RED SKY ENERGY LIMITED. — Proxy Solicitation & Information Statement 2011

Feb 14, 2011

RED SKY ENERGY LTD ACN 099 116 275

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

EXPLANATORY STATEMENT

AND

PROXY FORM

TO BE HELD ON

21 March 2011 COMMENCING AT 12.30pm AEST

AT

The Theatrette RACV Club 501 Bourke Street MELBOURNE VIC 3000

RED SKY ENERGY LTD

(ACN 099 116 275)

NOTICE OF MEETING

Notice is hereby given that an General Meeting of shareholders of Red Sky Energy Ltd (the Company) will be held at The Theatrette, RACV Club, 501 Bourke Street, Melbourne VIC 3000 on 21 March 2011 at 12.30pm AEST.

AGENDA

1. Resolution 1 – Approval of the Company's Employee Share Option Plan

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

"That, for the purposes of Exception 9 of Listing Rule 7.2 and for all other purposes, the issue of Options under the Company's Employee Share Option Plan (the ESOP) is approved."

The Company will disregard any votes cast on this Resolution by the Directors of the Company (except Directors who are ineligible to participate in the ESOP) and their respective associates, other than votes cast:

• · as proxy in accordance with the directions on the proxy form, for any other shareholder of the Company who is entitled to vote; and
• · by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form to vote as the proxy decides.

2. Resolution 2 – Issue of Options to Gerrit de Nys

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

"That, for the purposes of Part 2E.1 of the Act and Listing Rule 10.11, and for all other purposes, approval is given for the Company to issue to Gerrit de Nys (a current Director of the Company) and/or his nominees, 37,500,000 Options in the Company, each to acquire one fully paid ordinary Share in the Company at an exercise price per option of 125% of the share price on the grant date, which Options shall be exercisable at any time prior to 5.00pm AEST on 31 March 2016 (the Time of Expiry) and otherwise on the terms and conditions set out in the Explanatory Statement attached to this Notice."

Note 1: The Options will be issued no later than 1 month from the date of the General Meeting.

Note 2: The Company will disregard any votes cast on this Resolution by Gerrit de Nys and his associates other than votes cast:

• · as proxy in accordance with the directions on the proxy form, for any other shareholder of the Company who is entitled to vote; and
• · by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form to vote as the proxy decides.
• .

.

3. Resolution 3 – Issue of Options to Murray Durham

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

"That, for the purposes of Part 2E.1 of the Act and Listing Rule 10.11, and for all other purposes, approval is given for the Company to issue to Murray Durham (a current Director of the Company) and/or his nominees, 7,500,000 Options in the Company, each to acquire one fully paid ordinary Share in the Company at an exercise price per option of 125% of the share price on the grant date, which Options shall be exercisable at any time prior to the Time of Expiry and otherwise on the terms and conditions set out in the Explanatory Statement attached to this Notice."

Note 1: The Options will be issued no later than 1 month from the date of the General Meeting.

Note 2: The Company will disregard any votes cast on this Resolution by Murray Durham and his associates (who are all prohibited from voting) other than votes cast:

• · as proxy in accordance with the directions on the proxy form, for any other shareholder of the Company who is entitled to vote; and
• · by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form to vote as the proxy decides.

4. Resolution 4 – Issue of options to Guy T Le Page

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

"That, for the purposes of Part 2E.1 of the Act and Listing Rule 10.11, and for all other purposes, approval is given for the Company to issue to Guy T Le Page (a current Director of the Company) and/or his nominees, 15,000,000

Options in the Company, each to acquire one fully paid ordinary Share in the Company at an exercise price per option of 125% of the share price on the grant date, which Options shall be exercisable at any time prior to the Time of Expiry and otherwise on the terms and conditions set out in the Explanatory Statement attached to this Notice."

Note 1: The Options will be issued no later than 1 month from the date of the General Meeting.

