RED SKY ENERGY LIMITED. — Proxy Solicitation & Information Statement 2010

Oct 10, 2010

RED SKY ENERGY LIMITED

ABN 94 099 116 275

NOTICE OF GENERAL MEETING

The General Meeting of the Company will be held at the Lower Pavilion, Royal King's Park Tennis Club, 21 King's Park Road, West Perth, Western Australia on 11 November 2010 at 10.00am (WST).

This Notice of General Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their accountant, solicitor or other professional adviser prior to voting.

Should you wish to discuss any matter please contact the Company Secretary on (08) 9486 1122.

RED SKY ENERGY LIMITED

ABN 94 099 116 275

NOTICE OF GENERAL MEETING

Notice is hereby given that the General Meeting of Shareholders of Red Sky Energy Limited (Company) will be held at the Lower Pavilion, Royal King's Park Tennis Club, 21 King's Park Road, West Perth, Western Australia on 11 November 2010 at 10.00am (WST) (General Meeting).

The Explanatory Memorandum to this Notice of General Meeting provides additional information on matters to be considered at the General Meeting. The Explanatory Memorandum and Proxy Form are part of this Notice.

The Directors have determined pursuant to regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered as Shareholders of the Company on 9 November 2010 at 5.00pm (WST).

Terms and abbreviations used in this Notice and Explanatory Memorandum are defined in Schedule 1 of the Explanatory Memorandum.

AGENDA

Resolution 1 - Approval of Performance Share Terms

To consider, and if thought fit, pass as a special resolution with or without amendment the following:

"That, for the purposes of Sections 254B, 246B(1) and 246C(5) of the Corporations Act and clause 106 of the Constitution of the Company and for all other purposes, the Company be authorised to create a new class of Share on the terms and conditions in Schedule 3 and in the Explanatory Memorandum (Performance Shares)."

Resolution 2 – Adoption of Employee Incentive Scheme

To consider, and if thought fit pass with or without amendment as an ordinary resolution the following:

"That, subject to the passing of Resolution 1 and in accordance with Exception 9 of ASX Listing Rule 7.2, the Shareholders approve the establishment of an Employee Incentive Scheme to be called the "Red Sky Energy Employee Incentive Scheme" for the issue of Performance Shares pursuant to this scheme on the terms and conditions in Schedule 2 and in the Explanatory Memorandum (Employee Incentive Scheme)."

Voting Exclusion

The Company will disregard any votes cast on this Resolution by a Director or Employee (except one who is ineligible to participate in any employee incentive scheme in relation to the Company) or any associate of a Director. However, the Company will not disregard a vote if:

• (a) it is cast by the person as a proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form; or
• (b) it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form to vote as the proxy decides.

Resolution 3 – Authority to Issue and Fund Performance Shares

To consider, and if it thought fit, pass as an ordinary resolution with or without amendment the following:

"That, subject to the passing of Resolutions 1 and 2 and in accordance with ASX Listing Rule 10.14 and Chapter 2E of the Corporations Act and for all other purposes, the Shareholders approve the issue and funding of 120,000,000 Performance Shares to the Directors (or their nominees) pursuant to the Employee Incentive Scheme and on the terms and conditions in the Explanatory Memorandum."

Voting exclusion

The Company will disregard any votes cast on this Resolution by the Directors or Employees (except one who is ineligible to participate in any employee incentive scheme in relation to the Company) or any of their associates. However, the Company will not disregard a vote if:

• (a) it is cast by the person as proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form; or
• (b) it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

Resolution 4 – Section 195 Approval

To consider, and if thought fit, to pass with or without amendment as an ordinary resolution the following:

"That, for the purposes of section 195(4) of the Corporations Act and for all other purposes, Shareholders approve and authorise the Directors to complete the transactions as contemplated in this Notice of General Meeting."

Resolution 5 – Placement of Shares

To consider, and if thought fit, to pass with or without amendment as an ordinary resolution the following:

"That for the purposes of ASX Listing Rule 7.1 and for all other purposes, the Company be authorised to allot and issue 120,000,000 Shares on the terms and conditions as set out in the Explanatory Statement."

Voting exclusion

The Company will disregard any votes cast on this Resolution by any person who may participate in the placement and any person who might obtain a benefit or any of their associates. However, the Company will not disregard a vote if:

(a) it is cast by the person as proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form; or

(b) it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

BY ORDER OF THE BOARD

Lloyd Flint Company Secretary Dated: 4 October 2010

RED SKY ENERGY LIMITED

ABN 94 099 116 275

EXPLANATORY MEMORANDUM

1. Introduction

This Explanatory Memorandum has been prepared for the information of Shareholders of the Company in connection with the business to be conducted at the General Meeting to be held at the Lower Pavilion, Royal King's Park Tennis Club, 21 King's Park Road, West Perth, Western Australia on 11 November 2010 at 10.00am (WST).

This Explanatory Memorandum should be read in conjunction with and forms part of the accompanying Notice. The purpose of this Explanatory Memorandum is to provide information to Shareholders in deciding whether or not to pass the Resolution in the Notice.

A Proxy Form is located at the end of the Explanatory Memorandum.

2. Action to be Taken by Shareholders

Shareholders should read the Notice and Explanatory Memorandum carefully before deciding how to vote on the Resolution.

A Proxy Form is attached to the Notice. This is to be used by Shareholders if they wish to appoint a representative ("proxy") to vote in their place. All Shareholders are invited and encouraged to attend the General Meeting or, if they are unable to attend in person, sign and return the Proxy Form to the Company in accordance with the instructions thereon. Lodgement of a Proxy Form will not preclude a Shareholder from attending and voting at the General Meeting in person.

3. Resolution 1 – Approval of Performance Share Terms

The Company seeks Shareholder approval to create the Performance Shares as a new class of Shares on the terms and conditions in Schedule 3. Under Section 246C(5) of the Corporations Act, the rights of the holders of Shares in the Company will be taken to be varied as a result of the issue of the Performance Shares.

