wish. In such event, the returned forms of proxy will be deemed to have been revoked.

2. The dates of (i) the advertising of the notice of the petition; (ii) the hearing of the Reduction of Share Premium Account; and (iii) the effective date of the Reduction of Share Premium Account are conditional on the passing of the proposed special resolution in relation to the Reduction of Share Premium Account at the EGM and the outcome of court proceedings related to the Reduction of Share Premium Account. The dates are therefore tentative in nature and subject to change and are provided herein for information only. Further announcement(s) will be made as and when appropriate.

3. The Reduction of Share Premium Account will become effective when the Reduction of Share Premium Account is confirmed by the Court and a copy of the order of the Court and a minute of order approved by the Court containing the particulars required under the Companies Ordinance are delivered to the Registrar of Companies in Hong Kong for registration, which is expected to take place on 17 August 2011.

If there is any material change in this expected timetable, the Company will make further announcement.

– 5 –

LETTER FROM THE BOARD

KING STONE ENERGY GROUP LIMITED

金 山 能 源 集 團 有 限 公 司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 00663)

Executive Directors: Mr. Wang Da Yong Mr. Tian Wenwei Mr. Wang Tongtian

Non-executive Directors:

Mr. Li Yi Mr. Su Bin

Registered office and principal place of business in Hong Kong: Suite 3603, 36th Floor One Exchange Square 8 Connaught Road Central Hong Kong

Independent non-executive Directors:

Mr. Jacobsen William Keith Mr. Cao Kuangyu Mr. Chiu Sui Keung

25 May 2011

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED CAPITAL REORGANISATION AND CHANGE IN BOARD LOT SIZE;

(2) REDUCTION OF SHARE PREMIUM ACCOUNT;

• (3) PROPOSED GRANT OF GENERAL MANDATES TO ISSUE NEW SHARES AND REPURCHASE BY THE COMPANY OF ITS OWN SHARES;

(4) PROPOSED RE-ELECTION OF DIRECTORS;

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING; AND (6) NOTICE OF ANNUAL GENERAL MEETING

INTRODUCTION

Capital Reorganisation and change in board lot size and Reduction of Share Premium Account

Reference is made to the announcement of the Company dated 12 May 2011. The Directors intend to put forward to the Shareholders a proposal to effect the Capital Reorganisation comprising (i) the Share Consolidation, i.e. consolidation of 20 existing Shares of HK$0.01 each into one Consolidated

– 6 –

LETTER FROM THE BOARD

Share of HK$0.20; and (ii) the Capital Reduction, i.e. reduction of the nominal value of the Consolidated Shares of HK$0.20 each to HK$0.10 each by cancelling HK$0.10 of the paid up capital in each Consolidated Share. The board lot size will be changed from 20,000 Shares to 1,000 Adjusted Shares. Independent of the Capital Reorganisation, the Directors also propose the Reduction of Share Premium Account, i.e. reduction of share premium account by HK$2,953,243,000, being a sum representing the Accumulated Losses of the Company as at 31 December 2010 and the application of the credit arising from such reduction to eliminate the Accumulated Losses. As at 31 December 2010, the Company’s share premium account stood at HK$3,065,615,000.

The aforesaid exercises are permitted under the Articles of Association.

General Mandates to issue new Shares and to repurchase Shares and re-election of Directors

At the AGM, resolutions will be proposed, among other matters:

• (a) to grant the General Mandate to the Directors;

• (b) to grant the Repurchase Mandate to the Directors;

• (c) to increase the number of Shares to be allotted and issued under the General Mandate by an additional number representing such number of Shares repurchased under the Repurchase Mandate; and

• (d) to re-elect the Directors.

The purposes of this circular are to give the Shareholders: (1) information in relation to the special resolutions to be proposed at the EGM for the Capital Reorganisation and the Reduction of Share Premium Account; (2) information in relation to the resolutions to be proposed at the AGM for the grant of the General Mandate and the Repurchase Mandate and the re-election of Directors; (3) the notice of EGM; and (4) the notice of AGM.

(A) CAPITAL REORGANISATION

The Directors propose to put forward to the Shareholders a proposal to effect the Capital Reorganisation involving the Share Consolidation and the Capital Reduction.

Share Consolidation

Pursuant to the Share Consolidation, every twenty (20) existing Shares of HK$0.01 each will be consolidated into one (1) Consolidated Share of HK$0.20.

Capital Reduction

Pursuant to the Capital Reduction, upon the Share Consolidation becoming effective, the authorised share capital of the Company will be reduced from HK$3,000,000,000 divided into 15,000,000,000 Consolidated Shares of HK$0.20 each to HK$1,500,000,000 divided into 15,000,000,000 Adjusted Shares of HK$0.10 each and such reduction will be effected by

– 7 –

LETTER FROM THE BOARD

cancelling HK$0.10 of the paid up capital in each issued Consolidated Share of HK$0.20 and reducing the nominal value of each issued and unissued share in the capital of the Company from HK$0.20 per Consolidated Share to HK$0.10 per Adjusted Share.

Assuming that no new Share will be issued after the Latest Practicable Date and prior to the completion of the Capital Reduction, the issued share capital of the Company will be decreased from approximately HK$238,097,434 to approximately HK$119,048,717, and a credit of approximately HK$119,048,717 will arise from the Capital Reduction which will, in its entirety, be credited to the share premium account of the Company.

The sole purpose of the Capital Reduction is to re-designate the nominal value of the Consolidated Shares of the Company to a lower amount and the credit of approximately HK$119,048,717 will be credited to the share premium account of the Company. The Board confirms that the said sum will not be applied to eliminate the Accumulated Loss of the Company as proposed under the Reduction of Share Premium Account. The Board further confirms that the Capital Reorganisation is wholly separate from and independent of the Reduction of Share Premium Account.