Note 2: The Company will disregard any votes cast on this Resolution by Guy T Le Page and his associates other than votes cast:

• · as proxy in accordance with the directions on the proxy form, for any other shareholder of the Company who is entitled to vote; and
• · by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form to vote as the proxy decides.

.

5. 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.

6. General

To transact any business which may be brought before the meeting in accordance with the Constitution of the Company, the Act, or otherwise.

PROXIES

In accordance with section 249L of the Act, shareholders are advised:

• · each shareholder has a right to appoint a proxy;
• · the proxy need not be a shareholder of the Company;
• · a shareholder who is entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise.

In accordance with section 250BA of the Act the Company specifies the following for the purposes of receipt of proxy appointments:

By post or hand delivery to :	Level 17, 500 Collins Street, Melbourne VIC 3000
-------------------------------	--------------------------------------------------

By facsimile to: 03 9614 0550

Each shareholder entitled to vote at the General Meeting has the right to appoint a proxy to vote on each particular Resolution. The shareholder may specify the way in which the appointed proxy is to vote on a particular Resolution or may allow the appointed proxy to vote at its discretion. The instrument appointing the proxy must be received by the Company as provided in its Constitution no later than 48 hours prior to the time of the commencement of the General Meeting. This proxy form may be sent by facsimile transmission to the number identified on the proxy form.

A corporation may elect to appoint a representative in accordance with the Act in which case the Company will require written proof of the representative's appointment which must be lodged with, or presented to the Company before the meeting.

For the purposes of Regulation 7.11.37 of the Corporations Regulations 2001 the Company determines that shareholders holding ordinary shares at 5.00pm AEST on 19 March 2011 will be entitled to attend and vote at the General Meeting.

Except where the contrary intention appears, all defined terms used in this Notice of Meeting have the meanings set out in the glossary of the Explanatory Statement accompanying this Notice.

By Order of the Board of Directors

Adrien Wing Company Secretary Dated 10 February 2011

RED SKY ENERGY LTD (ACN 099 116 275) EXPLANATORY STATEMENT FOR SHAREHOLDERS

This Explanatory Statement is intended to provide shareholders of the Company with sufficient information to assess the merits of each Resolution contained in the accompanying Notice of General Meeting of the Company.

The Directors recommend that shareholders read this Explanatory Statement in full before making any decision in relation to the Resolutions. The following information should be noted in respect of the various matters contained in the accompanying Notice of Meeting.

1 – APPROVAL OF THE COMPANY'S EMPLOYEE SHARE OPTION PLAN (ESOP)

The Company has yet to establish an ESOP to allow the Company's employees to participate in the ownership of the Company and to provide employees with both short and long term incentives to achieve growth in shareholder wealth. At a meeting of shareholders held in November 2010 the proposed Employee Incentive Scheme, in consultation with various stakeholder groups in the Company, was withdrawn. A new ESOP is now tabled for adoption, based on the outcomes from that consultation.

Listing Rule 7.1 prohibits an entity from issuing or agreeing to issue equity securities in any 12-month period which amount to more than 15% of its ordinary securities without the approval of holders of its ordinary securities.

However, Listing Rule 7.2 exception 9(b) provides that Listing Rule 7.1 does not apply in relation to, among other things, an issue under an employee incentive scheme if within 3 years before the date of the issue the holders of the entity's ordinary securities approve the issue of securities under the scheme as an exception to Listing Rule 7.1.

The Listing Rules define "employee incentive scheme" to include a scheme for the issue or acquisition of equity securities in an entity to be held by, or for the benefit of, participating employees or non-executive directors of the entity or a related entity. Under the Listing Rules, equity securities include options over issued or unissued shares in an entity. The ESOP is therefore an employee incentive scheme for the purposes of the Listing Rules.

If this Resolution is passed, Options issued under the ESOP during the next 3 years will be excluded in determining the 15% limit under Listing Rule 7.1. This would assist the Company by providing additional fundraising flexibility.