Pursuant to Section 246B(10) of the Corporations Act and the Constitution of the Company (refer clause 106) requires that the creation of a new class of share requires:

Either :

• (a) a special resolution passed in a meeting of the holders of the issued shares of the affected class; or
• (b) the written consent of the holders of three quarters of the issued shares of the affected class.

Accordingly the Company seeks approval from Shareholders for the issue of the Performance Shares on the terms set out in Schedule 3 to this Explanatory Statement. If this Resolution 1 is passed and the Performance Shares are created as a new class of Shares, the Company will notify ASIC in the prescribed form and manner in section 246F of the Corporations Act. The Company will then be permitted to issue Performance Shares in accordance with the Corporations Act and the Listing Rules.

Resolution 1 is a special resolution and requires the approval of 75% of the votes cast by Shareholders.

The Board recommends that Shareholders of the Company vote in favour of Resolution 1.

The Company will also seek approval in Resolution 3 from Shareholders to issue Performance Shares pursuant to the Employee Incentive Scheme to the Directors.

4. Resolution 2 – Adoption of Employee Incentive Scheme

Resolution 2 seeks Shareholder approval in accordance with the ASX Listing Rule 7.2 for the establishment of the Employee Incentive Scheme for the issue of the Performance Shares pursuant to the Scheme. The terms and conditions of the Employee Incentive Scheme, subject to directors' absolute discretions included therein, are attached to this Explanatory Memorandum at Schedule 2. The Directors are empowered to operate the Employee Incentive Scheme in accordance with the Corporations Act, Listing Rules and terms and conditions in Schedule 2.

Resolution 2 is an ordinary resolution.

The Directors (or their nominees) are eligible to participate in the Employee Incentive Scheme. ASX Listing Rule 10.14 requires that Shareholder approval is required for the acquisition by directors of securities pursuant to an employee share scheme. Shareholder approval in accordance with Listing Rule 10.14 is sought for Resolution 3 in relation to Directors' participation.

The two main purposes of the Scheme are to give an incentive and benefit to the eligible employees (or their nominees) to provide dedicated and ongoing commitment and effort to the Company aligning the interests of both employees and Shareholders and for the Company to reward eligible employees for their efforts. The Scheme contemplates the issue to eligible employees of Performance Shares which will have milestones. Eligible employees will include both employees and Directors, who are permitted to hold the Performance Shares through a nominee.

ASX Listing Rule 7.1 places restrictions on the number of equity securities, including options, which a listed company may issue in any 12 months. However, certain issues are exempt from this ASX Listing Rule and are effectively disregarded for the purposes of counting the number of securities which a company may issue. ASX Listing Rule 7.1 does not apply to the issue of equity securities to Directors (or their nominees) whereby Shareholder approval is required in any event. Exempt issues include an issue of securities to persons participating in an Employee Incentive Scheme where Shareholders have approved the issue of securities under the scheme as an exemption from ASX Listing Rule 7.1. Shareholder approval must be given in a General Meeting held not more than 3 years before the date of issue where the Notice contains or is accompanied by certain prescribed information.

In order to take advantage of the exemption from ASX Listing Rule 7.1 and allow the Company greater flexibility to issue securities, Shareholders are requested to approve the Scheme as an exemption from ASX Listing Rule 7.1.

This approval will be effective for a period of 3 years from the date the passing by Shareholders of Resolution 2.

For the purpose of ASX Listing Rule 7.2 Exception 9 the terms of the Employee Incentive Scheme are in Schedule 2.

5. Resolution 3 – Authority to Issue and Fund Performance Shares and for conversion to ordinary shares

The two main purposes of the Performance Shares to be issued under the Employee Incentive Scheme are to give an incentive and benefit to the eligible employees (or their nominees) to provide dedicated and ongoing commitment and effort to the Company aligning the interests of both employees and Shareholders and for the Company to reward eligible employees for their efforts. The Scheme contemplates the issue to eligible employees of Performance Shares which will have milestones.

5.1 Specific information required by Listing Rule 10.14 and section 219 of the Corporations Act

For the purposes of Listing Rule 10.14 and section 219 of the Corporations Act, information is provided as follows:

Resolution 3 seeks Shareholder approval pursuant to Listing Rule 10.14 and Chapter 2E of the Corporations Act for the issue and funding (refer 5.2 below) of a total of 120,000,000 Performance Shares to the Directors (or their nominees) pursuant to the Employee Incentive Scheme and on the terms and conditions in this Explanatory Memorandum.

Resolution 3 is an ordinary resolution. If the Shareholders do not approve Resolution 3 no Director (or their nominee) will be issued Performance Shares.

The terms and conditions of the Performance Shares are in Schedule 3.

The Performance Shares will be issued subject to Shareholder approval to the following Directors (or their nominees) (Performance Shareholders):

Performance Shareholder	Number of Performance Shares	% of Securities on a FullyDiluted Basis*
Gerrit de Nys	60,000,000	6.17
Murray Durham	30,000,000	3.09
Guy Le Page	30,000,000	3.09
Total	120,000,000	12.35%

* Refer to definition of Fully Diluted Basis in Schedule 1.

Shareholder approval is required under ASX Listing Rule 10.14 and section 208 of the Corporations Act for the proposed issue and funding (refer 5.2 below) of the Performance Shares because the Directors are related parties of the Company. The Company intends to issue the 120,000,000 Performance Shares within one month after the meeting, subject to Shareholder approval.

The Performance Shares to be issued will consist of 3 tranches as set out on the terms and conditions in Schedule 3 to this Explanatory Memorandum. The Performance Shares will be funded by a loan from the Company to the Performance Shareholder.

The 3 tranches of Performance Shares will each have different milestones and expiry dates. The milestones will be achieved on reaching a specified share price.

The Performance Shares will be issued with same rights as Shares, though those rights will not be effective on issue. The rights of Shares will only be effective as follows:

• (a) If the relevant milestone for any tranche of Performance Shares is achieved (which will be a Milestone Achievement Date) then from the relevant Milestone Achievement Date that tranche of Performance Shares will become Shares.
• (b) If the relevant milestone for any tranche of Performance Shares is not achieved (which will be a Consolidation Date) then all tranches of the outstanding Performance Shares will be consolidated into 1 Performance Share, after which that will become 1 Share. The consolidation will not apply in respect of any tranche of Performance Shares that has already achieved the relevant milestone and which subsequently already become Shares.

