Design Capital Limited - Proxy Solicitation & Information Statement 2014

THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular 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, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

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.

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)

CONNECTED TRANSACTION: SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

Independent financial adviser to the Independent Board Committee and Independent Shareholders

A letter of advice from the Independent Board Committee is set out on page 15 of this circular. A letter of advice from Nuada Limited, the independent financial adviser, containing its opinion and advice to the Independent Board Committee and the Independent Shareholders is set out on pages 16 to 33 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at Unit 7603, 76th Floor, The Center, 99 Queen’s Road Central, Hong Kong on Monday, 1 December 2014 at 11:30 a.m. is set out on pages 37 to 38 of this circular. A form of proxy for use at the extraordinary general meeting is also enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrar and transfer office, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 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 meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy shall not preclude you from attending and voting at the meeting or any adjourned meeting (as the case may be) should you so wish.

14 November 2014

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Effects on shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Reasons for the Subscription and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Fund raising activities of the Company during the past 12 months . . . . . . . . . . . . . . . . . . .	12
Listing Rules implication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from Nuada Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37

– i –

DEFINITIONS

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

‘‘Announcement’’

the announcement of the Company dated 24 October 2014 in relation to the Subscription

‘‘associates’’ has the meaning ascribed to this term under the Listing Rules
‘‘Board’’ the board of Directors
‘‘Bonus Warrants’’

the warrants to be issued (by way of bonus) in registered form with subscription rights entitling the holder thereof to subscribe for the Bonus Warrants Shares at the Bonus Warrants Subscription Price during the Exercise Period, subject to adjustment and the terms and conditions set out in the Warrant Instrument

‘‘Bonus Warrants Share(s)’’
the Shares(s) to be allotted and issued pursuant to the exercise of the subscription rights attaching to the Bonus Warrant(s) at the Bonus Warrants Subscription Price
‘‘Bonus Warrants Subscription Price’’
the initial subscription price of HK$0.35 per Bonus Warrants Share (subject to adjustment)
‘‘Business Day(s)’’
a day other than a Saturday, Sunday or public holiday in Hong Kong on which licensed banks in Hong Kong are generally open for business
‘‘Company’’
King Stone Energy Group Limited, a company incorporated in Hong Kong and the issued Shares of which are listed on the main board of the Stock Exchange
‘‘Completion’’
completion of the Subscription in accordance with the terms and conditions of the Subscription Agreement
‘‘connected person’’
has the meaning ascribed to this term under the Listing Rules
‘‘Director(s)’’ the directors of the Company
‘‘EGM’’

the extraordinary general meeting of the Company to be held to approve, amongst others, the Subscription Agreement and the transactions contemplated thereunder, including but not limited to the issue of the Subscription Shares, the Bonus Warrants and the Bonus Warrants Shares to be allotted and issued upon exercise of the subscription rights attaching to the Bonus Warrants

– 1 –

DEFINITIONS

‘‘Exercise Period’’ 24 months commencing from the date of issue of the Bonus Warrants
‘‘Group’’ the Company and its subsidiaries
‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC
‘‘Independent Board Committee’’ an independent board committee, comprising Mr. Chiu Sui Keung, Mr. Lu Binghui, Mr. Lee Ping and Mr. Liu Shengming, all being the independent non-executive Directors, to advise the Independent Shareholders as to the fairness and reasonableness of the Subscription Agreement and the issue of the Bonus Warrants
‘‘Independent Shareholders’’ Shareholders other than the Subscriber and its associates ‘‘Latest Practicable Date’’ 12 November 2014, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular
‘‘Listing Committee’’ the listing committee of the Stock Exchange
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Nuada Limited’’ Nuada Limited, a licensed corporation to carry on type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Subscription
‘‘PRC’’ the People’s Republic of China which, for the purposes of this circular, excludes Hong Kong, Macau Special Administrative Region and Taiwan
‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of Laws of Hong Kong)
‘‘Share(s)’’ ordinary share(s) in the issued share capital of the Company ‘‘Shareholder(s)’’ holder(s) of the Share(s)

– 2 –

DEFINITIONS

‘‘Specific Mandate’’

the specific mandate to allot and issue the Subscription Shares and the Bonus Warrants Shares to be sought from the Independent Shareholders at the EGM

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Subscriber’’
Belton Light Limited, a company incorporated in the British Virgin Islands with limited liability
‘‘Subscription’’ the subscription for the Subscription Shares with Bonus Warrants by the Subscriber pursuant to the terms of and subject to the conditions of the Subscription Agreement
‘‘Subscription Agreement’’ the conditional subscription agreement dated 24 October 2014 entered into between the Company and the Subscriber in relation to the Subscription
‘‘Subscription Price’’ HK$0.25 per Subscription Share
‘‘Subscription Share(s)’’ 330,000,000 new Shares to be allotted and issued to the Subscriber pursuant to the Subscription Agreement
‘‘Warrant Instrument’’ the deed poll constituting the Bonus Warrants
‘‘Warrantholder(s)’’ holder(s) of the Bonus Warrants
‘‘%’’ per cent.

– 3 –

LETTER FROM THE BOARD

14 November 2014

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. Xu Zhendong (Chairman)
Mr. Zhang Wanzhong
Mr. Zong Hao
Mr. Xu Zhuliang
Mr. Benjamin Clark Danielson

Registered Office, head office and principal place of business in Hong Kong:

Unit 7603, 76th Floor The Center 99 Queen’s Road Central Hong Kong

Mr. Zhang Yongli

Independent non-executive Directors:

Mr. Chiu Sui Keung
Mr. Lu Binghui
Mr. Lee Ping
Mr. Liu Shengming

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION: SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

INTRODUCTION

On 24 October 2014, the Board announced that the Group entered into the Subscription Agreement whereby the Company conditionally agreed to allot and issue and the Subscriber conditionally agreed to subscribe in cash for 330,000,000 new Shares at the Subscription Price of HK$0.25 per Subscription Share, with Bonus Warrants to be issued entitling the Subscriber to subscribe for up to 330,000,000 Bonus Warrants Shares.

– 4 –

LETTER FROM THE BOARD

The purpose of this circular is (i) to provide you with further information relating to the Subscription and the Bonus Warrants; (ii) to set out the recommendations of the Independent Board Committee to the Independent Shareholders; (iii) to set out the recommendations of Nuada Limited to the Independent Board Committee and the Independent Shareholders; and (iv) to give the notice of the EGM.

THE SUBSCRIPTION AGREEMENT

Date

24 October 2014

Parties

Issuer: the Company Subscriber: Belton Light Limited

The Subscriber is an investment holding company incorporated in the British Virgin Islands with limited liability and is the controlling Shareholder interested in about 51.6% of the issued Shares. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Subscriber is wholly-owned by Jade Bird Energy Fund II, L.P. which is a partnership formed for the purpose of investing in the Company and in other short term investments. The directors of the Subscriber are Mr. Zhang Yongli (an executive Director) and Mr. Wu Tao.

Subscription Shares

Pursuant to the Subscription Agreement, the Company has conditionally agreed to allot and issue, and the Subscriber has conditionally agreed to subscribe for, 330,000,000 Subscription Shares at the Subscription Price of HK$0.25 per Subscription Share with bonus issue of the Bonus Warrants to subscribe for up to 330,000,000 Bonus Warrants Shares at the initial Bonus Warrants Subscription Price of HK$0.35 per Bonus Warrants Share.

The 330,000,000 Subscription Shares represent: (i) approximately 11.0% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 9.9% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares upon Completion. Assuming full exercise of the subscription rights attaching to the Bonus Warrants, at the initial Bonus Warrants Subscription Price of HK$0.35 per Share, a total of 330,000,000 Bonus Warrants Shares will be allotted and issued, representing: (i) approximately 11.0% of the entire issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 9.9% of the entire issued share capital of the Company as enlarged by the allotment and issue of the Bonus Warrants Shares; and (iii) approximately 9.0% of the entire issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Bonus Warrants Shares.