The following information is provided for the purposes of Listing Rule 7.2 Exception 9(b):

• 1. A summary of the terms of the ESOP is set out in Schedule 1.
• 1. The Company will disregard any votes cast on this Resolution by a Director of the Company (except one who is ineligible to participate in the ESOP) or any of his or her associates. However, the Company will not disregard a vote if:
  • 2.1 it is cast by a Director (even if the Director is eligible to participate in the ESOP) as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
  • 2.2 it is cast by the person chairing the General Meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form.

The Board recommends that shareholders vote in favour of this Resolution.

2 to 4 – ISSUE OF OPTIONS TO COMPANY DIRECTORS

Resolutions 2, 3 and 4 seek shareholder approval for the purposes of Part 2E.1 of the Act and Chapter 10 of the Listing Rules, and for all other purposes, for the Company to issue Options to the current Directors of the Company.

The Directors of the Company have resolved that, subject to receiving approval of the Company's shareholders in accordance with Resolutions 2, 3 and 4, each of the current Directors of the Company will be issued with 60,000,000 Options.

The Options are being issued to the Directors in consideration of services which they have provided, and will subsequently provide, to the Company.

The terms and conditions upon which the Options will be issued (Terms and Conditions) are as follows:

• 1. The Options are exercisable at any time prior to 5.00pm AEST 31 March 2016 (the Time of Expiry). Options not exercised on or before the Time of Expiry will automatically lapse.
• 1. The Options may be exercised wholly or in part by completing a notice of exercise of options in a form approved by the Company (a Notice of Exercise) and delivering it to the Company's registered office at any time prior to the Time of Expiry.
• 1. The Options entitle the holder to subscribe (in respect of each Option held) for one fully paid ordinary Share in the Company at an exercise price per Option of 125% of the share price on the grant date.
• 1. Upon the exercise of the Options and receipt of all relevant documents and payment, Shares will be issued ranking equally with the then issued Shares, and the Company will apply to ASX to have the Shares so issued granted official quotation.
• 1. Any Notice of Exercise received by the Company prior to the Time of Expiry will be deemed to be a Notice of Exercise as at the last business day (a day other than a Saturday or a Sunday on which banks are open for business in Perth, Melbourne VIC 3000) of the month in which it is received.
• 1. There are no participating entitlements inherent in the Options to participate in new issues of capital, which may be offered to shareholders of the Company during the currency of the Options. Prior to any new pro rata issue of securities to shareholders of the Company, holders of Options will be notified by the Company and afforded 10 business days before the Record Date (as defined in the Listing Rules to determine entitlements to the issue), to exercise their Options.
• 1. In the event of any reconstruction (including consolidation, subdivision, reduction or return) of the issued capital of the Company prior to the Time of Expiry, the number of Options or the exercise price of the Options (or both) shall be reconstructed (as appropriate) in a manner which will not result in any benefits being conferred on the holders of the Options which are not being conferred on shareholders of the Company and (subject to the provisions with respect to rounding entitlements as sanctioned by the meeting of Company shareholders approving the reconstruction of capital) in all respects, the terms for the exercise of the Options shall remain unchanged. For these purposes, the rights of the holders of the Options may be changed from time to time to comply with the Rules applying to reorganisation of capital, at the time of reorganisation.
• 1. The Options may be transferred at any time prior to the Time of Expiry.
• 1. Shares issued pursuant to the exercise of an Option will be issued not more than 14 days after the Notice of Exercise.

The Directors to which options are to be issued (or their related parties) currently hold the Shares and Options in the Company as set out below.