Conditions of the Capital Reorganisation

The Capital Reorganisation will be conditional upon, inter alia, the following:

• (i) the passing of a special resolution by the Shareholders approving the Capital Reorganisation at the EGM;

• (ii) the registration by the Registrar of Companies in Hong Kong of a copy of resolution passed by the Shareholders, a copy of a minute containing the particulars required under section 61A of the Companies Ordinance and a statement in the prescribed form signed by an officer of the Company certifying that the relevant conditions under the Companies Ordinance have been satisfied; and

• (iii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Adjusted Shares arising from the Capital Reorganisation.

Assuming that all the conditions are fulfilled, the Capital Reorganisation will become effective upon the registration of the resolution, the minute and the statement required under section 61A of the Companies Ordinance, which is expected to take place on 27 June 2011.

The Capital Reorganisation does not require confirmation by the Court pursuant to section 58(3) of the Companies Ordinance.

Effects of the Capital Reorganisation

Business

Implementation of the Capital Reorganisation will not affect the business and operation of the Company.

– 8 –

LETTER FROM THE BOARD

Financial position

Implementation of the Capital Reorganisation will not alter the underlying assets, liabilities or financial position of the Company and the Group, except for payment of the related expenses. The Directors believe that the Capital Reorganisation will not have any adverse effect on the financial position of the Group.

Rights of the Shareholders

The proportionate interests and the voting rights of the Shareholders in the Company will not be affected by the Capital Reorganisation. Any fraction of the Adjusted Shares arising from the Capital Reorganisation will not be issued to the Shareholders but will be aggregated and sold (if a premium, net of expenses, can be obtained) for the benefit of the Company. Upon the Capital Reorganisation becoming effective, the Adjusted Shares will rank pari passu in all respects with each other.

Convertible bonds

As at the Latest Practicable Date, there are outstanding convertible bonds in the principal amount of HK$159,000,000. Upon completion of the Capital Reorganisation, the conversion price and/or the number of Adjusted Shares falling to be issued upon exercise of the conversion rights attached to the convertible bonds will be adjusted in accordance with the instrument creating the convertible bonds.

Convertible notes

As at the Latest Practicable Date, there are outstanding convertible notes in the principal amount of HK$591,250,000. Upon completion of the Capital Reorganisation, the conversion price and/or the number of Adjusted Shares falling to be issued upon exercise of the conversion rights attached to the convertible notes will be adjusted in accordance with the instrument creating the convertible notes.

Share options

As at the Latest Practicable Date, there are approximately 492,320,000 outstanding share options granted by the Company entitling the holders thereof to subscribe for 492,320,000 Shares. Upon completion of the Capital Reorganisation, corresponding adjustments will be made on the basis that the proportion of the issued share capital of the Company to which the holders of the share options are entitled shall remain the same before and after such adjustments in accordance with the terms of share option scheme and the relevant supplementary guidelines issued by the Stock Exchange.

Announcement(s) in relation to the adjustments of the convertible bonds, the convertible notes and the share options will be published in due course.

Save for the convertible bonds, the convertible notes and the share options as stated above, the Company has no other outstanding convertible securities, options or warrants in issue which confer any right to subscribe for, convert or exchange into Shares as at the Latest Practicable Date.

– 9 –

LETTER FROM THE BOARD

Share capital

Set out below are the effects of the Capital Reorganisation on the share capital of the Company as at the Latest Practicable Date and immediately after the completion of the Capital Reorganisation:

		Immediately
		after completion
	As at the Latest	of the Capital
	Practicable Date	Reorganisation
		(Note)
Nominal value of each Share/Adjusted Share	HK$0.01	HK$0.10
Number of authorised Shares/Adjusted Shares	300,000,000,000	15,000,000,000
Authourised share capital	HK$3,000,000,000	HK$1,500,000,000
Number of Shares/Adjusted Shares in issue	23,809,743,370	1,190,487,168
Issued and fully paid up share capital	HK$238,097,434	HK$119,048,717

Note: the issued share capital immediately after completion of the Capital Reorganisation is presented on the assumption that no further Shares would be issued or repurchased between the Latest Practicable Date and the date of the EGM.

Reason for the Capital Reorganisation

The Capital Reorganisation will increase the nominal value of each Share from HK$0.01 to HK$0.10. It is expected that the Capital Reorganisation would bring about an upward adjustment in the trading price of the Adjusted Shares on the Stock Exchange and the Directors believe that it may attract more institutional investors who generally have preference to invest in company with share price traded above HK$1.00 and thus extend the shareholders base of the Company. The Directors believe that the Capital Reorganisation is in the interests of the Company and the Shareholders as a whole.

Change in board lot size

Upon the Capital Reorganisation becoming effective, the board lot size of the Company for trading on the Stock Exchange is proposed to change from 20,000 Shares to 1,000 Adjusted Shares.

(B) REDUCTION OF SHARE PREMIUM ACCOUNT

Independent of the Capital Reorganisation, the Directors also propose to put forward to the Shareholders a proposal to effect the Reduction of Share Premium Account. As at 31 December 2010, the amount standing to the credit of the share premium account and the Accumulated Losses of the Company were approximately HK$3,065,615,000 and approximately HK$2,953,243,000 respectively, as shown in the audited financial statements of the Company for the year ended 31 December 2010. It is proposed that the amount standing to the credit of the share premium account be reduced by the sum of HK$2,953,243,000, subject to such conditions as the Court may impose.

– 10 –

LETTER FROM THE BOARD

Given that the amount standing to credit of the share premium account is higher than the Accumulated Losses of the Company as at 31 December 2010, it is the Board’s intention that the Accumulated Losses are to be solely eliminated by the credit arising from the Reduction of Share Premium Account without taking into effect of the Capital Reorganisation. The credit arising from the Capital Reduction to be credited in the share premium account will not be applied for the purpose of the Reduction of Share Premium Account.