– 5 –

LETTER FROM THE BOARD

The Subscription Shares and the Bonus Warrants Shares falling to be allotted and issued upon exercise of the subscription rights attaching to the Bonus Warrants will be allotted and issued under the Specific Mandate.

The Subscription Shares, when issue and fully paid, will rank pari passu in all respects amongst themselves and with the Shares in issue on the date of allotment and issue of the Subscription Shares.

An application will be made by the Company to the Listing Committee for the listing of, and permission to deal in, the Subscription Shares and the Bonus Warrant Shares which may fall to be allotted and issued upon exercise of the subscription rights attaching to the Bonus Warrants.

Subscription Price

The Subscription Price of HK$0.25 per Subscription Share represents:

(i) a premium of approximately 2.5% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement;
(ii) a premium of approximately 3.3% over the average closing price of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to (not including) the date of the Announcement;
(iii) a premium of approximately 3.3% over the average closing price of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately prior to (not including) the date of the Announcement; and
(iv) a premium of approximately 5.0% over the closing price of HK$0.238 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was determined after arm’s length negotiation between the Company and the Subscriber with reference to the prevailing market prices of the Share and being not less than the closing price of the Share on the date of the Subscription Agreement. The Directors consider that the Subscription Price is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

Conditions precedent to the Subscription

Completion of the Subscription is conditional upon the fulfillment of the following conditions:

(i) the Listing Committee granting the approval for the issue of the Bonus Warrants (if required) and the listing of and permission to deal in the Subscription Shares and the Bonus Warrants Shares falling to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants, either unconditionally or subject to conditions to which the Subscriber and the Company may accept (all acting reasonably);

– 6 –

LETTER FROM THE BOARD

(ii) the Independent Shareholders passing a resolution approving the Subscription Agreement and the transactions contemplated (including the issue of the Bonus Warrants) thereunder at the EGM; and
(iii) all necessary consents and approvals required to be obtained by the Company and the Subscriber in respect of the Subscription Agreement and the transactions contemplated thereunder having been obtained.

The above conditions are not waivable. If any of the aforesaid conditions is not fulfilled by 5:00 p.m. on 31 December 2014, all rights, obligations and liabilities of the parties to the Subscription Agreement shall cease and none of the parties thereto shall have any claim against the other, save for any antecedent breaches of the terms thereof.

As at the Latest Practicable Date, none of the above conditions have been fulfilled.

Completion

Completion of the Subscription Agreement shall take place at 4:00 p.m. on the third Business Day (or such other date and time as may be agreed by the Company and the Subscriber) after the satisfaction of the above conditions.

Principal terms of the Bonus Warrants

The principal terms of the Bonus Warrants are summarised as follows:

Issuer: The Company Number of Bonus 330,000,000 Warrants: Each Bonus Warrant carries the right to subscribe for one (1) Bonus Warrant Share at the Bonus Warrants Subscription Price Bonus Warrants HK$0.35, being the initial Bonus Warrants Subscription price per Subscription Price: Warrants Share but subject to adjustment. The initial Subscription Price of HK$0.35 was determined after arm’s length negotiations between the Company and the Subscriber, having considered the market condition, the recent share price performance of the Share and liquidity of the Shares, the Exercise Period of up to two years and the business outlook as disclosed in the interim report of the Company for the six months ended 30 June 2014.

– 7 –

LETTER FROM THE BOARD

The Bonus Warrants Subscription Price represents:

(i) a premium of approximately 43.4% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement;
(ii) a premium of approximately 44.6% over the average of the closing prices of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to (not including) the date of the Announcement; and
(iii) a premium of approximately 47.1% over the closing price of HK$0.238 per Share as quoted on the Stock Exchange on the Latest Practicable Date.
Adjustment of Bonus Warrants Subscription Price:

The Bonus Warrants Subscription Price shall from time to time be adjusted upon the occurrence of any of the following events: (i) alteration to the number of the Shares by reason of any subdivision or consolidation of Shares; (ii) an issue (other than pursuant to a scrip dividend scheme in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund); (iii) capital distribution to all Shareholders (including distribution pursuant to reduction or redemption of share capital) or grant to Shareholders rights to acquire for cash assets of the Company or any of its subsidiaries (as a result of which the net assets of the Company will be reduced and the market price of the Share will be reduced to exclude such distribution); (iv) an offer of new Shares for subscription by way of rights issue, or a grant of options or warrants to subscribe for new Shares, at a price which is less than 90% of the market price of the Shares on the date of the announcement of the terms of the offer or grant being made by the Company to Shareholders; (v) an issue wholly for cash being made by the Company or any other company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total effective consideration per new Share initially receivable for such securities is less than 90% of the market price of the Shares on the date of the announcement of the terms of issue of such securities, or the conversion, exchange or subscription rights of any such issue are altered so that the said total effective consideration is less than 90% of such market price; or (vi) an issue of Shares being made wholly for cash (other than pursuant to any share option scheme) at a price less than 90% of the market price of the Shares on the date of the announcement of the issue.

– 8 –

LETTER FROM THE BOARD

As agreed between the Company and the Subscriber, there will not be any adjustment to the Bonus Warrants Subscription Price upon ‘‘the purchase by the Company of Shares or securities convertible into Shares or any rights to acquire Shares (excluding any such purchase made on the Stock Exchange or any recognized stock exchange) in circumstances where the Directors consider that it may be appropriate to make an adjustment to the Bonus Warrant Subscription Price’’ as disclosed in the Announcement.

Whenever the Bonus Warrants Subscription Price is adjusted as above-mentioned, the Company shall give notice to the Warrantholder that the Bonus Warrants Subscription Price has been so adjusted and shall make available for inspection by Warrantholder at the Company’s head office and principal place of business in Hong Kong a signed copy of the certificate of the auditors or (as the case may be) of the relevant approved merchant bank and a certificate signed by a Director setting forth brief particulars of the event giving rise to the adjustment, the Bonus Warrants Subscription Price in effect prior to such adjustment, the adjusted Bonus Warrants Subscription Price and the effective date thereof and shall, on request, send a copy thereof to any Warrantholder. An announcement will also be issued by the Company in this regard.

Exercise Period: 24 months from the date of issue of the Bonus Warrants

Ranking:

The Bonus Warrants Shares, when fully paid and allotted, will rank pari passu in all respects with the Shares then in issue

Voting rights:

Other than meeting of Warrantholders (which may be held to sanction any modification of the Warrant Instrument proposed by the Company or to consider any matter affecting the interests of the Warrantholders[1] ), the Warrantholders shall not be entitled to attend or vote at the general meetings of the Company by reason only of being the Warrantholders

Distribution rights:

The Warrantholders shall not be entitled to any distribution and/ or offers of further securities made by the Company by reason only of being the Warrantholders

At the meeting of the Warrantholders, a Warrantholder shall have one vote either on a show of hands or in respect of every 1,000,000 Bonus Warrants held where a poll is demanded. A resolution by a majority consisting of not less than three-fourths of the votes cast upon a show of hands or, if a poll is duly demanded, by a majority consisting of not less than three-fourths of the votes cast on a poll shall be binding upon all the Warrantholders.