The current and proposed share and option holdings of the Directors, the subject of the resolutions, are specified as follows:

Proposed Holder(and/or nominee)	Current Shares	Current Options	Proposed Options
Gerrit de Nys	1,000,000	-	37,500,000
Murray Durham	15,000,000	-	7,500,000
Guy Le Page	-	-	15,000,000

If all of the Options proposed to be issued to the Directors are exercised, an additional 60,000,000 shares in the Company will then be on issue. The dilution effect is tabled below :

Proposed Holder	Number of Performance Shares	% of Securities on a FullyDiluted Basis
Gerrit de Nys	37,500,000	3.15
Murray Durham	7,500,000	0.63
Guy Le Page	15,000,000	1.26
Total	60,000,000	5.04%

Subject to the significant qualifications detailed below the Directors have estimated, using the valuation methodology summarised below, that the accounting value of each of the Options to be issued to the Directors is $0.01412 per Option. Therefore the total value of the Director's 60,000,000 Options would be $847,260 (estimated).

The Options have been indicatively valued using the Black-Scholes Option Valuation Model (the Model), which takes account of factors including option exercise price, the current underlying share price volatility, risk-free interest rate, expected dividends on the underlying share, current market price of the underlying share and the expected option life. The Model attributes an indicative value of $0.01412 per Option on the following assumptions:

• (a) the Options are exercisable at a price per Option of $0.02375 (being 125% of the share price as at 8 February 2011);
• (b) a current underlying Share price volatility of 100%;
• (c) a risk-free interest rate of 5.54% per annum (based on the 5-year government bond rate);
• (d) the underlying value of each Share being $0.019 (based on the value of the Company's shares on the ASX on 8 February 2011);
• (e) no dividends being payable; and

The estimated value of each Option is subject to considerable uncertainty because many of the parameters of the Model are difficult to estimate.

The Act

Part 2E.1 of the Act regulates the provision of "financial benefits" by public companies. The Company is a public company.

Section 208(1) of the Act provides that the Company can only give a financial benefit to a "related party" of the Company if the Company obtains the approval of its shareholders in accordance with the procedures set out in Part 2E.1 of the Act.

Directors of public companies are related parties for the purposes of the Act. Gerrit de Nys, Murray Durham and Guy T Le Page are Directors, and therefore related parties, of the Company.

The Act deems the issue of an option by a public company to a related party to constitute the giving of a financial benefit to that related party.

In the circumstances, the Resolution by the Directors to issue the Options will result in the Company giving a financial benefit to Gerrit de Nys, Murray Durham and Guy T Le Page, who are related parties of the Company.

The Options are being issued to the Directors in consideration of services which they have provided, and will subsequently provide, to the Company. Section 211 of the Act provides an exception to the need to obtain shareholder approval to the giving of a financial benefit to a related party where the financial benefit is remuneration given to an officer (including a director) of a public company and giving the remuneration would be reasonable given the respective circumstances of the public company and the related party (including the responsibilities involved in the office or employment).

The Directors consider that the issue of the Options to the Directors is reasonable given the circumstances of the Company and the Directors. However to avoid doubt the Company is seeking shareholder approval for the purposes of Part 2E.1 of the Act.

As required by Part 2E.1 of the Act, and in particular section 219 of the Act, the following information contained in paragraphs A, B and C below is provided to allow the shareholders of the Company sufficient information to determine whether or not they should approve these Resolutions.

Proposed Holder	Salary, Fees& Payments$	Option value$	Total$
Gerrit de Nys	80,000	529,538	609,538
Murray Durham	40,000	105,907	145,907
Guy Le Page	40,000	211,815	251,815

Estimated earnings for the year of issue for proposed holders of the options are as follows :

A. Resolution 2

• 1. The proposed financial benefit will be given to Gerrit de Nys (who is a Director).
• 1. The nature of the financial benefit is the issue of Options in the Company.
• 1. Gerrit de Nys (the person to whom the financial benefit will be given) does not wish to make a recommendation to shareholders about this Resolution on the basis that he has an interest in the Resolution's passage. All of the Directors who do not have an interest in this Resolution, notwithstanding that the Company is aware that it is issuing securities to non executive Directors, recommend that shareholders approve this Resolution on the basis that the Options are being issued to the Directors in consideration of services which they have provided, and will subsequently provide, to the Company.
• 1. Gerrit de Nys, as a Director and the person to whom the financial benefit will be payable, has an interest in this Resolution.
• 1. The Directors are not aware of any other information (other than the information contained in this Explanatory Statement) that would be reasonably required by shareholders to allow them to make a decision whether it is in the best interest of the Company to pass the Resolution.