Conditions of the Reduction of Share Premium Account

The Reduction of Share Premium Account will be conditional upon, inter alia, the following:

• (i) the passing of a special resolution by the Shareholders approving the Reduction of Share Premium Account at the EGM;

• (ii) the Court making an order confirming the Reduction of Share Premium Account;

• (iii) the registration by the Registrar of Companies in Hong Kong of a copy of the order of the Court confirming the Reduction of Share Premium Account and a copy of the minute containing the particulars required under section 61 of the Companies Ordinance duly approved by the Court; and

• (iv) the compliance with any conditions as may be imposed by the Court in relation to the Reduction of Share Premium Account.

Assuming that all the conditions are fulfilled, the Reduction of Share Premium Account will become effective upon the registration of the Court order and the minute required under section 61 of the Companies Ordinance.

The Reduction of Share Premium Account is neither dependent on nor subject to the proposed Capital Reorganisation.

As the effective date of the Reduction of Share Premium Account will depend on the timetable of the Court, it cannot be ascertained accurately at present and the dates indicated in the section headed ‘‘Expected Timetable’’ are for reference only and are subject to change. As at the Latest Practicable Date, it is anticipated that the Reduction of Share Premium Account would become effective on 17 August 2011. An application will be made to the Court for the approval of the Reduction of Share Premium Account as soon as practicable. Further announcement(s) (if any) will be made to inform the Shareholders of the progress of the matter as and when appropriate.

Effects of the Reduction of Share Premium Account

The implementation of the Reduction of Share Premium Account will not affect the underlying assets, business operations, management or financial position of the Company or the proportionate interests of the Shareholders. The Directors believe that the Reduction of Share Premium Account will not have any effect on the financial position of the Group except for payment of the related expenses.

– 11 –

LETTER FROM THE BOARD

Reason for the Reduction of Share Premium Account

As at 31 December 2010, the Accumulated Losses of the Company were approximately HK$2,953,243,000 (mainly arising from significant fair value losses of convertible notes which have no impact on the cash flow and business operation of the Group), as shown in the audited financial statements of the Company for the year ended 31 December 2010. Under the Companies Ordinance, the Company is not permitted to pay any dividends while there remain any accumulated losses. The Reduction of Share Premium Account will enable the Company to eliminate the Accumulated Losses and cancel part of the share premium account of the Company (which is paidup share capital) which is lost or unrepresented by available assets, as a result of which, the Company will have the flexibility to make decision on its dividend policy, subject to the Company’s performance and when the Directors consider it appropriate in the future. The elimination of the Accumulated Losses also enables the financial statements of the Company better reflect the financial position and business operation of the Group in future. The Directors believe that the Reduction of Share Premium Account is in the interests of the Company and the Shareholders as a whole.

LISTING AND DEALINGS

Application will be made to the Listing Committee of the Stock Exchange for the granting of the listing of, and permission to deal in, the Adjusted Shares arising from the Capital Reorganisation.

The Adjusted Shares will be identical in all respects and rank pari passu in all respects with each other as to all future dividends and distributions which are declared, made or paid. Subject to the granting of the listing of, and permission to deal in, the Adjusted Shares on the Stock Exchange, the Adjusted Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Adjusted Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

ODD LOT ARRANGEMENTS

In order to facilitate the trading of odd lots (if any) of the Adjusted Shares arising from the Capital Reorganisation, the Company has appointed Guodu Securities (Hong Kong) Limited as an agent to match the purchase and sale of odd lots of the Adjusted Shares at the relevant market price per Adjusted Share for the period from 12 July 2011 to 1 August 2011 (both dates inclusive). Holders of odd lots of the Adjusted Shares should note that successful matching of the sale and purchase of odd lots of the Adjusted Shares is not guaranteed. Holders of the Adjusted Shares who wish to take advantage of this facility either to dispose of their odd lots or to top them up to a full board lot may contact Mr. Tommy Pang/Mr. Mendel Hau during the aforesaid period as follows:

Contact person	Address	Telephone number
Mr. Tommy Pang/	Room 1307, Bank of America Tower,	(852) 3418 0112/
Mr. Mendel Hau	12 Harcourt Road, Central,	3418 0139/3418 0188
	Hong Kong

– 12 –

LETTER FROM THE BOARD

Any Shareholder, who is in any doubt about the odd lot arrangement, is recommended to consult his/her/its own professional advisers.

EXCHANGE OF SHARE CERTIFICATES

Subject to the Capital Reorganisation becoming effective, Shareholders may, on or after 27 June 2011 until 4 August 2011 (both dates inclusive) submit share certificates for existing Shares which are gold in colour, to the Registrar, to exchange, at the expense of the Company, for certificates of the Adjusted Shares which are gold in colour. Thereafter, certificates of existing Shares will remain effective as documents of title but will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time be specified by the Stock Exchange) per existing share certificate cancelled or new share certificate issued (whichever is the higher) by Shareholders.

(C) GENERAL MANDATES TO ISSUE NEW SHARES AND TO REPURCHASE SHARES AND RE-ELECTION OF DIRECTORS

General mandates to issue new shares and to repurchase shares

At the annual general meeting of the Company for 2010, general mandates were granted to the Directors authorising them, inter alia, (a) to exercise the powers of the Company to allot, issue and deal with new Shares not exceeding 20% of the issued share capital of the Company as at 21 June 2010; (b) to repurchase Shares not exceeding 10% of the issued share capital of the Company as at 21 June 2010 and (c) to extend the general mandate to issue Shares by the number of Shares purchased under the repurchase mandate mentioned in (b) above. Such general mandates would expire at the earlier of (i) the conclusion of the AGM or (ii) the date on which the ordinary resolutions approving such mandates are revoked or varied by the Shareholders in a general meeting of the Company.

At the extraordinary general meeting of the Company held on 31 December 2010, the general mandates to allot, issue and deal with new Shares granted at the annual general meeting of the Company for 2010 was revoked and a general mandate was granted to the Directors authorising them to allot, issue and deal with new Shares not exceeding 20% of the issued share capital of the Company as at the date of such meeting. As at the date of the aforesaid extraordinary general meeting, 22,629,743,370 Shares were in issue and accordingly, a maximum of 4,525,948,674 Shares can be issued under the refreshed mandate.