– 9 –

LETTER FROM THE BOARD

Listing:

The Bonus Warrants will not be listed on the Stock Exchange or any other stock exchange

Transferability:

The Bonus Warrants are transferable in integral multiples of 1,000,000 Bonus Warrants by instrument of transfer in the usual or common form (or in any other form which may be approved by the Directors) which shall be deposited with the Company’s head office and principal place of business in Hong Kong accompanied by the Bonus Warrants certificate

Rights upon the liquidation of the Company:
If the Company is wound up during the Exercise Period of the Bonus Warrants, all subscription rights attaching to the Bonus Warrants which have not been exercised shall lapse, save for in the event of a voluntary winding-up, the Warrantholders shall be entitled within six weeks after the passing of such a resolution approving the winding-up to exercise the subscription rights attaching to the Bonus Warrants in accordance with the terms and conditions of the Bonus Warrants

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below are the shareholding structures of the Company (i) as at the Latest Practicable Date; (ii) immediately after Completion; and (iii) immediately after Completion and upon full exercise of the subscription rights attaching to the Bonus Warrants (assuming that there is no change in the issued share capital of the Company other than the issue of the Subscription Shares at Completion and the issue of the Bonus Warrants Shares):

Name of Shareholder Belton Light Limited Public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximate % 1,555,555,000 51.6 1,456,500,568 48.4 3,012,055,568 100.0	Immediately after Completion No. of Shares Approximate % 1,885,555,000 56.4 1,456,500,568 43.6 3,342,055,568 100.0	Immediately after Completion and upon full exercise of the subscription rights attaching to the Bonus Warrants No. of Shares Approximate % 2,215,555,000 60.3 1,456,500,568 39.7 3,672,055,568 100.0	Immediately after Completion and upon full exercise of the subscription rights attaching to the Bonus Warrants No. of Shares Approximate % 2,215,555,000 60.3 1,456,500,568 39.7 3,672,055,568 100.0
				100.0

INFORMATION ON THE GROUP

The Group is principally engaged in the mining and selling of coal and silver in the PRC. Since 2013, the Company has built up a new management team with strong and comprehensive oil and gas background, and has been actively seeking opportunity to acquire heavy oil extraction technology and pursuing upstream oil and gas exploration and production projects in North America to further strengthen the asset portfolio of the Group.

– 10 –

LETTER FROM THE BOARD

REASONS FOR THE SUBSCRIPTION AND USE OF PROCEEDS

For the year ended 31 December 2013, the Group had recorded a loss before tax of approximately HK$1,563,817,000. As disclosed in the interim report of the Company for the six months ended 30 June 2014, as at 30 June 2014, the current liabilities of the Group exceeded its current assets by approximately HK$2,803 million, and bank and other loans and an other payable with principal amounts aggregating to HK$427 million and HK$200 million, respectively, were overdue. Such financial conditions indicate the existence of a significant uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. In view of the financial position of the Group, it is difficult to attract new investors to make equity investment in the Company. Other than the Subscription, the Board has considered other financing alternatives such as rights issue or open offer but it is difficult to find an underwriter who is willing to underwrite any untaken Shares of the Shareholders. Debt financing is also not easy as there has been default by the Group in repaying its debts. In the circumstances, the Directors consider that the Subscription (including the issue of the Bonus Warrants) represents an opportunity to raise capital for the Company with no interest burden. In particular, the Subscription by the Subscriber is appropriate in the given market condition because (i) the Subscription will provide more certainty to the Company to raise the required fund; (ii) new Shares may be issued at a premium over the market trading price of the Shares; (iii) further capital may be raised upon the exercise of the subscription rights attaching to the Bonus Warrants during the Exercise Period; and (iv) the Subscription, with the Subscription Price and the Bonus Warrants Subscription Price being at 2.5% and over 40% premium over the closing price of the Share on the date of the Announcement respectively, can demonstrate the long term commitment and support of the Subscriber, being its controlling Shareholder, to the Company for its long term development and growth. As such, the Directors (other than Mr. Zong Hao, Mr. Xu Zhuliang and Mr. Zhang Yongli, who is also the director of the Subscriber, who abstained from voting at the Board meeting in view of their equity interest in Jade Bird Strategic Investment which is the general partner of Jade Bird Energy Fund II, L.P., the holding company of the Subscriber and common directorship in both the Company and the Subscriber) consider that the Subscription is in the interests of the Company and the Shareholders as a whole. The Company will not apply for the listing of the Bonus Warrants as the Bonus Warrants are to be issued to the Subscriber only as part of the terms of the Subscription, and are not supposed to be freely tradeable through the stock market.

The Board considers that the terms of the Subscription Agreement are fair and reasonable and that the Subscription together with the issue of the Bonus Warrants are in the interests of the Company and the Shareholders as a whole. There will not be any change to the Board as a result of the Subscription.

The gross proceeds from the Subscription will be HK$82,500,000. The estimated net proceeds from the Subscription, after the deduction of relevant expenses of approximately HK$500,000, will be approximately HK$82,000,000. The net price of each Subscription Share, calculated by dividing the estimated net proceeds from the Subscription by the number of Subscription Shares, will be approximately HK$0.248.

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LETTER FROM THE BOARD

The estimated net proceeds are intended to be utilised towards: (i) as to 80% for funding the oil and gas projects of the Group; and (ii) as to 20% for funding any new acquisitions or business ventures when opportunities arise; and as general working capital of the Group.

Assuming full exercise of the subscription rights attaching to the Bonus Warrants, it is expected that a further sum of HK$115,500,000 will be raised. It is intended that the net proceeds of approximately HK$115,500,000 (with a net Bonus Warrants Subscription Price of approximately HK$0.35 per Bonus Warrants Share) for the subscription of Bonus Warrants Shares would be used as to 80% for the development of the oil and gas projects of the Group and as to 20% for general working capital of the Group. By virtue of the nature of the Bonus Warrants, the Company cannot control if the Subscriber will exercise the subscription rights attaching to the Bonus Warrants. However, the Bonus Warrants are offered to the Subscriber as a package of the Subscription in order to provide incentive to the Subscriber while hoping to secure further funding from the Subscriber at a pre-determined price in the foreseeable future.

It is not expected that any funds raised from the Subscription or the exercise of the Bonus Warrants will be applied towards repayment of the debts for its coal mining business.

FUND RAISING ACTIVITIES OF THE COMPANY DURING THE PAST 12 MONTHS

The Company has not carried out any equity fund raising activity during the 12 months immediately before the Latest Practicable Date.

LISTING RULES IMPLICATIONS

As the Subscriber is a substantial Shareholder interested in approximately 51.6% of the entire issued share capital of the Company as at the date of the Announcement and is therefore a connected person of the Company, the Subscription Agreement including the issue of the Subscription Shares and the Bonus Warrants to the Subscriber constitutes a non-exempted connected transaction on the part of the Company under the Listing Rules and is subject to reporting, announcement and Independent Shareholders’ approval requirements.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, as at the Latest Practicable Date, the Bonus Warrants Shares to be issued upon the exercise of the subscription rights attaching to the Bonus Warrants, when aggregated with all other equity securities which remain to be issued on exercise of all other subscription rights, will not exceed 20% of the issued share capital of the Company.

– 12 –

LETTER FROM THE BOARD

EGM

Set out on pages 37 to 38 of this circular is a notice convening the EGM which will be held at Unit 7603, 76th Floor, The Center, 99 Queen’s Road Central, Hong Kong on Monday, 1 December 2014 at 11:30 a.m. at which ordinary resolution will be proposed to approve, among others, the Subscription Agreement and the transactions contemplated thereunder (including the issue of the Bonus Warrants). To the best knowledge, information and belief of the Directors after having made all reasonable enquiries, there is (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon its ultimate beneficial owners and their respective associates; and (ii) no obligation or entitlement of its ultimate beneficial owners and their respective associates as at the Latest Practicable Date, whereby it or he has or may have temporarily or permanently passed control over the exercise of the voting right in respect of its or his Shares to a third party, either generally or on a case-by-case basis.

The form of proxy for use at the EGM is enclosed with this circular. Such form is also available at the website of the Stock Exchange at www.hkex.com.hk. Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it as soon as possible to the Company’s share registrar and transfer office, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, and in any event not less than 48 hours before the time appointed for the holding of the EGM. Delivery of a form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so desire.

The Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders in relation to the Subscription and the issue of the Bonus Warrants. Nuada Limited has been appointed as the independent financial adviser to the Company to advise the Independent Board Committee and the Independent Shareholders in this regard.

The voting in relation to the Subscription and the issue of the Bonus Warrants at the EGM will be conducted by way of a poll whereby the Subscriber and its associates (which hold 1,555,555,000 Shares or about 51.6% of the shareholding in the Company as at the Latest Practicable Date) shall abstain from voting on the relevant resolution to be proposed at the EGM to approve the Subscription and the issue of the Bonus Warrants.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 15 of this circular. The Independent Board Committee, having taken into account the advice of Nuada Limited, the text of which is set out on pages 16 to 33 of this circular, considers that the Subscription Agreement is entered into upon normal commercial terms following arm’s length negotiations between the parties and that the terms of the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and the Subscription and the issue of the Bonus Warrants are in the interests of the Company and the Shareholders as a whole.