The Company will disregard any votes cast on Resolution 2 by Gerrit de Nys (being the related party of the Company to whom the Resolution would permit the financial benefit to be given) and his associates (who are all prohibited from voting).

B. Resolution 3

• 1. The proposed financial benefit will be given to Murray Durham (who is a Director).
• 1. The nature of the financial benefit is the issue of Options in the Company.
• 1. Murray Durham (the person to whom the financial benefit will be given) does not wish to make a recommendation to shareholders about this Resolution on the basis that he has an interest in the Resolution's passage. All of the Directors who do not have an interest in this Resolution, notwithstanding that the Company is aware that it is issuing securities to non executive Directors, recommend that shareholders approve this Resolution on the basis that the Options are being issued to the Directors in consideration of services which they have provided, and will subsequently provide, to the Company.
• 1. Murray Durham, as a Director and the person to whom the financial benefit will be payable, has an interest in this Resolution.

1. The Directors are not aware of any other information (other than the information contained in this Explanatory Statement) that would be reasonably required by shareholders to allow them to make a decision whether it is in the best interest of the Company to pass the Resolution.

The Company will disregard any votes cast on Resolution 3 by Murray Durham (being the related party of the Company to whom the Resolution would permit the financial benefit to be given) and his associates (who are all prohibited from voting).

C. Resolution 4

• 1. The proposed financial benefit will be given to Guy T Le Page (who is a Director).
• 1. The nature of the financial benefit is the issue of Options in the Company.
• 1. Guy T Le Page (the person to whom the financial benefit will be given) does not wish to make a recommendation to shareholders about this Resolution on the basis that he has an interest in the Resolution's passage. All of the Directors who do not have an interest in this Resolution, notwithstanding that the Company is aware that it is issuing securities to non executive Directors, recommend that shareholders approve this Resolution on the basis that the Options are being issued to the Directors in consideration of services which they have provided, and will subsequently provide, to the Company.
• 1. Guy T Le Page, as a Director and the person to whom the financial benefit will be payable, has an interest in this Resolution.
• 1. The Directors are not aware of any other information (other than the information contained in this Explanatory Statement) that would be reasonably required by shareholders to allow them to make a decision whether it is in the best interest of the Company to pass the Resolution.

The Company will disregard any votes cast on Resolution 4 by Guy T Le Page (being the related party of the Company to whom the Resolution would permit the financial benefit to be given) and his associates (who are all prohibited from voting).

The Listing Rules

Listing Rule 10.11 provides that unless an entity has the approval of the holders of "ordinary securities", that entity must not issue or agree to issue "equity securities" to a "related party", or a person whose relationship with the entity or a related party of the entity is, in the opinion of the ASX, such that approval should be obtained.

The Listing Rules define equity security to include an option over an issued or unissued share in an entity. The Options will therefore be equity securities for the purposes of the Rules.

Under the Listing Rules, the term related party (in relation to a body corporate) has the same meaning as that set out in section 228 of the Act. Section 228(2) of the Act provides that the directors of a public company are related parties of that public company. Gerrit de Nys, Murray Durham and Guy T Le Page are Directors, and therefore related parties, of the Company.

The Company is therefore also seeking shareholder approval for the purposes of Listing Rule 10.11 to the issue of the Options to the Directors. If the approval of the shareholders of the Company is not obtained, the Options will not be issued to the Directors. If approval is given under listing rule 10.11, approval is not required under listing rule 7.1.