During the period from the grant of the refreshed mandate to the Latest Practicable Date, the refreshed mandate have not been utilized by the Company. Such refreshed mandate will lapse at the conclusion of the AGM.

Accordingly, ordinary resolutions will be proposed at the AGM to grant to the Directors general mandates authorising them, inter alia, (a) to exercise the power of the Company to allot, issue and deal with new Shares not exceeding 20% of the issued share capital of the Company as at the date of the passing of such resolution; (b) to repurchase Shares not exceeding 10% of the issued share capital of the Company as at the date of the passing of such resolution and (c) subject to the passing of the proposed ordinary resolutions to approve the General Mandate and the Repurchase Mandate at the AGM, to extend the General Mandate by the number of Shares repurchased under the Repurchase Mandate.

– 13 –

LETTER FROM THE BOARD

The General Mandate and the Repurchase Mandate shall be effective until whichever is the earliest of:

• i. the conclusion of the next annual general meeting of the Company; or

• ii. the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association, the Companies Ordinance or any applicable laws to be held; or

• iii. the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying the authority given to the Directors.

As at the Latest Practicable Date, there were 23,809,743,370 Shares in issue. Subject to the passing of the ordinary resolutions to approve the General Mandate and the Repurchase Mandate at the AGM and on the basis that no further Shares are issued or repurchased between the Latest Practicable Date and the date of the AGM, the Company would be allowed to issue up to a maximum of 4,761,948,674 Shares under the General Mandate and to repurchase up to a maximum of 2,380,974,337 Shares under the Repurchase Mandate.

The Directors have no immediate plans to exercise the General Mandate to issue any new Shares other than Shares which may fall to be issued under: (i) the convertible notes and convertible bonds issued by the Company; (ii) the share option scheme of the Company; (iii) the subscription agreements entered into with each of Chinarise Financial Limited and Success Business Holdings Limited (as announced by the Company dated 30 December 2010, 31 March 2011 and 29 April 2011); (iv) the sale and purchase agreement entered into by the Group for the acquisition of 60% of the issued share capital of Triumph Fund A1 Limited (as announced by the Company dated 4 November 2010, 31 December 2010, 31 March 2011 and 29 April 2011); and (v) any scrip dividend scheme as may be approved by the Shareholders, or to exercise the Repurchase Mandate to repurchase Shares.

An explanatory Statement providing all the information required under the Listing Rules regarding the Repurchase Mandate is set out in Appendix I to this circular.

Re-election of Directors

As announced by the Company dated 14 July 2010, Mr. Su Bin was appointed as a nonexecutive Director with effect from 14 July 2010. According to Article 94, any Director appointed to the Board shall hold office until the next following annual general meeting of the Company and shall then be eligible for re-election.

According to Article 103, at each annual general meeting one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest to onethird, shall retire from office by rotation provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three year. The Directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became directors on the same day those to retire shall (unless they otherwise agree between themselves) be determined by lot. A retiring Director shall be eligible for re-election.

– 14 –

LETTER FROM THE BOARD

In accordance with Article 94 and Article 103, Mr. Wang Da Yong, Mr. Su Bin and Mr. Jacobsen William Keith shall retire from their offices as Directors. Being eligible, Mr. Wang Da Yong would offer himself for re-election as executive Director, Mr. Su Bin would offer himself for re-election as non-executive Director and Mr. Jacobsen William Keith would offer himself for reelection as independent non-executive Director. At the AGM, ordinary resolutions will be proposed to re-elect Mr. Wang Da Yong as executive Director, Mr. Su Bin as non-executive Director and Mr. Jacobsen William Keith as independent non-executive Director.

Particulars relating to Mr. Wang Da Yong, Mr. Su Bin and Mr. Jacobsen William Keith are set out in Appendix II to this circular.

EXTRAORDINARY GENERAL MEETING

Set out on pages 23 to 25 of this circular is a notice convening the EGM at which special resolutions will be proposed to approve the Capital Reorganisation and the Reduction of Share Premium Account. There is a form of proxy for use at the EGM accompanying this circular. Whether or not you are able to attend and vote at the EGM in person, you are requested to complete and return the enclosed form of proxy for use at the EGM in accordance with the instructions printed thereon to the Registrar, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible, but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

No Shareholder is required to abstain from voting at the EGM.

ANNUAL GENERAL MEETING

Set out on pages 26 to 29 of this circular is a notice convening the AGM at which resolutions will be proposed to approve the General Mandate, the Repurchase Mandate, the extension of the General Mandate and the re-election of Directors. There is a form of proxy for use at the AGM accompanying this circular. Whether or not you are able to attend and vote at the AGM in person, you are requested to complete and return the enclosed form of proxy for use at the AGM in accordance with the instructions printed thereon to the Registrar, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible, but in any event not less than 48 hours before the time appointed for the holding of the AGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the AGM or any adjournment thereof should you so wish.

All the resolutions proposed to be approved at the EGM and the AGM will be taken by poll and announcement will be made by the Company on the results of the EGM and the AGM respectively in compliance with the Listing Rules.

– 15 –

LETTER FROM THE BOARD

RECOMMENDATIONS

Capital Reorganisation, change in board lot size and Reduction of Share Premium Account

The Directors consider that the Capital Reorganisation, the change in board lot size and the Reduction of Share Premium Account are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of all the resolutions to be proposed at the EGM.

General Mandates, Repurchase Mandate and re-election of Directors

The Directors consider that the proposed grant of the General Mandate, the Repurchase Mandate, the extension of the General Mandate, and the proposed re-election of Directors are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of all the resolutions to be proposed at the AGM.

GENERAL

Your attention is drawn to the information set out in the appendices to this Circular.