– 13 –

LETTER FROM THE BOARD

Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Subscription Agreement and the transactions contemplated thereunder.

FURTHER INFORMATION

Your attention is drawn to the additional information set out in the appendix to this circular.

Yours faithfully For and on behalf of the Board King Stone Energy Group Limited Xu Zhendong Chairman

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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)

14 November 2014

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION: SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

We refer to the circular dated 14 November 2014 issued by the Company (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall bear the same meanings as given to them in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the Subscription Agreement including the issue of the Bonus Warrants (together the ‘‘Transaction’’) and to advise the Independent Shareholders as to the fairness and reasonableness of the Transaction, and to recommend how the Independent Shareholders should vote at the EGM. Nuada Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Transaction.

We wish to draw your attention to the letter from the Board, as set out on pages 4 to 14 of the Circular, and the letter from Nuada Limited to the Independent Board Committee and the Independent Shareholders which contains its advice to us in respect of the Transaction, as set out on pages 16 to 33 of the Circular.

Having taken into account the advice of Nuada Limited, we consider the terms of the Transaction to be fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Transaction is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Transaction and the transactions contemplated thereunder.

Yours faithfully, Independent Board Committee

Chiu Sui Keung

Lee Ping Lu Binghui Liu Shengming

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LETTER FROM NUADA LIMITED

The following is the letter of advice from Nuada Limited to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

==> picture [148 x 34] intentionally omitted <==

Unit 1805–08, 18/F OfficePlus @Sheung Wan 93–103 Wing Lok Street Sheung Wan, Hong Kong 香港上環永樂街93–103號協成行上環中心18樓1805–08室

14 November 2014

To: the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Subscription Agreement, the particulars of which are set out in the letter from the Board (the ‘‘Letter’’) contained in the circular of the Company to the Shareholders dated 14 November 2014 (the ‘‘Circular’’), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise defined.

On 24 October 2014, the Board announced that the Company entered into the Subscription Agreement whereby the Company conditionally agreed to allot and issue and the Subscriber conditionally agreed to subscribe in cash for 330,000,000 new Shares at the Subscription Price of HK$0.25 per Subscription Share, with Bonus Warrants to be issued entitling the Subscriber to subscribe for up to 330,000,000 Bonus Warrants Shares.

As at the Latest Practicable Date, as the Subscriber is a substantial Shareholder interested in approximately 51.6% of the entire issued share capital of the Company and is therefore a connected person of the Company, the Subscription Agreement including the issue of the Subscription Shares and the Bonus Warrants to the Subscriber constitutes a non-exempted connected transaction on the part of the Company under the Listing Rules and is subject to reporting, announcement and Independent Shareholders’ approval requirements.

Given the Subscriber was a connected person of the Company as at the Latest Practicable Date, the Subscriber and its associates shall abstain from voting on the ordinary resolution to be proposed at the EGM to approve the Subscription and the issue of the Bonus Warrants.

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LETTER FROM NUADA LIMITED

The Independent Board Committee, comprising all of the four independent non-executive Directors, namely Mr. Chiu Sui Keung, Mr. Lu Binghui, Mr. Lee Ping and Mr. Liu Shengming has been established to make a recommendation to the Independent Shareholders as to whether the terms of the Subscription Agreement are fair and reasonable in so far as the Independent Shareholders are concerned and to recommend how the Independent Shareholders should vote at the EGM. We, Nuada Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

In formulating our opinion, we have relied on the information, opinion and representations contained or referred to in the Circular and the information, opinion and representations provided to us by the management of the Company and the Directors. We have assumed that all information and representations contained or referred to in the Circular and all information and representations which have been provided by the management of the Company and the Directors, for which they are solely and wholly responsible for, were true, accurate and complete at the time when they were made and continue to be so as at the date hereof.

Accordingly, we have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and representations contained in the Circular and provided to us by the management of the Company and the Directors, or the reasonableness of the opinions expressed by the management of the Company and the Directors. The Directors collectively and individually accept full responsibility for the accuracy of the information in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in the Circular misleading. Furthermore, we relied on the Company that it has provided us sufficient information to reach an informed view and to provide a reasonable basis for our opinion and we have relied on such information and opinions. We have not, however, conducted any independent in-depth investigation into the business and affairs, financial conditions or the future prospects of the Group, the Subscriber and/or their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the terms of the Subscription Agreement are fair and reasonable in so far as the Independent Shareholders are concerned, we have taken into account the principal factors and reasons set out below:

1. Information on the Group

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LETTER FROM NUADA LIMITED

Set out below is a summary of financial highlights of the Group for the two years ended 31 December 2012 and 2013 and for the six months ended 30 June 2014 as extracted from the annual report of the Group for the year ended 31 December 2013 (the ‘‘2013 Annual Report’’) and the interim report for the six months ended 30 June 2014 (the ‘‘2014 Interim Report’’) respectively.

	Year ended	Year ended	Six months ended
	31 December 2012	31 December 2013	30 June 2014
	(HK$’000)	(HK$’000)	(HK$’000)
			(unaudited)
Revenue	571,129	150,306	20,084
Gross profit/(loss)	(90,841)	(226,117)	(62,202)
Profit/(loss) for the year/
period	(1,755,042)	(1,468,039)	(235,559)
	As at	As at	As at
	31 December 2012	31 December 2013	30 June 2014
	(HK$’000)	(HK$’000)	(HK$’000)
			(unaudited)
Cash and cash equivalents	15,913	292,595	106,705
Net current liabilities	(1,860,064)	(2,304,657)	(2,803,061)
Net assets/(liabilities)
attributable to the
owners of the Company	752,933	122,289	(92,458)

The results

For the year ended 31 December 2013, the Group recorded total revenue of approximately HK$150.3 million, representing a significant decrease of approximately HK$420.8 million as compared with that of last year, mainly attributable to the significant drop in revenue from coal mining business. Of the total revenue of HK$150.3 million, the Group recorded revenue of approximately HK$135.8 million from coal mining during the year, representing a significant decrease of 76% compared with that of last year. Eerduosi Hengtai Coal Company Limited (‘‘Hengtai’’) and Inner Mongolia Liaoyuan Coal Mining Company Limited (‘‘Liaoyuan’’), the two subsidiaries of the Company operating the coal mining business, contributed revenue of approximately HK$99.7 million and approximately HK$36.1 million respectively and both recorded significant decreases in average selling prices and sales volumes mainly because of persistent weak demand in coal market during the year. Hengtai and Liaoyuan recorded sales volumes of approximately 0.94 million tons (Mt) and 0.24 Mt respectively, representing a decrease of around 62% and 47% of the sales volume of the preceding

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LETTER FROM NUADA LIMITED

financial year. The Million Grow Group, which was acquired by the Group in May 2013, generated revenue of approximately HK$14.5 million from selling by-product ores in the Fu’an Silver Mine (the ‘‘West Mine’’) during the year.

For the year ended 31 December 2013, the Group had recorded gross loss of approximately HK$226.1 million and loss after tax of approximately of HK$1,468 million. The gross loss was due to the cost of inventories sold of approximately HK$376.4 million, which primarily consists of depreciation and amortisation of property, plant and equipment and mining rights, related labour cost and subcontracting fee for the production, taxes, supplies, utilities and other incidental expenses in relation to production of coal and trial production in the West Mine. Cost of inventories sold for coal mining and silver mining business was approximately HK$365.5 million and HK$10.9 million respectively during the year. The loss for the year was mainly attributable to the incurrence of other expenses of approximately HK$1,004.5 million, which mainly comprised aggregate impairments of property, plant and equipment and mining rights of Hengtai and Liaoyuan and trade and other receivables of approximately HK$983.6 million and HK$20.9 million respectively during the year.