The Performance Shares will each be issued at the greater of $0.012 (being the volume weighted average for 20 days prior to valuation date) or that number which is $0.002 less than the Share Price on the date of issue.

The milestones and expiry dates of the milestones of the Performance Shares are:

Tranche	Milestone	Expiry Date
Tranche 1	A Share Price¹ of $0.040	3 years from the date of issue
Tranche 2	A Share Price of $0.050	5 years from the date of issue
Tranche 3	A Share Price of $0.060	5 years from the date of issue

¹. Refer to Schedule 1 for the definition of Share Price.

5.2 Loan for the Performance Shares

Performance Shareholders will fund the subscription of the Performance Shares by a loan from the Company (Loan).

The Loan will be interest free.

The Loan is repayable in full as follows:

• (a) No later than 2 years following a Milestone Achievement Date in respect of a particular tranche of Performance Shares which become Shares.
• (b) No later than 90 days following the Consolidation Date (except for those Performance Shares that have achieved a Milestone Achievement Date and have become Shares).

The definition of Consolidation Date includes the date when a Director ceases to hold office for any reason including (without limitation) dismissal, resignation, removal or termination of directorship. The Board may exercise its discretion to nominate another date in such circumstances. When exercising this discretion, the Board will be required to act in accordance with its fiduciary duties and in the best interests of the Company.

The Performance Shareholder may prepay the Loan at anytime without any penalty.

The Loan will be secured by a share mortgage and the only recourse for the Loan is the Performance Shares. After a Milestone Achievement Date in respect of a tranche of Performance Shares, the security of the share mortgage over that tranche of Performance Shares will be transferred to the Shares. In this regard therefore, the share mortgage will provide for the mortgagee to give effect to repayment in both (a) and (b) above. In the case of (a) above this may result in the loan not being repaid in full or a surplus arising after proceeds are applied against the loan, market price dependant. Any surplus arising after repaying the loan in full will be for the benefit of the Shareholder (as the case would be).

This security for the Loan will be limited to the Performance Shares or the Shares (as the case may be) and the proceeds from their sale. There will be no recourse to the Performance Shareholder, including the individual Directors.

Under the share mortgage the Performance Shares or the Shares (as the case may be) will be held by a security holder on behalf of the Company. The Performance Shareholder will remain the beneficial owners of the Performance Shares or the Shares (as the case may be) until the Loan is repaid in full. The security holder will be a wholly owned subsidiary of the Company incorporated to perform this role.

The share mortgage will include the following:

• (a) After the Milestone Achievement Date and the repayment in full of the Loan, the security over the Performance Shares (which will have become Shares) will be released and the Shares will be transferred by the security holder to the Performance Shareholder.
• (b) After the Consolidation Date, the number of Shares on issue (following the consolidation of the Performance Shares) will be sold in full and final satisfaction of the Loan. The amount repaid in these circumstances will be determined by the market price of the Shares at the date of repayment but such amount may not cover the full amount of the Loan.
• (c) A restriction on the disposal of the Performance Shares or Shares (as the case may be) until the repayment of the Loan.
• (d) On a winding up of the Company, the share mortgage will provide that any such amount received on a winding up be will applied in full and final satisfaction of the Loan.

If there is a Consolidation Date, it is unlikely that the Company will be repaid the full amount of the Loan. On a consolidation all of the outstanding Performance Shares will be consolidated into 1 Performance Share, after which that will become 1 Share. Consequently, when this reduced number of Shares is sold it is unlikely the amount from the sale proceeds will repay the full amount of the Loan.

A Performance Shareholder will not be personally liable to repay any amount under the Loan as it only has recourse to the Performance Shares or Shares (as the case may be) and the proceeds from their sale.

A Performance Shareholder will not be required under the Loan to provide any representations and warranties in favour of the Company.

5.3 Specific information required by Listing Rule 10.15A and section 219 of the Corporations Act

ASX Listing Rule 10.15A and section 219 of the Corporations Act requires that the following information be provided to Shareholders for the purpose of obtaining Shareholder approval for the issue:

PerformanceShareholder	Tranche 1Entitlement	Tranche 2Entitlement	Tranche 3Entitlement	TotalPerformanceShareEntitlement
Gerrit de Nys	20,000,000	20,000,000	20,000,000	60,000,000
Murray Durham	10,000,000	10,000,000	10,000,000	30,000,000
Guy Le Page	10,000,000	10,000,000	10,000,000	30,000,000

(a) Performance Shares will be issued to the Performance Shareholders as follows:

• (b) The maximum number of Performance Shares issued to the Performance Shareholders pursuant to this resolution will be 120,000,000.
• (c) The Performance Shares will each be issued at the greater of $0.012 or that number which is $0.002 less than the Share Price on the date of issue. The number of Performance Shares issued multiplied by the Share Price will constitute the loan amount.
• (d) A voting exclusion statement is included in the Notice.
• (e) Performance Shareholders will fund the subscription of the Performance Shares by the Loan from the Company. The Loan will be interest free and have the further terms in Section 5.2 above.
• (f) Details of any Performance Shares issued under the Employee Incentive Scheme will be published in each annual report of the Company relating to a period in which the Performance Shares have been issued, and that approval for the issue of the Performance Shares was obtained under Listing Rule 10.14.
• (g) Any additional persons who become entitled to participate in the Employee Incentive Scheme after this Resolution 3 is approved and who were not named in the Notice will not be able to participate pursuant to Listing Rule 10.14.
• (h) The Company intends to issue the Performance Shares within one month after the General Meeting.
• (i) The Performance Shares have the further terms and conditions in Schedule 3.
• (j) The funds from the issue of the Performance Shares will effectively be used to finance the Loan. The deemed proceeds from the issue of the Performance Shares will be deemed to be advanced to each Performance Shareholder to effect the Loan.
• (k) The financial benefit of the Loan to each Performance Shareholder is an interest free loan for the subscription amount of all the Performance Shares. There will be no recourse to the Performance

Shareholder under the Loan. The Company will be liable to pay fringe benefits tax in respect of the Loans to the Directors.