The following information is provided to shareholders of the Company pursuant to Listing Rule 10.13:

• 1. The Directors propose to issue Options to each of Gerrit de Nys (37,500,000 options), Murray Durham (7,500,000) and Guy T Le Page (15,000,000).
• 1. The maximum number of Options that will be issued is 60,000,000.
• 1. The Company will issue the Options not more than one month after the date of the General Meeting.
• 1. The Company will disregard any votes on Resolution 2 by Gerrit de Nys or any of his associates. However, the Company will not disregard a vote if:
  • 4.1 it is cast by Gerrit de Nys or any of his associates as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
  • 4.2 it is cast by the person chairing the General Meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form.
• 1. The Company will disregard any votes on Resolution 3 by Murray Durham or any of his associates. However, the Company will not disregard a vote if:
  • 5.1 it is cast by Murray Durham or any of his associates as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
  • 5.2 it is cast by the person chairing the General Meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form.
• 1. The Company will disregard any votes on Resolution 4 by Guy T Le Page or any of his associates. However, the Company will not disregard a vote if:

• 6.1 it is cast by Guy T Le Page or any of his associates as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or

• 6.2 it is cast by the person chairing the General Meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form.

• 1. The Options will be issued on the Terms and Conditions described above in this Explanatory Statement. The Options are being issued to the Directors in consideration of services which they have provided, and will subsequently provide, to the Company.
• 1. No funds will be raised by the Company by the issue of the Options to the Directors.

5. 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:

• (c) Maximum number of Securities to be issued is120,000,000 Shares
• (d) The Company will issue the Shares under the placement no later than 3 months after the date of the Annual General Meeting.
• (e) 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.
• (f) 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.
• (g) The Shares will be fully paid ordinary shares in the capital of the Company and will rank equally with existing Shares of the Company.
• (h) The funds from the Shares will be used to fund ongoing activities at the Company's key projects and for working capital purposes.
• (i) The Shares issued under the placement will occur progressively.
• (j) A voting exclusion statement is included in the Notice.

GLOSSARY OF TERMS

In this Explanatory Statement and accompanying Notice of Meeting the following words and expressions have the following meanings:

"ASIC" means Australian Securities and Investments Commission;

"ASX" means ASX Limited (ACN 008 624 691);

"Board" means the board of Directors of the Company;

"Company" or "Red Sky" means Red Sky Energy Ltd (ACN 099 116 275);

"Corporations Act" means Corporations Act 2001 (Cth);

"Director" means a director of the Company;

"Explanatory Statement" means the information attached to the Notice of Meeting which provides information to shareholders about the Resolutions contained in the Notice of Meeting;

"Listing Rules" or "Rules" means the ASX Listing Rules and "Listing Rule" has a corresponding meaning;

"Notice" or "Notice of Meeting" means the notice of meeting which accompanies this Explanatory Statement;

"Options" means options in the Company;

"Shares" means fully paid ordinary shares in the capital of the Company; and

unless the contrary intention appears, terms defined in the Notice of Meeting have the same meaning in this Explanatory Statement.

SCHEDULE 1

SUMMARY OF TERMS OF ESOP

• 1. The Board may offer free Options to:
  • 1.1 full-time or part-time employees; or
  • 1.2 Directors of the Company or of associated bodies corporate of the Company,

(Eligible Employees).