For the six months ended 30 June 2014, the Group recorded total revenue of approximately HK$20.1 million, representing a decrease of 70% compared with last comparable period. Revenue from mining and selling of coal was approximately HK$20.1 million. There was no revenue generated from mining and selling of silver ore by-product during the period. During the period, coal sales volume was approximately 192,000 tons and the average selling prices of raw coal produced during the period were approximately RMB105 per ton.

During the six months ended 30 June 2014, the Group recorded a gross loss of approximately HK$62.2 million and loss for the period of approximately HK$235.6 million. Cost of inventories sold primarily consists of depreciation and amortisation, salaries and related labour cost for the production, taxes, supplies, utilities and other incidental expenses in relation to production. During the period, cost of sales of coal production was approximately HK$82.3 million. There was no cost of sales of silver production recorded during the period. Other expenses mainly represented penalty incurred for overdue borrowings of Hengtai of approximately HK$24.4 million and costs associated with drilling prior to moving the drilling rig for oil and gas exploration and production (‘‘E&P’’) of approximately HK$20.2 million during the period.

The financial position

As at 31 December 2013, the cash and cash equivalents of the Group were approximately HK$292.6 million.

Nevertheless, the Group was in net current liability position as at 31 December 2013. The Group had outstanding interest-bearing borrowings amounting to approximately HK$1,633.1 million as at 31 December 2013. Of the Group’s interest-

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LETTER FROM NUADA LIMITED

bearing borrowings, 70%, 24% and 6% were repayable on demand or within one year, in the second year and in the third to the fifth year, inclusive, respectively. Borrowings of approximately HK$1,291.8 million and HK$371.3 million were interest-bearing with floating interest rates and at fixed rates of 7.2% to 36% respectively. At 31 December 2013, certain loans of approximately HK$256 million raised by Hengtai have been overdue and were not yet repaid up to publication date of the 2013 Annual Report. The Group has been at its best effort trying to negotiate with the bank to extend the maturity dates of such loans.

As disclosed in the interim report of the Company for the six months ended 30 June 2014, as at 30 June 2014, the current liabilities of the Group exceeded its current assets by approximately HK$2,803 million, and bank and other loans and an other payable with principal amounts aggregating to HK$427 million and HK$200 million, respectively, were overdue. Such financial conditions indicate the existence of a significant uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern.

As at 30 June 2014, the cash and cash equivalents of the Group were approximately HK$106.7 million. As at 30 June 2014, the Group had outstanding interest-bearing borrowings amounting to approximately HK$1,603.4 million. Of the Group’s interestbearing borrowings, 84% and 16%, respectively, were repayable on demand or within one year, and in the second year, respectively. As at 30 June 2014, borrowings of approximately HK$1,241.2 million were interest-bearing with floating interest rates and borrowings of approximately HK$362.2 million were charged at fixed rates ranged from 6.9% to 42% per annum.

The net asset value attributable to the shareholders of the Company as at 31 December 2013 decreased to approximately HK$122.3 million from HK$752.9 million as at 31 December 2012, and the amount further reduced to net liabilities of approximately HK$92.5 million as at 30 June 2014.

Based on the above, we note that the Group has been loss making and was in a net current liability position.

Outlook

Pursuant to the 2013 Annual Report, it was stated that while the Company will continue to seek for unloading its below-par coal mining business, the other newly invested businesses are expected to start generating considerable revenue for the Group. The Company will also continue to restructure its investment portfolios and further diversify its investments into other projects in order to bring values to the shareholders. The principal activities engaged by the Group with certain updates as stated in the 2014 Interim Report were highlighted as below.

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LETTER FROM NUADA LIMITED

Coal Mining

During the first half of 2014, the coal mining business of the Group remained in a straitened condition. Gloomy market demand, tightened government policies plus increasing cost of capital all casted severe challenges to its production activities. Outputs of both Hengtai and Liaoyuan have cut by more than half as compared to the same period of last year. With the uncertain market outlook, the Company will continue to pursue unloading its coal mining business in the foreseeable future subject to compliance with all relevant laws and regulations.

HydroFlame Technology

The Company acquired HydroFlame technology in 2013. HydroFlame is a new heavy oil extraction technology that burns a fuel directly inside a rotating stream of water. The HydroFlame technology has yet to be commercialized, but has several new engineering process applications including hot water heaters, compact steam generators, produced water treatment processes and efficient power generation systems. It has successfully passed the surface test at an abandoned well with very promising results. During the first half of 2014, the Group completed a comprehensive testing of HydroFlame at Louisiana, the United States and concluded with a meaningful list of improvements and modifications. The Group is now working toward another test in Texas, the United States and will endeavor to develop and commercialize the HydroFlame technology both for oil extraction as well as other applications in near future.

Oil and Gas E&P Projects

Leveraging on the strong and comprehensive oil and gas expertise and investment background of the management team, since the fourth quarter of 2013, the Group has been actively developing an upstream oil and gas E&P project in North America. The Group has secured leases on 5,400 acres in Texas, the United States. Drilling and completing the first well finished in July 2014. The Group will continue to monitor the first well and will be prepared to launch full development of the project should results warrant.

Silver Mining

The Group operates two quality silver mines via its subsidiary — Fujian Leixin Mining Company Limited (‘‘Fujian Leixin’’), in Fujian Province, the PRC, namely the West Mine and the East Mine. The West Mine has a valid mining permit with approved production capacity of 100,000 ton per annum (‘‘tpa’’) and a processing plant with daily ore processing capacity of 300 tons per day is already in place. The Group has started to carry out commercial production of the West Mine since August 2014 and scheduled to conduct a safety upgrade at the West Mine at the end of the year to further increase its production capacity to 198,000 ton per annum by 2015.

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LETTER FROM NUADA LIMITED

The East Mine is an advanced development project with an exploration permit valid until October 2015. During the first half of 2014, the Group continued to conduct more in-depth exploration work with increased drilling coverage and density in the East Mine. The construction of the East Mine is expected to complete and put into operation in 2016. From 2017, the mining and processing capacity of the East Mine is expected to achieve 660,000 tpa.

The Group has set very clear objectives in the year of 2014 to endeavor to put its newly invested businesses into operation and at the same time continue to pursue unloading its below-par coal mining business. In the first half of the year 2014, the Group has taken proactive steps to fulfill its objectives. Testing on the HydroFlame technology completed with encouraging results. The Group continues to monitor the first well drilled in Texas, and is making plans to drill two additional wells in the 4th quarter of 2014 should results continue to warrant.

The West Mine of Fujian Leixin was also put into operation in August 2014. Looking forward to the second half of the year, the Group will monitor closely the progress of the above projects and, depending on their performances, continue to devote further capital resources to fully develop the projects. The Group will also ensure the projects which have been put into operation to generate revenue as scheduled and explore other business opportunities including but not limited to finance lease business to diversify its investment portfolios. In the meantime, the Group will continue to pursue the possible disposal of its coal mining business.

Based on the above, we concur with the views of the Directors that the Company has been restructuring its investment portfolios and has taken steps to diversify its investments into other projects in order to bring values to the shareholders.

2. Terms of and Reasons for the Subscription Agreement

Principal terms of the Subscription Agreement

Date: 24 October 2014 Parties: the Company as the issuer Belton Light Limited as the Subscriber

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LETTER FROM NUADA LIMITED

Assuming full exercise of the subscription rights attaching to the Bonus Warrants, at the initial Bonus Warrants Subscription Price of HK$0.35 per Share, a total of 330,000,000 Bonus Warrants Shares will be allotted and issued, representing: (i) approximately 11.0% of the entire issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 9.9% of the entire issued share capital of the Company as enlarged by the allotment and issue of the Bonus Warrants Shares; and (iii) approximately 9.0% of the entire issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares and the Bonus Warrants Shares.