• (l) On the basis of the assumptions below the technical value of a Performance Share approximates $0.00867 for the Tranche 1 Performance Share and $0.0104 for the Tranche 2 and Tranche 3 Performance Shares. These valuations impute a total value of $1,178,800 to the Performance Shares. The value may go up or down after that date as it will depend on the future price of a Share. A Binomial model was adopted for the purposes of valuing the Performance Shares, together with the following assumptions:
  • (i) interest rate set at the Commonwealth Government securities rate of 4.715%, 4.846% and 4.846% for Tranche 1, Tranche 2 and Tranche 3 Performance Shares respectively;
  • (ii) the date of valuation is for the purposes of settling the current market value of a share is 13 September 2010;
  • (iii) at this date the share price was $0.0135 which is the price used in the valuation;
  • (iv) the volatility factor is set as 100%; and
  • (v) the Performance Shares will not become Shares any earlier than 3 years and 5 years following issue;
• (m) If the Shareholders approve the proposed issue of the Performance Shares, the achievement of the milestones and the giving effect to rights of the Performance Shares will result in a dilution of all other Shareholders' holdings in the Company of 12.35% on a Fully Diluted Basis.
• (n) The current and proposed Share and option holdings of Performance Shareholders are specified as follows:

Proposed Holder	Current Shares	Current Options	Proposed
			Performance Shares
Gerrit de Nys	1,000,000	-	60,000,000
Murray Durham	-	-	30,000,000
Guy Le Page	-	-	30,000,000

(o) The remuneration of the Performance Shareholders for the financial year ended 31 December 2009 is as follows :

Proposed Holder		Salary, Fees	Share	Other	Total
		& Payments	Based	benefits
			Payment -
	Notes		Options
Gerrit de Nys	1	$15,152	-	-	$15,152
Murray Durham	1	$9,000	-	-	$9,000
Guy Le Page	1	$27,467	-	-	$27,467

1. These directors were appointed during the 2009 year and the 2009 earnings are not year full year earnings.

Murray Durham is on an annual package of $220,000 (excluding superannuation), effective from 18 January 2010. Gerrit de Nys and Guy Le Page will receive $80,000 and $40,000 respectively per annum as Director fees.

On the assumption that the loans were not repaid within the first 12 months after the issue of the Performance Shares after the meeting, estimated earnings for the year of issue would be :

Proposed Holder	Salary, Fees& Payments	PerformanceShares¹	Other benefits(interest oninterest free loan)²	Total¹
Gerrit de Nys	$80,000	$589,400	$32,545	$701,945
Murray Durham	$220,000	$294,700	$16,273	$530,973

Guy Le Page	$40,000	$294,700	$16,273	$350,973

¹It should be noted that although the issue is included as a financial benefit, the Loan arising on the issue of the Performance Shares has not been included or set-off against the benefit in the table. There would be no benefit to Performance Shareholders if the "Last" share price below was the issue price.

² The rate of interest used is the Australian Taxation Office Division 7A Benchmark Interest Rate for the year ending 30 June 2010.

If there is a Consolidation Date, it is unlikely that the Company will be repaid the full amount of the Loan. It is unlikely the amount from the sale proceeds will repay the full amount of the Loan and hence there will be no value to the Performance Shareholders on a Consolidation Date.

(p) Historical share price information for the last three months is as follows:

	Price	Date
Highest	$0.020	18 June 2010
Lowest	$0.010	7 July 2010
Last	$0.014	14 September 2010

• (q) Other than the information above and otherwise in this Explanatory Memorandum, the Company believes that there is no other information that would be reasonably required by Shareholders to pass Resolution 3.
• (r) Directors Recommendations

Each of Gerrit de Nys, Murray Durham and Guy Le Page has an interest in the Resolutions under which Performance Shares will be issued and funded and therefore believe it inappropriate to make a recommendation.

Rohan Gillespie does not have an interest in the outcome of this resolution and recommends that the Shareholders vote in favour of resolution 3 for the reasons set out in the Explanatory Memorandum and on the basis that, notwithstanding that the Company is aware that it is issuing Performance Shares to non executive Directors, in his opinion, the proposed issue of the Performance Shares :

• Is critical to incentivise Gerrit de Nys, Murray Durham and Guy Le Page to contribute to the ongoing success of the Company and to drive the Company's projects to production;
• Is a fair and reasonable alternative to a cash payment which also provides an incentive to Gerrit de Nys, Murray Durham and Guy Le Page in the provision of services by them to the Company required to commercialise the Company's projects;
• Are commercial for the Company in light of the potential benefits, dilution affect and the potential costs described above; and
• Is necessary to reflect remuneration paid to directors of companies in similar industries and of similar size to that of the Company

As Shareholder approval is sought under Listing Rule 10.14, approval under Listing Rule 7.1 is not required.

6. Resolution 4 – Section 195 Approval

Section 195 of the Corporations Act essentially provides that a director of a public company may not vote or be present during meetings of directors when matters in which that director holds a "material personal interest" are being considered.

Some of the Directors may have a material personal interest in the outcome of Resolutions 1 to 3. In the absence of this Resolution 4, the Directors may not be able to form a quorum at Directors meetings necessary to carry out the terms of the Resolutions.

The Directors have accordingly exercised their right under section 195(4) of the Corporations Act to put the issue to Shareholders to resolve upon.

7. Resolution 5 – Approve placement

Resolution 5 seeks Shareholder approval for the issue of up to 120,000,000 Shares at an issue price which is not less than 80% of the average market price of Shares over the last five days on which sales in the Shares on the ASX were recorded before the date of issue and on the terms and conditions in the Explanatory Memorandum.