By order of the Board King Stone Energy Group Limited Wang Da Yong Chairman

Hong Kong, 25 May 2011

– 16 –

EXPLANATORY STATEMENT

APPENDIX I

This Appendix serves as an explanatory statement, as required by the Listing Rules, to provide requisite information to you for your consideration of the Repurchase Mandate.

1. REPURCHASE OF SECURITIES FROM CONNECTED PARTIES

The Listing Rules prohibit a company from knowingly purchasing securities on the Stock Exchange from a ‘‘connected person’’, that is, a director, chief executive or substantial shareholder of the Company or any of its subsidiaries or their respective associates and a connected person is prohibited from knowingly selling his/her/its securities to the Company.

No connected person of the Company has notified the Company that he/she/it has a present intention to sell any Shares to the Company nor has any such connected person undertaken not to sell any of the Shares held by him/her/it to the Company in the event that the Repurchase Mandate is passed.

2. SHARE CAPITAL

As at the Latest Practicable Date, the issued share capital of the Company comprised 23,809,743,370 fully paid Shares.

Subject to the passing of the proposed resolution for the approval of the Repurchase Mandate and on the basis that no further Shares are to be issued or repurchased by the Company prior to the AGM, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 2,380,974,337 fully paid Shares.

No part of the share capital or any other securities of the Company is listed on or dealt in any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares, Adjusted Shares, Consolidated Shares or any other securities of the Company to be listed on or dealt in any other stock exchange.

3. REASONS FOR THE REPURCHASE

The Directors believe that the Repurchase Mandate is in the best interests of the Company and the Shareholders as a whole. An exercise of the Repurchase Mandate may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net assets per Share and/or earnings per Share and will only be made when the Directors believe that a repurchase will benefit the Company and the Shareholders as a whole.

4. FUNDING OF REPURCHASES

Pursuant to the Repurchase Mandate, repurchases would be funded entirely from the Company’s available cash flow or working capital facilities which will be funds legally available under the Companies Ordinance and the memorandum and articles of association of the Company for such purpose.

– 17 –

EXPLANATORY STATEMENT

APPENDIX I

An exercise of the Repurchase Mandate in full could have a material adverse impact on the working capital and gearing position of the Company compared with that as at 31 December 2010, being the date of its latest published audited consolidated accounts. The Directors do not, however, intend to make any repurchase in circumstances that would have a material adverse impact on the working capital or gearing position of the Company.

5. SHARE PRICES

The highest and lowest prices at which the Shares have traded on the Stock Exchange in each of the previous twelve calendar months were as follows:

	Highest	Lowest
	HK$	HK$
2010
April	0.325	0.228
May	0.290	0.183
June	0.223	0.170
July	0.196	0.165
August	0.192	0.150
September	0.192	0.155
October	0.235	0.177
November	0.280	0.175
December	0.226	0.188
2011
January	0.210	0.179
February	0.190	0.158
March	0.193	0.158
April	0.203	0.174
May (up to the Latest Practicable Date)	0.187	0.135

6. DISCLOSURE OF INTERESTS AND MINIMUM PUBLIC HOLDING

None of the Directors or, to the best of their knowledge having made all reasonable enquiries, their associates, have any present intention to sell to the Company or its subsidiaries any of the Shares in the Company if the Repurchase Mandate is approved at the AGM and exercised.

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the powers of the Company to make repurchases pursuant to the Repurchase Mandate in accordance with the Listing Rules and the Companies Ordinance.

If a Shareholder’s proportionate interest in the voting rights of the Company increases on the Company exercising its powers to repurchase Shares pursuant to the Repurchase Mandate, such increase will be treated as an acquisition for the purposes of Rule 32 of the Takeovers Code. As a result, a Shareholder or group of shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory general offer in accordance with Rules 26 and 32 of the Takeovers Code.

– 18 –

EXPLANATORY STATEMENT

APPENDIX I

To the best information, belief and knowledge of the Directors, as at the Latest Practicable Date, Mr. Wang Da Yong, through China Coal and Coke Investment Holding Company Limited, Sino Bridge Investments Limited and Join Ascent Limited, is able to exercise or control the exercise of approximately 18.1% of the voting rights in the general meeting of the Company. Other than Mr. Wang Da Yong, no other Shareholder held more than 10% of the Shares in issue as at the Latest Practicable Date. An exercise of the Repurchase Mandate in full would not result in Mr. Wang Da Yong or any parties acting in concert with him becoming obliged to make a mandatory general offer under Rule 26 of the Takeovers Code. The Directors have no intention to exercise any of the Repurchase Mandate to such an extent that will result in any Shareholder to make a mandatory general offer under the Takeovers Code.

Save as disclosed above, the Directors are not aware of any consequences which may arise under the Takeovers Code as a consequence of any purchase made under the Repurchase Mandate.

The Company will not repurchase Shares which would result in the amount of Shares held by the public being reduced to less than 25%.

7. SHARES REPURCHASES MADE BY THE COMPANY

Neither the Company nor any of its subsidiaries has repurchased any of the Company’s listed securities during the six months immediately prior to the Latest Practicable Date.

– 19 –

DETAILS OF DIRECTORS PROPOSED TO BE RE-ELECTED AT THE AGM

APPENDIX II

The details of the Directors who will retire from office by rotation at the AGM and being eligible, would offer themselves for re-election at the AGM, are set out below:

Mr. WANG Da Yong — Executive Director

Mr. WANG Da Yong, aged 45, was appointed as an executive Director and chief executive officer on 1 July 2009 and the chairman of the Company on 26 February 2010 and is responsible for the business development of the Group. He holds a PhD in Economics at Business School of Ji-Lin University. He has over 20 years experience of investment, finance and management and is familiar with corporate merger and acquisition and direct investment. He has obtained detail knowledge of coal, coal chemical, metal mineral resources industries and maintains strong networks in business field and with central and local government agencies in China. He worked in the Ministry of Agriculture, PRC previously. He was an executive director and CEO of China Best Group Holding Limited (Stock Code: 00370), a listed company in the Stock Exchange, from 16 September 2004 to 5 June 2007. He was also the CEO of Fortune Dragon Group Limited, a company with major coking coal mine operation in Shanxi, China, which was acquired by Fushan International Energy Group Limited (Stock Code: 00639) at the consideration of about HK$10 billion in July 2008.