Subscription Price and the Bonus Warrant Subscription Price

The Subscription Price of HK$0.25 per Subscription Share represents:

(i) a premium of approximately 2.5% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement;
(ii) a premium of approximately 3.3% over the average closing price of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to (not including) the date of the Announcement;
(iii) a premium of approximately 3.3% over the average closing price of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last ten consecutive trading days immediately prior to (not including) the date of the Announcement;
(iv) a premium of approximately 5.0% over the closing price of HK$0.238 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(v) a premium of approximately 510% over the net asset value of approximately HK$0.041 per Share (based on the audited net asset value attributable to the shareholders of the Company as at 31 December 2013 of approximately HK$122.3 million and 3,012,055,568 Shares in issue).

As stated in the Letter, we note that the Subscription Price was determined after arm’s length negotiation between the Company and the Subscriber with reference to the prevailing market price of the Share. Further review of the historical price movement of the Shares will be conducted in the below section.

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LETTER FROM NUADA LIMITED

Bonus Warrants Subscription Price of HK$0.35 per Warrants Share represents:

(i) a premium of approximately 43.4% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement;
(ii) a premium of approximately 44.6% over the average of the closing prices of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to (not including) the date of the Announcement;
(iii) a premium of approximately 47.1% over the closing price of HK$0.238 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a premium of approximately 754% over the net asset value of approximately HK$0.041 per Share (based on the audited net asset value attributable to the shareholders of the Company as at 31 December 2013 of approximately HK$122.3 million and 3,012,055,568 Shares in issue).

As regards the Bonus Warrants, we note that the exercise period is 24 months from the date of issue of the Bonus Warrants. Also, we note that the Warrantholders shall not be entitled to (i) any distribution and/or offers of further securities made by the Company by reason of being the Warrantholders and (ii) attend or vote at the general meetings of the Company other than meeting of Warrantholders. The Bonus Warrants will not be listed on the Stock Exchange or any other stock exchange whereas the Bonus Warrants Shares, when fully paid and alloted, will rank pari passu in all respects with the Shares then in issue. We consider that the terms of the Bonus Warrants are general and common.

Use of proceeds

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LETTER FROM NUADA LIMITED

Bonus Warrants Shares would be used as to 80% for the development of the oil and gas projects of the Group and as to 20% for general working capital of the Group. By virtue of the nature of the Bonus Warrants, the Company cannot control if the Subscriber will exercise the subscription rights attaching to the Bonus Warrants. However, the Bonus Warrants are offered to the Subscriber as a package of the Subscription in order to provide incentive to the Subscriber while hoping to secure further funding from the Subscriber at a pre-determined price in the foreseeable future.

3. Review of historical closing price and trading volume

Historical price movement

In assessing the fairness of the Subscription Price and the Bonus Warrants Subscription Price, we conduct a review of the historical price movement of the Shares. Set out below is the diagram demonstrating the daily closing price of the Shares as quoted on the Stock Exchange during the period commencing from 25 October 2013 up to and including the date of the Announcement.

Historical daily closing price per Share

==> picture [52 x 183] intentionally omitted <==

During the review period, the lowest closing price of the Shares as quoted on the Stock Exchange was HK$0.238 per Share recorded on 17 October 2014 and the highest closing price of the Shares was HK$0.385 per Share recorded on 13 November 2013 and 14 November 2013. Since mid-November 2013, the closing prices of the Shares showed

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LETTER FROM NUADA LIMITED

a general sliding trend and for around ten months since 2 January 2014 up to the date of Subscription Agreement, the price of Shares closed within the range of HK$0.238 and HK$0.315 for most of the time.

Trading volume and liquidity of the Shares

The average daily trading volume of the Shares in each month below, and the respective percentages of the Shares’ average trading volume as compared to (i) the total number of issued Shares of the Company as at date of the Announcement and (ii) the total number of issued Shares held by the public are tabulated as below:

			% of the
		% of the	average volume
		average volume	to total number
	Average	to total number	of issued Shares
	daily trading	of issued Shares	held by the public
	volume (the	as at the date of	as at the date of
	‘‘Average	the Announcement	the Announcement
	Volume’’)	(Note 1)	(Note 2)
	Number of Shares	%	%
2013
October	8,676,453	0.29%	0.60%
November	5,198,191	0.17%	0.36%
December	2,241,813	0.07%	0.15%
2014
January	2,857,214	0.09%	0.20%
February	1,968,746	0.07%	0.14%
March	4,474,034	0.15%	0.31%
April	927,872	0.03%	0.06%
May	1,604,865	0.05%	0.11%
June	1,016,107	0.03%	0.07%
July	2,768,361	0.09%	0.19%
August	1,570,921	0.05%	0.11%
September	976,010	0.03%	0.07%
October (up to the
date of the
Announcement)	2,876,017	0.10%	0.20%

Based on 3,012,055,568 Shares in issue
Based on 1,456,500,568 Shares in issue held by the public

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LETTER FROM NUADA LIMITED

The Average Volume of the Shares ranged between 927,872 Shares and 8,676,453 Shares. The higher trading volume of the Shares was noted for the months of October 2013, November 2013 and March 2014. Nevertheless, the above table illustrates that the Average Volume of the Shares in each month had been thin during the review period. The volume of Shares traded during the entire review period was below 1% of the total number of issued Shares held by the public as at the Latest Practicable Date.

Comparison with other share subscription exercises

As part of our analysis, we have also identified exercises regarding placing/ subscription of new shares under specific mandate during the period from 1 September 2014 up to the date of the Announcement as announced by companies listed on the Stock Exchange (the ‘‘Comparables’’). The selection period covers around a 2-month period up to the date of the Announcement. We are of the view that the selection period is not materially different from the market practice and is sufficient to reflect the prevailing market trend in relation to similar placing or subscription exercises. To the best of our knowledge and as far as we are aware of, we found 9 transactions which met the said criteria.

			Premium/(Discount) of
			the issue/subscription
			price over/(to) closing
			price per share on the
			last trading day prior to/
			the date of
			announcement/
			agreement in relation to
		Date of	the respective placing/
Company name	Stock code	announcement	subscription of share
			(%)
China Financial	721	4 September 2014	(66.67)
International
Investment Limited
Hopefluent Group	733	12 September 2014	16.73
Holdings Limited
Perception Digital	1822	15 September 2014	(50.0)
Holdings Limited
Sound Global Ltd.	967	18 September 2014	(9.19)
Bestway International	718	25 September 2014	(27.27)
Holdings Limited
China Aluminum Cans	6898	3 October 2014	2.0
Holdings Limited

– 27 –

LETTER FROM NUADA LIMITED

			Premium/(Discount) of
			the issue/subscription
			price over/(to) closing
			price per share on the
			last trading day prior to/
			the date of
			announcement/
			agreement in relation to
		Date of	the respective placing/
Company name	Stock code	announcement	subscription of share
			(%)
China Mobile Games and	8081	10 October 2014	(5.58)
Cultural Investment
Limited
Changfeng Axle (China)	1039	10 October 2014	(29.03)
Company Limited
Enterprise Development	1808	21 October 2014	(10.71)
Holdings Limited
Minimum			(66.67)
Maximum			16.73
Average			(19.97)
The Company	663	24 October 2014	2.5

As shown in the above table, the subscription prices of the Comparables ranged from a discount of approximately 66.67% to a premium of approximately 16.73% to the respective closing prices of their shares on the last trading days prior to/on the date of the announcements/agreement in relation to the relevant share placing/subscription (the ‘‘Market Range’’), with a average discount of 19.97% among the Comparables. The Subscription Price of HK$0.25, which represents a premium of approximately 2.5% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement, falls within the Market Range and even more favourable compared to the average of the Comparables.

Comparison with other warrant subscription exercises

We have also identified exercises regarding placing/subscription of warrants during the period from 1 September 2014 up to the date of the Announcement as announced by companies listed on the Stock Exchange (the ‘‘Warrant Comparables’’). The selection period covers around a 2-month period up to the date of the Announcement. We are of the view that the selection period is not materially different from the market practice and is sufficient to reflect the prevailing market trend in relation to similar placing or subscription exercises. To the best of our knowledge and as far as we are aware of, we found 5 transactions which met the said criteria.