Listing Rule 7.1 – Shareholder Approval

Listing Rule 7.1 requires Shareholder approval for the Placement. Listing Rule 7.1 provides, subject to certain exceptions, that Shareholder approval is required for any issue of securities by a listed company, where the securities proposed to be issued represent more than 15% of the Company's securities then on issue.

Although this Placement does not represent more than 15% of the Company's securities on issue for the purposes of Listing Rule 7.1, the Company is seeking Shareholder approval of the Placement so that the Company can retain its 15% capacity under Listing Rule 7.1. Accordingly, Shareholder approval is sought in accordance with Listing Rule 7.3.

Specific information required by Listing Rule 7.3

For the purposes of the Shareholder approval of the issue of securities under the Placement and the requirements of Listing Rule 7.3, information is provided as follows:

• (a) Maximum number of Securities to be issued is120,000,000 Shares
• (b) The Company will issue the Shares under the placement no later than 3 months after the date of the Annual General Meeting.
• (c) The Shares will each have an issue price of not less than 80% of the average market price of Shares over the last five days on which sales in the Shares were recorded before the date of issue.
• (d) The Shares will be issued predominantly to sophisticated investors who are clients of various brokers and are not related parties of the Company and/or under a prospectus to the general public should a disclosure document be required.
• (e) The Shares will be fully paid ordinary shares in the capital of the Company and will rank equally with existing Shares of the Company.
• (f) The funds from the Shares will be used to fund ongoing activities at the Company's key projects and for working capital purposes.
• (g) The Shares issued under the placement will occur progressively.
• (h) A voting exclusion statement is included in the Notice.

Schedule 1 – Definitions

In this Explanatory Memorandum:

General Meeting has the meaning given in the introductory paragraph of the Notice.

ASIC means Australian Securities and Investments Commission.

ASX means ASX Limited and where the context permits the Australian Securities Exchange operated by ASX Limited.

Board means the board of Directors.

Business Day has the meaning in the Listing Rules.

Company or Red Sky means Red Sky Energy Limited ABN 94 099 116 275.

Consolidation Date has the meaning given to it in Schedule 3.

Constitution means the constitution of the Company.

Corporations Act means the Corporations Act 2001 (Cth).

Director means a director of the Company and Directors means all of them.

Employee has the meaning given to Eligible Employees in Resolution 2.

Employee Incentive Scheme has the meaning given to it in Resolution 2.

Explanatory Memorandum means this explanatory memorandum.

Fully Diluted Basis means the total number of issued equity securities in the Company excluding all the Shares on issue if the milestones for the Performance Shares are achieved.

Loan has the meaning given to it in Section 5.2 of this Explanatory Memorandum.

Listing Rules means the listing rules of ASX.

Milestone Achievement Date has the meaning given to it in Schedule 3.

Notice means the Notice of General Meeting to which the Explanatory Memorandum is attached.

Performance Shareholder has the meaning given to it in Section 5.1 of the Explanatory Memorandum.

Performance Shares has the meaning given to it in Resolution 1.

Proxy Form means the proxy form attached to the Notice.

Resolution means a resolution referred to in the Notice.

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

Share Price means the price per Share calculated by the market price the Company's shares as determined by the volume weighted average price of Shares on ASX over a period of 20 days on which sales in the Shares were recorded prior to the date of calculation.

Shareholder means a shareholder of the Company.

WST means Western Standard Time.

In this Explanatory Memorandum and the Notice, words importing the singular include the plural and vice versa.

Schedule 2 – Employee Incentive Scheme Terms and Conditions

• (a) The Directors may, subject to clause (d), offer to issue Performance Shares to Eligible Employees in accordance with the Scheme and in such manner and on such terms and conditions as they in their absolute discretion determine.
• (b) The Eligible Employees to participate in the Scheme shall be as the Directors in their absolute discretion determine and shall take into account skills, experience, length of service with the Company, remuneration level and such other criteria as the Directors consider appropriate in the circumstances.
• (c) Performance Shares may not be offered under this Scheme without the issue of a prospectus in accordance with Chapter 6D of the Corporations Act, if the aggregate of:
  • (i) the number of Performance Shares to be issued;
  • (ii) the number of Shares which would be issued if all the current Performance Shares issued under any employment incentive scheme became Shares;
  • (iii) the number of Shares which have been issued as a result of the Performance Shares issued under any employee incentive scheme, where the Performance Shares were issued during the preceding five years; and
  • (iv) all other Shares issued pursuant to any employee incentive scheme during the preceding five years;

but disregarding any offer made, Performance Shares or Shares issued by way of or as a result of:

• (v) an offer to a person situated at the time of receipt of the offer outside Australia;
• (vi) an offer that was an excluded offer or invitation within the meaning of the Corporations Act as it stood prior to the commencement of Schedule 1 of the Corporate Law Economic Reform Program Act 1999; or
• (vii) an offer that did not need disclosure to investors because of section 708 of the Corporations Act,

would exceed 5% of the then current number of Shares on issue.

• (d) The Directors may, in their absolute discretion, offer to an Eligible Employees Performance Shares under the Scheme, notwithstanding that it has previously issued more than the 5% limit in clause (d), up to a maximum of 10%, provided that the issue is made in accordance with the requirements of Chapter 6D of the Corporations Act.

• (e) Performance Shares will be issued at a price to be determined by the Directors and with milestones and milestone expiry dates as determined by the Directors in their absolute discretion.

• (f) Unless the Directors in their absolute discretion determine otherwise, Performance Shares shall consolidate into a reduced number upon the earlier of:

  • (i) the expiry of the milestone expiry date; or
  • (ii) the Performance Shareholder ceases to be an Eligible Employee by reason of retirement or termination.

• (g) If an Eligible Employee accepts an offer from the Company to participate in the Scheme then the Company will evidence the issue of a Performance Share to an Eligible Employee by issue that Eligible Employee a certificate for that Performance Share.

• (h) Unless the Directors in their absolute discretion determine otherwise, there are no voting or dividend rights or entitlements inherent in the Performance Shares and holders will not be entitled to participate in new issues of capital offered to shareholders during the currency of the Performance Shares.