As at the Latest Practicable Date, Mr. Wang Da Yong, through China Coal and Coke Investment Holding Company Limited, Sino Bridge Investments Limited and Join Ascent Limited, is interested in 4,300,000,000 Shares, representing approximately 18.1% of the existing issued share capital of the Company. China Coal and Coke Investment Holding Company Limited is a wholly-owned subsidiary of Sino Bridge Investments Limited which in turn is beneficially owned by Mr. Wang Da Yong. Mr. Wang Da Yong and Mr. Tian Wenwei, another Executive Director, held 80% and 20% interest in Join Ascent Limited respectively. He also holds share options which entitled him to subscribe for 100,000,000 Shares.

Saved as aforesaid, as at the Latest Practicable Date Mr. Wang Da Yong does not hold positions with the Company and other members of the Group and does not have any relationship with any directors, senior management or substantial or controlling Shareholders of the Company or its subsidiaries or any of their respective associates. Save as aforesaid, he does not have, and is not deemed to have any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations which is required to be disclosed under Part XV of the SFO and did not hold any directorship in other public companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years.

Mr. Wang Da Yong has entered into a service contract with the Company for a fixed term of two years from 14 July 2010. Pursuant to the terms of the service contract, his basic Director’s remuneration of HK$2,600,000 per annum is determined with reference to his role, level of experience and contribution to the Group.

Mr. Wang Da Yong confirmed that there is no other information that needs to be disclosed pursuant to any of the requirements as set out in Rules 13.51(2)(h) to (v) of the Listing Rules. The Company is not aware of any other matters that need to be brought to the attention of the Shareholders and the Stock Exchange in relation to the re-election of Mr. Wang Da Yong.

– 20 –

DETAILS OF DIRECTORS PROPOSED TO BE RE-ELECTED AT THE AGM

APPENDIX II

Mr. SU Bin — Non-executive Director

Mr. SU Bin, aged 59, was appointed as a non-executive Director on 14 July 2010. He has served in the army over a long period of time. Since his retirement from military service in 1998, he has been mainly engaged in equity investments and corporate mergers and acquisitions. He was the co-Chairman of the China Coal and Coke Investment Fund LLP from 2005 to 2009. He has been the honorary Chairman of the Hong Kong Energy and Minerals United Associations since 2007. Mr. Su Bin is vastly experienced in corporate management, financing and mergers and acquisitions. He has strong and extensive connections in the political and financial sectors of the PRC.

There is no service agreement nor any fixed terms of service entered into between Mr. Su Bin and the Company. He will receive a director fee of HK$180,000 per annum. The remuneration of Mr. Su Bin is determined by the Board with reference to prevailing market conditions and his position and duties. He holds share options which entitled him to subscribe for 20,000,000 Shares.

Saved as aforesaid, as at the Latest Practicable Date, Mr. Su Bin does not hold any positions with the Company and other members of the Group and does not have any relationship with any directors, senior management or substantial or controlling Shareholders of the Company or its subsidiaries or any of their respective associates. Saved as aforesaid, he does not have, and is not deemed to have any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations which is required to be disclosed under Part XV of the SFO and did not hold any directorship in other public companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years.

Mr. Su Bin confirmed that there is no other information that needs to be disclosed pursuant to any of the requirements as set out in Rules 13.51(2)(h) to (v) of the Listing Rules. The Company is not aware of any other matters that need to be brought to the attention of the Shareholders and the Stock Exchange in relation to the re-election of Mr. Su Bin.

Mr. JACOBSEN William Keith — Independent non-executive Director

Mr. JACOBSEN William Keith, aged 44, was appointed as an independent non-executive Director on 26 September 2008. He has more than 15 years experience in corporate finance and business development. He holds a Bachelor’s Degree of Laws from the University of Hong Kong and a Master Degree of Business Administration from the University of British Columbia. He is an independent nonexecutive director of Hycomm Wireless Limited, a company listed on the main board of the Stock Exchange, and abc Multiactive Limited, a company listed on the Growth Enterprise Board of the Stock Exchange.

There is no service agreement nor any fixed terms of service entered into between Mr. Jacobsen William Keith and the Company. He will receive a director fee of HK$180,000 per annum. The remuneration of Mr. Jacobsen William Keith is determined by the Board with reference to the prevailing market conditions and his position and duties. He holds share options which entitled him to subscribe for 10,000,000 Shares.

– 21 –

DETAILS OF DIRECTORS PROPOSED TO BE RE-ELECTED AT THE AGM

APPENDIX II

Saved as aforesaid, as at the Latest Practicable Date, Mr. Jacobsen William Keith, does not hold any positions with the Company and other members of the Group and does not have any relationship with any directors, senior management or substantial or controlling Shareholders of the Company or its subsidiaries or any of their respective associates. Save as aforesaid, he does not have, and is not deemed to have any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations which is required to be disclosed under Part XV of the SFO and did not hold any directorship in other public companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years.

Mr. Jacobsen William Keith confirmed that there is no other information that needs to be disclosed pursuant to any of the requirements as set out in Rules 13.51(2)(h) to (v) of the Listing Rules. The Company is not aware of any other matters that need to be brought to the attention of the Shareholders and the Stock Exchange in relation to the re-election of Mr. Jacobsen William Keith.