• 1. In accordance with Listing Rule 10.14, Options under the ESOP can only be issued to Directors, and/or associates of the Directors, with the approval of the holders of ordinary securities by special resolution passed at a general meeting.
• 1. There is no issue price for the Options. The exercise price for the Options will be the greater of:
  • 3.1 125% of the weighted average market price of Shares sold on the ASX on the 5 trading days immediately before the date the Board approves the issue of the Options to the Eligible Employee under the ESOP (the Date of Issue); or
  • 3.2 any other price determined by the Board at the Date of Issue.
• 1. Shares issued on exercise of Options will rank equally with other Shares of the Company.
• 1. Options may not be transferred without the approval of the Board. Quotation of Options on ASX will not be sought. However, the Company will apply to ASX for official quotation of the Shares issued on the exercise of the Options.
• 1. The Board may not offer Options under the ESOP if the total number of Shares which would be issued were each Option accepted, together with the number of Shares of the same class or Options to acquire such Shares issued pursuant to all employees or executive share schemes during the previous 5 years, exceeds 5% of the total number of issued Shares in that class as at the date of the offer.
• 1. Options may only be issued or exercised within the limitations imposed by the Act and the Listing Rules.
• 1. Options may be issued which impose conditions that will result in the Options lapsing if those conditions are satisfied and may also be issued with restrictions on the disposal of Shares acquired by an option holder as a result of the exercise of the Options.
• 1. Subject to the paragraphs below, Options must be exercised in the period commencing on the second anniversary and ending on the fifth anniversary of the date of grant, or as otherwise determined by the Company at the time the Options are granted.
• 1. If an Eligible Employee leaves the employment of the Company:
  • 10.1 2 years or more after Options are issued to them; or
  • 10.2 because of retirement at or after 55 years of age, permanent disablement, retrenchment, death or any other circumstances approved by the Board,

the Options may be exercised within 30 days (or 3 months in the case of death), or any longer period permitted by the Board. If note exercised in that time, the Options lapse.

• 1. If an Eligible Employee leaves the employment of the Company or of a related body corporate of the Company earlier than 2 years after Options are issued to them and paragraph 10.2 above does not apply, the Options lapse.
• 1. If any Eligible Employee acts fraudulently, dishonestly or in breach of obligations to the Company or any subsidiary then, at the Board's discretion, Options issued to that person will lapse.
• 1. Options will automatically lapse 5 years after they are issued.
• 1. The holders of Options will only participate in new issues, including bonus issues, if they have exercised the Options at that time and provided such exercise is permitted by the terms of the Option.
• 1. If the Company makes a bonus issue of securities to ordinary shareholders, each unexercised Option will, on exercise, entitle its holder to receive additional Shares and the exercise price is reduced.
• 1. If the Company makes a pro rata rights issue of ordinary Shares for cash to its ordinary shareholders, then there is provision for adjustment of the exercise price of unexercised Options to reflect the diluting effect of the issue.
• 1. In the event of any reconstruction (including consolidation, subdivision, reduction or return) of the issued capital of the Company, all rights of the Option holder will be changed to the extent necessary to comply with the Listing Rules applying to the reconstruction of capital, at the time of the reconstruction.
• 1. The Board may determine within 7 days of the exercise of an Option not to allot or issue Shares under the Option but to refund the tendered exercise price for the Option and either to pay to the Option holder an amount equal to the difference between the market price of the shares as at the date of exercise and the exercise price of the Option, or issue that number of Shares having a market value at the date of exercise of the Option equal to the difference between the market price of the shares as at the date of exercise and the exercise price for the Option.

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

By delivery and By post: By facsimile:

Level 17, 500 Collins Street, Melbourne, VIC, 3000 +61 3 9614 0550

I/We 1

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 12.30pm AEST on 21 March 2011 at TheTheatrette, RACV Club, 501 Bourke Street, Melbourne, 3000 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 ESOP
Resolution 2	Issue of Options to Mr de Nys
Resolution 3	Issue of Options to Mr Durham
Resolution 4	Issue of Options to Mr Le Page
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	2 Insert 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 mailed, deposited at or received by facsimile transmission at the Company's Registered Office (level 17, 500 Collins Street, Melbourne, VIC, 3000 or Facsimile 03 9614 0550 if faxed within Australia or +61 3 9614 0550 if faxed from outside Australia) not less than 24 hours prior to the time of commencement of the General Meeting (AEST).