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LETTER FROM NUADA LIMITED

			Premium/(Discount) of
			the exercise price and
			the issue price, if any,
			(the ‘‘aggregate
			subscription price’’) of
			the warrants over/(to)
			closing price per share
			on the last trading day
			prior to/the date of
			announcement/
			agreement in relation to
		Date of	the respective placing/
Company name	Stock code	announcement	subscription of share
			(%)
Madex International	231	3 September 2014	(18.24)
(Holdings) Limited
SMI Corporation Limited	198	12 September 2014	15.25
DBA Telecommunication	3335	18 September 2014	(82.20)
(Asia) Holdings
Limited
Bestway International	718	25 September 2014	(24.68)
Holdings Limited
Fornton Group Limited	1152	17 October 2014	(5.66)
Minimum			(82.20)
Maximum			15.25
Average			(23.11)
The Company	663	24 October 2014	43.4

As shown in the above table, the Aggregate Subscription Prices of the Warrant Comparables ranged from a discount of approximately 82.20% to a premium of approximately 15.25% to the respective closing prices of their shares on the last trading days prior to/on the date of the announcements/agreement in relation to the relevant warrant placing/subscription, with a average discount of 23.11% among the Warrant Comparables. The Bonus Warrants Subscription Price of HK$0.35, which represents a premium of approximately 43.4% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement, lies above the market range and more favourable compared to the average of the Warrant Comparables.

– 29 –

LETTER FROM NUADA LIMITED

Considering the low trading liquidity of the Shares as illustrated above and based on the facts that the Subscription Price (i) represents a premium of approximately 2.5% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement; (ii) represents a premium of approximately 3.3% over the average closing price of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last five and ten consecutive trading days immediately prior to (not including) the date of the Announcement; (iii) is in line with the prevailing market price of the Shares as indicated by the range of the average daily closing price of the Shares over the review period; (iv) falls within the Market Range and even more favourable compared to the average of the Comparables, and also the facts that the Bonus Warrants Subscription Price (i) represents a premium of approximately 43.4% over the closing price of HK$0.244 per Share as quoted on the Stock Exchange on the date of the Announcement; (ii) represents a premium of approximately 44.6% over the average closing price of approximately HK$0.242 per Share as quoted on the Stock Exchange for the last five and ten consecutive trading days immediately prior to (not including) the date of the Announcement; (iii) is in line with the prevailing market price of the Shares and lies near the upper range of the average daily closing price of the Shares over the review period; and (iv) lies above the market range and more favourable compared to the average of the Warrant Comparables, we are of the view that the Subscription Price and the Bonus Warrants Subscription Price are fair and reasonable.

4. Other financing alternatives

As stated in the Letter, the Directors consider that in view of the financial position of the Group, it is difficult to attract new investors to make equity investment in the Company. Other than the Subscription, the Board has considered other financing alternatives such as rights issue or open offer but it is difficult to find an underwriter who is willing to underwrite any untaken Shares of the Shareholders. Debt financing is also not easy as there has been default by the Group in repaying its debts. In the circumstances, the Directors consider that the Subscription (including the issue of the Bonus Warrants) represents an opportunity to raise capital for the Company with no interest burden.

The Directors also consider that the Subscription by the Subscriber is appropriate in the given market condition because (i) the Subscription will provide more certainty to the Company to raise the required fund; (ii) new Shares may be issued at a premium over the market trading price of the Shares; (iii) further capital may be raised upon the exercise of the subscription rights attaching to the Bonus Warrants during the Exercise Period; and (iv) the Subscription, with the Subscription Price and the Bonus Warrants Subscription Price being at 2.5% and over 40% premium over the closing price of the Share on the date of the Announcement respectively, can demonstrate the long term commitment and support of the Subscriber, being its controlling Shareholder, to the Company for its long term development and growth.

– 30 –

LETTER FROM NUADA LIMITED

Based on the above and given the financial position of the Company as elaborated above, we concur with the views of the Directors that debt financing or bank borrowing or rights issue/open offer would not be considered suitable for the Group at present.

In addition, the Subscription can result in a better financial position with an enhancement to the net asset value of the Company, which will be discussed in the section headed ‘‘Financial effects of the Subscription’’ below.

5. Financial effects of the Subscription

Effect on net asset value

Based on the Interim Report 2014, the unaudited consolidated net asset value of the Company was approximately HK$123.7 million as at 30 June 2014. The net asset value of the Group would increase by the net proceeds from the Subscription of approximately HK$82 million. Assuming that the subscription rights attaching to the Bonus Warrants are fully exercised, the Subscription would further increase the net asset value of the Group by approximately HK$115.5 million.

The Subscription will therefore have an overall positive impact on the net asset value of the Group.

Effect on working capital

As disclosed in the 2014 Interim Report, the Group had cash and cash equivalent of approximately HK$106.7 million as at 30 June 2014. Immediately after completion of the Subscription, the liquidity and cash position of the Group will improve as the Subscription will raise net proceeds of approximately HK$82 million. The exercise of the subscription rights attaching to the Bonus Warrants, if materialises, will also have a positive effect on the working capital position of the Group.

Based on the above financial effects of the Subscription (including the issue of Bonus Warrants), we are of the view that the Subscription will have an overall positive effect on the financial position of the Group and consider that the Subscription is interests of the Company and the Shareholders a whole.

It should be noted that the aforementioned analyses are based on the published and available information, for illustrative purpose only and does not purport to represent how the financial position of the Group will be upon completion of the Subscription.

– 31 –

LETTER FROM NUADA LIMITED

6. Effects on shareholding structure of the Company

Name of Shareholder Belton Light Limited Public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximate % 1,555,555,000 51.6 1,456,500,568 48.4 3,012,055,568 100	As at the Latest Practicable Date No. of Shares Approximate % 1,555,555,000 51.6 1,456,500,568 48.4 3,012,055,568 100	Immediately after Completion No. of Shares Approximate % 1,885,555,000 56.4 1,456,500,568 43.6	Immediately after Completion No. of Shares Approximate % 1,885,555,000 56.4 1,456,500,568 43.6	Immediately after Completion and upon full exercise of the subscription rights attaching to the Bonus Warrants No. of Shares Approximate % 2,215,555,000 60.3 1,456,500,568 39.7 3,672,055,568 100	Immediately after Completion and upon full exercise of the subscription rights attaching to the Bonus Warrants No. of Shares Approximate % 2,215,555,000 60.3 1,456,500,568 39.7 3,672,055,568 100
	3,012,055,568	100	3,342,055,568	100	3,672,055,568	100

We note that the shareholding interest of the Independent Shareholders will be diluted from approximately 48.4% to approximately 43.6% as a result of the issue of the Subscription Shares immediately after Completion. The shareholding interest of the Independent Shareholders will be further diluted to approximately 39.7% as a result of the issue of the Bonus Warrant Shares after Completion assuming full exercise of the subscription rights attaching to the Bonus Warrants.

As discussed in the paragraph headed ‘‘Information on the Group’’ above, the Group was in net current liability position of approximately HK$2,304.7 million as at 31 December 2013 and approximately HK$2,803.1 million as at 30 June 2014. As set out in the Letter, the Directors consider the issue of Subscription Shares to raise funds is in the interest of the Shareholders as a whole, as the Company is free from the interest burden and other additional costs discussed above. In light of the financial position of the Group and the fact that the issue of the Subscription Shares and Bonus Warrants Shares, if any, would not result in additional gearing or finance costs to the Group which may otherwise be incurred if the Group were to adopt other alternatives, we concur with the Directors’ view that the Subscription is in the interest of the Company and the Shareholders as a whole, and consider that the dilution to Independent Shareholders is justifiable.

– 32 –

LETTER FROM NUADA LIMITED

OPINION

Having taking into account the above principal factors and reasons, we consider that the terms of the Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Subscription Agreement is in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, for and on behalf of Nuada Limited Kevin Chan Director

Mr. Kevin Chan is a person licensed under the SFO to carry out type 6 (advising on corporate finance) regulated activities under the SFO and regarded as a responsible officer of Nuada Limited and has over 15 years of experience in corporate finance industry.