– 22 –

NOTICE OF EGM

KING STONE ENERGY GROUP LIMITED 金 山 能 源 集 團 有 限 公 司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 00663)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of King Stone Energy Group Limited (the ‘‘Company’’) will be held at Suite 3603, 36th Floor, One Exchange Square, Central, Hong Kong at 11:30 a.m. on Friday, 24 June 2011 for the purpose of considering and, if thought fit, passing, with or without modification, the following resolutions as special resolutions of the Company:

SPECIAL RESOLUTIONS

1. ‘‘THAT conditional upon (i) the Listing Committee of The Stock Exchange of Hong Kong Limited granting or agreeing to grant the listing of, and permission to deal in, the Adjusted Shares (as defined below); (ii) the registration by the Registrar of Companies in Hong Kong of a copy of resolution passed by the holders of the shares of the Company, a copy of a minute containing the particulars required under section 61A of the Companies Ordinance (Laws of Hong Kong, Cap 32) (the ‘‘Companies Ordinance’’) and a statement in the prescribed form signed by an officer of the Company certifying that the relevant conditions under the Companies Ordinance have been satisfied:

2. i. every 20 existing shares of HK$0.01 each will be consolidated into 1 share (the ‘‘Consolidated Share’’) of HK$0.20 (the ‘‘Share Consolidation’’);

3. ii. subject to the Share Consolidation becoming effective, the authorised share capital of the Company will be reduced from HK$3,000,000,000 divided into 15,000,000,000 Consolidated Shares of HK$0.20 each to HK$1,500,000,000 divided into 15,000,000,000 adjusted shares of HK$0.10 each (each an ‘‘Adjusted Share’’) and that such reduction be effected by cancelling share capital paid up or credited as paid up to the extent of HK$0.10 per share upon each of the Shares in issue and by reducing the nominal value of all the issued and unissued Consolidated Shares in the share capital of the Company from HK$0.20 per Consolidated Share to HK$0.10 per Adjusted Share (the ‘‘Capital Reduction’’);

4. iii. subject to the Capital Reduction taking effect, the credit arising from the Capital Reduction be credited to the share premium account of the Company;

5. iv. all of the Adjusted Shares resulting from the Capital Reduction and the Share Consolidation shall rank pari passu in all respects and have the rights and privileges and be subject to the restrictions contained in the Company’s articles of association; and

– 23 –

NOTICE OF EGM

• v. the directors (the ‘‘Directors’’) of the Company be and are hereby authorised generally to do all things they may consider appropriate and desirable to effect and implement the Capital Reduction, the Share Consolidation and the application of credit arising from the Capital Reduction.’’

• ‘‘THAT pursuant to the circular of the Company dated 25 May 2011 (the ‘‘Circular’’), a copy of which has been tabled at the meeting and initialled by the chairman for identifiable purposes, conditional upon: (i) the Court of First Instance of the High Court of the Hong Kong (the ‘‘Court’’) making an order confirming the Reduction of Share Premium Account (as defined in the Circular) pursuant to sections 58 to 60 of the Companies Ordinance; (ii) the registration by the Registrar of Companies in Hong Kong a copy of the said Court order confirming the Reduction of Share Premium Account and a copy of the minute containing the particulars required under section 61 of the Companies Ordinance; and (iii) the compliance with any conditions as may be imposed by the Court in relation to the Reduction of Share Premium Account:

• i. the amount standing to the credit of the share premium account of the Company be reduced by the sum of HK$2,953,243,000 and the Directors of the Company as at the effective date (as defined in the Circular) be and are hereby authorised to apply the same amount of credit arising from such reduction towards the elimination of the accumulated losses of the Company as at 31 December 2010 (the ‘‘Reduction of Share Premium Account’’); and

• ii. the Directors be and are hereby authorised generally to do all acts and things, and to approve, sign and execute any documents, which in their opinion may be necessary, desirable or expedient to implement or to give effect to the foregoing including, without limitation, to seek confirmation from the Court, and authorise counsel on behalf of the Company to provide any undertaking as necessary to, the Court, in relation to the Reduction of Share Premium Account.’’

By order of the Board King Stone Energy Group Limited Wang Da Yong Chairman

Hong Kong, 25 May 2011

Registered office and principal place of

business in Hong Kong:

Suite 3603, 36th Floor One Exchange Square Central Hong Kong

– 24 –

NOTICE OF EGM

Notes:

1. A form of proxy to be used for the meeting is enclosed.

2. Any member of the Company entitled to attend and vote at the meeting is entitled to appoint another person as his proxy to attend and vote instead of him. On a poll votes may be given either personally or by proxy. A proxy need not be a member of the Company. A member may appoint more than one proxy to attend on the same occasion.

3. To be valid, the instrument appointing a proxy must be in writing under the hand of the appointer or of his attorney duly authorised in writing, or if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorised.

4. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of that power or authority must be deposited at office of the Company’s share registrar, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or any adjourned meeting, and in default the instrument of proxy shall not be treated as valid.

5. Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.

– 25 –

NOTICE OF AGM

KING STONE ENERGY GROUP LIMITED

金 山 能 源 集 團 有 限 公 司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 00663)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the annual general meeting of King Stone Energy Group Limited (the ‘‘Company’’) will be held at Suite 3603, 36th Floor, One Exchange Square, Central, Hong Kong at 12:00 noon on Friday 24 June 2011 (or immediately following the extraordinary general meeting of the Company held earlier on the same date or any adjournment thereof) to transact the following ordinary business:

1. to receive and consider the audited consolidated financial statements and reports of the directors (the ‘‘Directors’’) and auditors of the Company for the year ended 31 December 2010;

2. (a) to re-elect Mr. Wang Da Yong as executive Director;

3. (b) to re-elect Mr. Su Bin as non-executive Director;

4. (c) to re-elect Mr. Jacobsen William Keith as independent non-executive Director; and

5. (d) to authorise the board of Directors to fix the Directors’ remuneration;

6. To re-appoint Messrs. Ernst & Young as the auditors of the Company and to authorise the board of Directors to fix their remuneration;