• (i) The Performance Shares will not be quoted on the ASX. No application for quotation of the Performance Shares will be made by the Company.

• (j) An application to be issued Performance Shares may be made by Eligible Employees invited to participate in the Scheme in such form and on such terms and conditions concerning the closing date for applications as the Directors in their absolute discretion determine.

• (k) In the event of any reconstruction, consolidation or division into (respectively) a lesser or greater number of securities of the Shares and the Performance Shares shall be reconstructed, consolidated or divided in the same proportion as the Shares are reconstructed, consolidated or divided and, in any event, in a manner which will not result in any additional benefits being conferred on the Eligible Employees which are not conferred on the Shareholders.

• (l) Subject to and in accordance with the Listing Rules (including any waiver issued under such Listings Rules), the Directors (without the necessity of obtaining the prior or subsequent consent of shareholders of the Company in a general meeting) may from time to time amend (including the power to revoke, add to or vary) all or any provisions of the Terms and Conditions in any respect whatsoever, by an instrument in writing, provided that rights or entitlements in respect of any Performance Share issued before the date of amendment shall not be reduced or adversely affected unless prior written approval from the affected holder(s) is obtained.

• (m) Unless the Directors in their absolute discretion determine otherwise, a Performance Share may not be transferred or assigned except that a legal personal representative of a holder of a Performance Share who has died or whose estate is liable to be dealt with under laws relating to mental health will be entitled to be registered as the holder of that Performance Share after the production to the Directors of such documents or other evidence as the Directors may reasonably require to establish that entitlement.

• (n) Participation in the Scheme by an Eligible Employee does not in any way prejudice or affect the right of the Company or an Associated Body Corporate to dismiss an Eligible Employee or to vary the terms of employment of any Eligible Employee. Nor shall participation or the rights or benefits of an Eligible Employee under the Terms and Conditions be relevant to or used as grounds for granting or increasing damages in any action brought by an Eligible Employee against the Company or

an Associated Body Corporate whether in respect of any alleged wrongful dismissal or otherwise.

• (o) The Scheme shall be administered by the Directors who shall have power to:
  • (i) determine appropriate procedures for administration of the Scheme consistent with these Terms and Conditions;
  • (ii) resolve conclusively all questions of fact or interpretation or dispute in connection with the Scheme and settle as the Directors in their absolute discretion determine expedient any difficulties or anomalies howsoever arising with or by reason of the operation of the Scheme;
  • (iii) delegate to any one or more persons for such period and on such conditions as it may determine the exercise of any of the Directors' powers or discretions arising under the Scheme; and
  • (iv) subject to the Listing Rules, waive strict compliance with, amend or add to the Terms and Conditions of the Scheme except for the provisions of clause (d), and where such actions are taken such actions shall be conclusive, final and binding on Performance Share holders.
• (p) Definitions, Interpretation and Governing Law

The following terms shall bear the following meanings:

Associated Body Corporate means:

• (i) a related body corporate (as defined in the Corporations Act) of the Company;
• (ii) a body corporate which has an entitlement to not less than 20% of the voting shares of the Company; and
• (iii) a body corporate in which the Company has an entitlement to not less than 20% of the voting shares.

ASX means Australian Stock Exchange Limited.

Business Day has the meaning in the Listing Rules.

Company means Red Sky Energy Limited ABN 94 099 116 275.

Company Group means the Company and its Associated Bodies Corporate.

Corporations Act means the Corporations Act 2001 (Commonwealth).

Directors mean the directors from time to time of the Company.

Eligible Employees means full or part time employees and consultants of the Company or its Associated Bodies Corporate including Directors (or their nominees).

Listing Rules means the official listing rules of ASX as amended from time to time.

Performance Share means a performance share issued in accordance with the Scheme.

Scheme means the Red Sky Energy Employee Incentive Scheme which Eligible Employees will be invited to participate in accordance with the Terms and Conditions.

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

Terms and Conditions means these terms and conditions as amended from time to time.

Schedule 3 - Terms and Condition of Performance Shares

1. Definitions

In these terms and conditions:

Approved Director means a Director approved by the Shareholders to hold Performance Shares at the General Meeting.

Associated Bodies Corporate means:

• (a) a related body corporate (as defined in the Corporations Act) of the Company;
• (b) a body corporate which has an entitlement to not less than 20% of the voting shares of the Company; and
• (c) a body corporate in which the Company has an entitlement to not less than 20% of the voting shares.

ASX means ASX Limited (ABN 98 009 624 691) and, where the context permits, the Australian Securities Exchange operated by ASX Limited.

Board means the board of Directors.

Business Day has the meaning in the Listing Rules.

Cessation Date means the later of:

• (a) the date an Approved Director or Eligible Employee ceases to be a Director or employee for any reason including (without limitation) dismissal, resignation, removal or termination; or
• (b) the Nominated Date.

Change in Control Event means:

• (a) the Voting Power of a Person in the Company increases above 50%;
• (b) a Person gaining Control of the Company; or
• (c) the announcement by the Company that:
  • (i) Shareholders of the Company have at a Court convened meeting of Shareholders voted in favour, by the necessary majority, of a proposed scheme of arrangement under which all Shares are to be either:
    • (A) cancelled; or
    • (B) transferred to a third party; and
  • (ii) the Court, by order, approves the proposed scheme of arrangement.

Company means Red Sky Energy Limited ABN 94 099 116 275.

Consolidation Date means that date that is the earlier of:

• (a) the Tranche 1 Expiry Date if the Tranche 1 Milestone has not been achieved;
• (b) the Tranche 2 Expiry Date if the Tranche 2 Milestone has not been achieved;
• (c) the Tranche 3 Expiry Date if the Tranche 3 Milestone has not been achieved; or
• (d) in relation to each Approved Director or Eligible Employee, the Cessation Date.

Control has the same meaning as in section 50AA of the Corporations Act.

Corporations Act means the Corporations Act 2001 (Cth).

Director means a director of the Company.

Eligible Employees means full or part time employees and consultants of the Company or its Associated Bodies Corporate including Directors (or their nominees).