– 33 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Director’s interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, none of the Directors had or were deemed to have interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provision of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

(b) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Approximate
			percentage of
	No. of Shares		issued share
Name of shareholder	held	Position	capital
Belton Light Limited	2,215,555,000	Long	73.56%
Jade Bird Energy Fund II, L.P.	2,215,555,000	Long	73.56%
Wang Da Yong	238,460,500	Long	7.92%

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other person (other than the Directors and the chief executive of the Company) who had, or was deemed to have, interests or short positions in the Shares or underlying Shares

– 34 –

GENERAL INFORMATION

APPENDIX

(including any interests in options in respect of such capital), which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(c) Director’s interests in competing business, contracts and assets

As at the Latest Practicable Date,

(a) none of the Directors or their respective associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group;
(b) there is no contract or arrangement entered into by any member of the Group subsisting at the date of this circular in which any Director is materially interested and which is significant to the business of the Group; and
(c) none of the Directors had any direct or indirect interest in any assets which had been acquired, disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, any member of the Group since 31 December 2013, being the date to which the latest published audited consolidated financial statements of the Group were made up.

3. MATERIAL ADVERSE CHANGE

Save as disclosed in the interim report of the Company for the six months ended 30 June 2014, the Directors are not aware of any circumstances or events that may give rise to a material adverse change in the financial or trading position of the Group since 31 December 2013, being the date of which the latest audited financial statement of the Group were made up.

4. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

5. EXPERT’S QUALIFICATION AND CONSENT

Nuada Limited is a licensed corporation to carry on type 6 (advising on corporate finance) regulated activity under the SFO which has provided its opinion contained in this circular.

Nuada Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and/or references to its name in the form and context in which they respectively appear.

– 35 –

GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date, Nuada Limited was not beneficially interested in the share capital of any member of the Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any Shares, convertible securities, warrants, options or derivatives which carry voting rights in any member of the Group nor did it have any interest, either direct or indirect, in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2013, being the date to which the latest published audited financial statements of the Group were made up.

6. DOCUMENTS AVAILABLE FOR INSPECTION

A copy of the Subscription Agreement will be available for inspection during normal business hours (Saturdays and public holidays excepted) from 10:00 a.m. to 12:30 p.m. and from 2:00 p.m. to 5:00 p.m. at the registered office of the Company for a period of 14 days from the date of this circular.

– 36 –

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 (‘‘EGM’’) of the shareholders of King Stone Energy Group Limited (the ‘‘Company’’) will be held at Unit 7603, 76th Floor, The Center, 99 Queen’s Road Central, Hong Kong on Monday, 1 December 2014 at 11:30 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

‘‘THAT:

(a) the subscription agreement (the ‘‘Subscription Agreement’’) entered into between the Company and Belton Light Limited (the ‘‘Subscriber’’) dated 24 October 2014 in relation to the subscription for 330,000,000 new shares (the ‘‘Subscription Shares’’) of the Company at HK$0.25 per share, a copy of the Subscription Agreement having been produced to the EGM and marked ‘‘A’’ and initialed by the chairman of the EGM for the purpose of identification, and the transaction contemplated thereby be and are hereby approved, confirmed and ratified;
(b) the allotment and issue of the Subscription Shares to the Subscriber (or its nominee) pursuant to the terms of the Subscription Agreement and the transactions contemplated thereby be and are hereby approved;
(c) the issue of 330,000,000 unlisted warrants (the ‘‘Bonus Warrants’’) by way of bonus to the Subscriber (or its nominee) entitling the holder thereof to subscribe for 330,000,000 new shares (the ‘‘Bonus Warrants Shares’’) of the Company at the initial subscription price of HK$0.35 per share (subject to adjustment) during 24 months commencing from the date of issue of the Bonus Warrants pursuant to the terms of the Subscription Agreement and the transactions contemplated thereby be and are hereby approved;
(d) the allotment and issue of the Bonus Warrants Shares to the holder(s) of the Bonus Warrants pursuant to the terms of the instrument (the ‘‘Warrant Instrument’’) constituting the Bonus Warrants be and are hereby approved; and

– 37 –

NOTICE OF EGM

(e) any one or more directors of the Company be and is/are hereby authorised to allot and issue the Subscription Shares, to issue the Bonus Warrants and to allot and issue the Bonus Warrants Shares in accordance with the terms of the Subscription Agreement and the Warrant Instrument (as the case may be) and to do all such acts and things as he/they consider(s) necessary or expedient for the purpose of giving effect to the Subscription Agreement and completing the transactions contemplated thereby.’’

By order of the Board King Stone Energy Group Limited Xu Zhendong Chairman

Hong Kong, 14 November 2014

Registered Office, head office and principal place of business in Hong Kong:

Unit 7603, 76th Floor

The Center

99 Queen’s Road Central

Hong Kong

Notes:

A member entitled to attend and vote at the EGM is entitled to appoint one or more proxy to attend and, subject to the provisions of the Articles of the Company, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the EGM to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
In order to be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and deposited together with a power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority, at the Company’s share registrar and transfer office, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the EGM or any adjournment thereof, should he so wish.
In the case of joint holders of shares, any one of such holders may vote at the EGM, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holder are present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.
The resolution at the EGM will be conducted by way of a poll.

– 38 –

AI assistant

Design Capital Limited — Proxy Solicitation & Information Statement 2014

49990_rns_2014-11-13_30a989dd-994b-4757-b475-b797e6578be3.pdf

KING STONE ENERGY GROUP LIMITED

金 山 能 源 集 團 有 限 公 司

CONNECTED TRANSACTION: SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

CONTENTS

DEFINITIONS

KING STONE ENERGY GROUP LIMITED

金 山 能 源 集 團 有 限 公 司

Independent non-executive Directors:

To the Shareholders

CONNECTED TRANSACTION: SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

INTRODUCTION

LETTER FROM THE BOARD

THE SUBSCRIPTION AGREEMENT

Date

Parties

Subscription Shares

Subscription Price

Conditions precedent to the Subscription

Completion

Principal terms of the Bonus Warrants

LETTER FROM THE BOARD

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

INFORMATION ON THE GROUP

REASONS FOR THE SUBSCRIPTION AND USE OF PROCEEDS

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES OF THE COMPANY DURING THE PAST 12 MONTHS

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

EGM

RECOMMENDATION

LETTER FROM THE BOARD

FURTHER INFORMATION

KING STONE ENERGY GROUP LIMITED

金 山 能 源 集 團 有 限 公 司

CONNECTED TRANSACTION: SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

CONNECTED TRANSACTION SUBSCRIPTION FOR NEW SHARES WITH BONUS WARRANTS

LETTER FROM NUADA LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Group

LETTER FROM NUADA LIMITED

The results

The financial position

Outlook

Coal Mining

HydroFlame Technology

Oil and Gas E&P Projects

Silver Mining

LETTER FROM NUADA LIMITED

2. Terms of and Reasons for the Subscription Agreement

LETTER FROM NUADA LIMITED

Use of proceeds

LETTER FROM NUADA LIMITED

3. Review of historical closing price and trading volume

Historical price movement

Historical daily closing price per Share

LETTER FROM NUADA LIMITED

Trading volume and liquidity of the Shares

LETTER FROM NUADA LIMITED

Comparison with other share subscription exercises

Comparison with other warrant subscription exercises

4. Other financing alternatives

5. Financial effects of the Subscription

Effect on net asset value

Effect on working capital

6. Effects on shareholding structure of the Company

OPINION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(a) Director’s interests and short positions in the securities of the Company and its associated corporations

(b) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO

(c) Director’s interests in competing business, contracts and assets

3. MATERIAL ADVERSE CHANGE

4. SERVICE CONTRACT

5. EXPERT’S QUALIFICATION AND CONSENT

6. DOCUMENTS AVAILABLE FOR INSPECTION

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

ORDINARY RESOLUTION

Design Capital Limited Proxy Solicitation & Information Statement 2014

金山能源集團有限公司

金山能源集團有限公司

金山能源集團有限公司

KING STONE ENERGY GROUP LIMITED 金山能源集團有限公司