7. To, as special business, consider and, if thought fit, pass the following resolution as an ordinary resolution:

‘‘THAT:

• (a) subject to paragraph (c) below, pursuant to the Rules (the ‘‘Listing Rules’’) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’), the exercise by the Directors during the Relevant Period (as defined below) of all the powers of the Company to allot, issue and deal with unissued shares of the Company (the ‘‘Shares’’) and to make or grant offers, agreements and options, including warrants to subscribe for Shares, which might require the exercise of such powers be and the same is hereby generally and unconditionally approved;

– 26 –

NOTICE OF AGM

• (b) the approval in paragraph (a) above shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to options or otherwise) by the Directors pursuant to the approval in paragraph (a) above, otherwise than pursuant to (i) a Rights Issue (as defined below); or (ii) the exercise of any options granted under the existing share option scheme of the Company; or (iii) any scrip dividend or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the articles of association of the Company in force from time to time; or (iv) any issue of Shares upon the exercise of rights of subscription or conversion under the terms of any warrants of the Company or any securities which are convertible into Shares, shall not exceed the aggregate of:

• (aa) 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of the passing of this resolution; and

• (bb) (if the Directors are so authorised by a separate ordinary resolution of the shareholders of the Company) the nominal amount of any share capital of the Company repurchased by the Company subsequent to the passing of this resolution (up to a maximum equivalent to 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of the passing of resolution no. 5),

and the authority pursuant to paragraph (a) of this resolution shall be limited accordingly; and

• (d) for the purposes of this resolution:

‘‘Relevant Period’’ means the period from the date of the passing of this resolution until whichever is the earliest of:

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association of the Company, the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (the ‘‘Companies Ordinance’’) or any applicable laws to be held; and

• (iii) the passing of an ordinary resolution by the shareholders of the Company in general meeting revoking or varying the authority given to the Directors by this resolution;

‘‘Rights Issue’’ means an offer of Shares, or offer or issue of warrants, options or other securities giving rights to subscribe for Shares open for a period fixed by the Directors to holders of Shares on the register on a fixed record date in proportion to their then holdings of Shares (subject to such exclusion or other arrangements as the Directors

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NOTICE OF AGM

may deem necessary or expedient in relation to fractional entitlements, or having regard to any restrictions or obligations under the laws of, or the requirements of, or the expense or delay which may be involved in determining the existence or extent of any restrictions or obligations under the laws of, or the requirements of, any jurisdiction outside Hong Kong or any recognised regulatory body or any stock exchange outside Hong Kong).’’;

1. To, as special business, consider and, if thought fit, pass the following resolution as an ordinary resolution:

‘‘THAT:

• (a) the exercise by the Directors during the Relevant Period (as defined below) of all powers of the Company to purchase the Shares on the Stock Exchange or any other stock exchange on which the Shares may be listed and recognised by the Securities and Futures Commission and the Stock Exchange for such purpose, and otherwise in accordance with the rules and regulations of the Securities and Futures Commission, the Stock Exchange, the Companies Ordinance and all other applicable laws in this regard, be and the same is hereby generally and unconditionally approved;

• (b) the aggregate nominal amount of Shares which may be purchased by the Company pursuant to the approval in paragraph (a) during the Relevant Period shall not exceed 10 per cent. of the aggregate nominal amount of the issued share capital of the Company as at the date of the passing of this resolution and the authority pursuant to paragraph (a) of this resolution shall be limited accordingly; and

• (c) for the purposes of this resolution, ‘‘Relevant Period’’ means the period from the date of the passing of this resolution until whichever is the earliest of:

  • (i) the conclusion of the next annual general meeting of the Company;

  • (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association of the Company, the Companies Ordinance or any applicable laws to be held; or

  • (iii) the passing of an ordinary resolution by the shareholders of the Company in general meeting revoking or varying the authority given to the Directors by this resolution.

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

‘‘THAT subject to the ordinary resolutions nos. 4 and 5 above being duly passed, the unconditional general mandate granted to the directors of the Company to exercise the powers of the Company to allot, issue and deal with unissued Shares pursuant to resolution no. 4 above be and is hereby extended by the addition thereon of an amount representing the aggregate nominal amount of the share capital of the Company repurchased by the Company

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NOTICE OF AGM

subsequent to the passing of this resolution, provided that such amount shall not exceed 10 per cent. of the aggregate nominal amount of the issued Shares on the date of the passing of resolution no. 5.’’

By order of the Board King Stone Energy Group Limited Wang Da Yong Chairman

Hong Kong, 25 May 2011

Registered office and principal place of

business in Hong Kong:

Suite 3603, 36th Floor One Exchange Square Central

Hong Kong

Notes:

• 1 A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company.

• 2 In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s share registrar, Tricor Secretaries Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.

• In relation to proposed resolutions nos.4 and 6 above, approval is being sought from the shareholders for the grant to the Directors of a general mandate to authorise the allotment and issue of shares under the Listing Rules. The Directors have no immediate plans to issue any Shares other than the Shares which may fall to be issued: (i) the convertible notes and convertible bonds issued by the Company; (ii) the share option scheme of the Company; (iii) the subscription agreements entered into with each of Chinarise Financial Limited and Success Business Holdings Limited (as announced by the Company dated 30 December 2010, 31 March 2011 and 29 April 2011); (iv) the sale and purchase agreement entered into by the Group for the acquisition of 60% of the issued share capital of Triumph Fund A1 Limited (as announced by the Company dated 4 November 2010, 31 December 2010, 31 March 2011 and 29 April 2011); and (v) any scrip dividend scheme as may be approved by the shareholders of the Company.

• In relation to the proposed resolution no.5 above, the Directors wish to state that they will exercise the powers conferred thereby to repurchase shares in circumstances which they deem appropriate for the benefit of the shareholders of the Company. An explanatory statement containing the information necessary to enable the shareholders to make an informed decision to vote on the proposed resolution as required by the Listing Rules is set out in Appendix I to this circular.

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