General Meeting means the general meeting of the Company held to approve the issue of the Performance Shares.

Holder means:

• (a) an Approved Director or Eligible Employee; or
• (b) or a person nominated by an Approved Director or Eligible Employee,

who holds a Performance Share (as appropriate).

Issue Price means the greater of $0.012 or that number which is $0.002 less than the Share Price on the date of issue;

Listing Rules means the official listing rules of ASX, as amended, added to or replaced from time to time.

Milestone Achievement Date has the meaning given to in clause 4(a)(i).

Nominated Date has meaning given to it in clause 4(e).

Performance Share means a Tranche 1 Performance Share, Tranche 2 Performance Share and Tranche 3 Performance Share and any one or more of them.

Related Body Corporate has the same meaning as in section 50 of the Corporations Act.

Section 606(1) means section 606(1) of the Corporations Act.

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

Share Price means the price of a Share calculated by the market price the Shares as determined by the volume weighted average price of Shares on ASX over a period of twenty (20) days on which sales in the Shares were recorded prior to the date of calculation.

Shareholder means a holder of Shares.

Tranche 1 Expiry Date means the date three (3) years from the date of issue of the Tranche 1 Performance Share.

Tranche 1 Milestone occurs on the achievement of a Share Price (as defined) equal to or greater than $0.040.

Tranche 1 Performance Share means a Performance Share that is issued on the terms contained in this Schedule.

Tranche 2 Expiry Date means the date five (5) years from the date of issue of the Tranche 2 Performance Share.

Tranche 2 Milestone occurs on the achievement of a Share Price (as defined) equal to or greater than $0.050.

Tranche 2 Performance Share means a Performance Share issued on the terms contained in this Schedule.

Tranche 3 Expiry Date means the date five (5) years from the date of issue of the Tranche 3 Performance Share.

Tranche 3 Milestone occurs on the achievement of a Share Price (as defined) equal to or greater than $0.060.

Tranche 3 Performance Share means a Performance Share issued on the terms contained in this Schedule.

Voting Power has the same meaning as in section 610 of the Corporations Act.

2. Interpretation

In these terms and conditions:

• (a) the singular includes the plural and vice versa;
• (b) the word person includes a natural person, firm, body corporate, partnership (whether limited or otherwise), joint-venture, trust or unincorporated association; and
• (c) a reference to a person includes a reference to the person's executors, administrators, successors and substitutes and permitted assigns.

3. Issue Price and Share Capital

• (a) A Holder will pay the Issue Price for each Performance Share.
• (b) The Performance Shares will form part of the issued share capital of the Company.

4. Rights attaching to the Performance Shares

(a) Pari Passu Ranking

Subject to clause 4(c), each Performance Share will become a Share and rank pari passu in all respects with the Shares from that date that is the earlier of for each Performance Share the following:

(i) in respect of the:

• (A) Tranche 1 Performance Shares, the date that the Tranche 1 Milestone is achieved; or
• (B) Tranche 2 Performance Shares, the date that the Tranche 2 Milestone is achieved; or
• (C) Tranche 3 Performance Shares, the date that the Tranche 3 Milestone is achieved; or
• (D) Tranche 1 Performance Shares, Tranche 2 Performance Shares and Tranche 3 Performance Shares, the date that a Change in Control Event occurs, up to a maximum threshold of 10% of ordinary shares on issue, prorated across Holders holdings of Performance Shares on that date so as not to exceed the 10% threshold ,

(the Milestone Achievement Date); and

• (ii) that date which is two (2) Business Days after the Consolidation Date.
• (b) After a Milestone Achievement Date or that date which is two (2) Business Days after a Consolidation Date:
  • (i) each Performance Share will become a Share and will rank pari passu in all respects with the Shares;
  • (ii) application will be made by the Company to ASX for official quotation of the Share; and
  • (iii) the Company will as soon as practicable issue the Holder with a holding statement.
• (c) Takeover Provisions

Notwithstanding any other provision:

• (i) If the occurrence of the Performance Shares becoming Shares (or part thereof) under clause 4(a) would result in any person being in contravention of Section 606(1) then each Performance Share that would become a Share that causes the contravention shall be deferred until such time or times thereafter that would not result in a contravention of Section 606(1).
• (ii) A Holder shall give notification to the Company in writing if they consider that the occurrence of the Performance Shares becoming Shares (or part thereof) under clause 4(a) may result in the contravention of Section 606(1) failing which the Company shall assume that the occurrence of the Performance Shares becoming Shares (or part thereof) under clause 4 will not result in any person being in contravention of Section 606(1).
• (iii) The Company may (but is not obliged to) by written notice request a Holder to give notification to the Company in writing within 7 days if they consider that the occurrence of the Performance Shares becoming Shares (or part thereof) under clause 4(a) may result in the contravention of Section 606(1). If the Holder does not give notification to the Company within 7 days that they consider the occurrence of the Performance Shares becoming Shares (or part

thereof) under clause 4 may result in the contravention of Section 606(1) then the Company shall assume that the occurrence of the Performance Shares becoming Shares (or part thereof) under clause 3 will not result in any person being in contravention of Section 606(1).

(d) Prior to Milestone Achievement Date or Consolidation Date

Prior to the date that is the earlier of the Milestone Achievement Date or the Consolidation Date for each Performance Share:

(i) Return of Capital

The Performance Shares shall only be entitled to a return of capital (whether in a winding up or otherwise) up to an amount equal to the Issue Price.

(ii) Dividends

The Performance Shares are not entitled to a dividend.

(iii) Reconstruction

In the event of any reconstruction, consolidation or division into (respectively) a lesser or greater number of securities of the Shares, then:

• (A) the Performance Shares shall be reconstructed, consolidated or divided in the same proportion as the Shares are reconstructed, consolidated or divided; and
• (B) the Share Price for each of the Tranche 1 Milestone, Tranche 2 Milestone and Tranche 3 Milestone shall be amended in proportion to the reconstruction, consolidation or division,

and in any event, in a manner which will not result in any additional benefits being conferred on the Holders which are not conferred on the Shareholders.

(iv) Winding Up

If the Company is wound up then the Holders will have no other right to participate in surplus assets or profits of the Company on winding up.

• (v) Non-transferable
  • (A) Subject to clause 4(v)(B), the Performance Shares are not transferrable.
  • (B) A Performance Share may be transferred to a legal personal representative of a Holder who has died or whose estate is liable to be dealt with under laws relating to mental health will be entitled to be registered as the Holder after the production to the Directors of such documents or other evidence as the Directors may reasonably require to establish that entitlement.

(vi) Copies of Notices and Reports

The Holders have the same right as Shareholders to receive notices, reports and audited accounts and to attend general meetings of the Company but are not entitled to vote.

(vii) Voting Rights

The Holders shall have no right to vote, subject to the Corporations Act.

(viii) Participation in new issues

There are no participation rights or entitlements inherent in the Performance Shares and Holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Performance Share.

(ix) Quotation

The Performance Shares are unquoted. No application for quotation of the Performance Shares will be made by the Company.

(e) Cessation of Directorship

Within 20 Business Days of an Approved Director or Eligible Employee ceasing to be a Director or employee for any reason including (without limitation) dismissal, resignation, removal or termination, the Board may nominate a later date for that Approved Director which will be the date that the Approved Director or Eligible Employee will be deemed to have ceased to be a Director or employee for the purposes of the Performance Shares (Nominated Date).

5. Consolidation

On the Consolidation Date all of the Performance Shares will automatically be consolidated into one Performance Share.

RED SKY ENERGY LIMITED

ACN 94 099 116 275

P R O X Y F O R M

The Company Secretary Red Sky Energy Limited

I/We 1 ________________________________________________________________________________________

By delivery: By post: By facsimile: Suite 2,16 Ord Street, PO Box 1779 +61 8 9486 1011 WEST PERTH,WA, 6005 WEST PERTH,WA, 6872

of __________________________________________________________________________________________

being a Shareholder/Shareholders of the Company and entitled to _______________________________________

votes in the Company, hereby appoint 2 ____________________________________________________________

or failing such appointment the chairman of the General Meeting as my/our proxy to vote for me/us on my/our behalf at the General Meeting of the Company to be held at 10.00am on 11 November 2010 (WST) at the Lower Pavilion, Royal King's Park Tennis Club, 21 King's Park Road, West Perth, Western Australia and at any adjournment thereof in the manner indicated below or, in the absence of indication, as he thinks fit. If 2 proxies are appointed, the proportion or number of votes of this proxy is authorised to exercise is * [ ]% of the Shareholder's votes*/ [ ] of the Shareholder's votes. (An additional Proxy Form will be supplied by the Company, on request).

INSTRUCTIONS AS TO VOTING ON RESOLUTION

Important:

If the chairman of the General Meeting is to be your proxy and you have not directed your proxy how to vote on please tick this box. By marking this box you acknowledge that the chairman of the General Meeting may exercise your proxy even if he has an interest in the outcome of the Resolution and that votes cast by him, other than as proxy holder, would be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the chairman of the General Meeting will not cast your votes on Resolution and your votes will not be counted in computing the required majority if a poll is called on this Resolution.

The chairman of the General Meeting intends to vote undirected proxies in favour of the Resolutions.

The proxy is to vote for or against the Resolution referred to in the Notice as follows:

		For	Against Abstain
Resolution 1	Approval of Performance Share Terms
Resolution 2	Approval of Employee Incentive Scheme
Resolution 3	Authority to Issue and Fund Performance Shares
Resolution 4	Section 195 Approval
Resolution 5	Approve Placement

Authorised signature/s This section must be signed in accordance with the instructions overleaf to enable your voting instructions to be implemented.

Individual or Shareholder 1	Shareholder 2	Shareholder 3
Sole Director and Sole CompanySecretary	Director	Director/Company Secretary
_________________________Contact Name	_______________________Contact Daytime Telephone	___________________Date
1Insert name and address of Shareholder	2Insert name and address of proxy	*Omit if not applicable

Proxy Notes:

A Shareholder entitled to attend and vote at the General Meeting may appoint a natural person as the Shareholder's proxy to attend and vote for the Shareholder at that General Meeting. If the Shareholder is entitled to cast 2 or more votes at the General Meeting the Shareholder may appoint not more than 2 proxies. Where the Shareholder appoints more than one proxy the Shareholder may specify the proportion or number of votes each proxy is appointed to exercise. If such proportion or number of votes is not specified each proxy may exercise half of the Shareholder's votes. A proxy may, but need not be, a Shareholder of the Company.

If a Shareholder appoints a body corporate as the Shareholder's proxy to attend and vote for the Shareholder at that General Meeting, the representative of the body corporate to attend the General Meeting must produce the 'Certificate of Appointment of Representative' prior to admission. A form of the certificate may be obtained from the Company's share registry.

You must sign this form as follows in the spaces provided:

• Joint Holding: where the holding is in more than one name all of the holders must sign.
• Power of Attorney: if signed under a power of attorney, you must have already lodged it with the registry, or alternatively, attach a certified photocopy of the power of attorney to this Proxy Form when you return it.
• Companies: a director can sign jointly with another director or a company secretary. A sole director who is also a sole company secretary can also sign. Please indicate the office held by signing in the appropriate space.

If a representative of the corporation is to attend the General Meeting the appropriate "Certificate of Appointment of Representative" should be produced prior to admission. A form of the certificate may be obtained from the Company's share registry.

Proxy Forms (and the power of attorney or other authority, if any, under which the Proxy Form is signed) or a copy or facsimile which appears on its face to be an authentic copy of the Proxy Form (and the power of attorney or other authority) must be deposited at or received by facsimile transmission at the Company's Registered Office (Suite 2,16 Ord Street, West Perth 6005 or mailed to the Company's Registered Office (PO Box 1779, West Perth 6872 or Facsimile (08) 9486 1011 if faxed within Australia or +618 9 if faxed from outside Australia) not less than 24 hours prior to the time of commencement of the General Meeting (WST).