FINAL NOTICE

To:
Exillon Energy plc

Isle of Man,

ACTION

1. For the reasons given in this notice, the FSA hereby imposes on Exillon a
financial penalty of £292,950.

2. Exillon agreed to settle at an early stage of the FSA’s investigation and
therefore qualified for a 30% (stage 1) discount under the FSA’s executive
settlement procedures. Were it not for this discount, the FSA would have
imposed a financial penalty of £418,500 on it.

SUMMARY OF REASONS

3. In the year following its listing on 17 December 2009, Exillon made a series of
payments to the Chairman of Exillon Mr Maksat Arip, who was also a
beneficiary of a family trust which is Exillon’s largest shareholder. These
payments were the continuation of a practice of Exillon paying Mr Arip’s
private expenses and netting such payments off against his unpaid salary that
had operated in Exillon before listing.

4. On 9 June 2010, less than six months after listing, the aggregate amount of
these payments totalled £587,627, which exceeded 0.25% of the aggregate
market value of all Exillon’s ordinary shares and triggered various
requirements for related party transactions under LR 11.1.10R(2). However,
Exillon failed at this time (and subsequently when further expenses payments
were made) to comply with the requirements in LR 11.1.10R(2), namely to:

i.
inform the FSA in writing of the details of the transaction;

ii.
provide the FSA with written confirmation from an independent
adviser that the terms of the transaction were fair and reasonable; and

iii.
undertake in writing to the FSA to include details of the transactions in
the next published annual accounts.

5. In keeping with the practice that had operated in Exillon before listing,
between October and December 2010 a reconciliation process was undertaken

as a result of which Mr Arip repaid in full all of the expenses payments plus
interest.

6. Exillon had policies and procedures in place intended to ensure compliance
with the rules regarding related party transactions. However from the time of
listing and throughout 2010 these policies and procedures did not work in
practice because:

i.
they relied heavily on senior officers to identify and take appropriate
action and the senior officers charged with this responsibility lacked
the experience and training to perform this function;

ii.
Exillon did not check that those senior officers understood what was
expected of them in the roles they were assigned under the policies and
procedures and that they were capable of performing those roles; and

iii.
Exillon did not check that the policies and procedures were effective
and had been implemented.

7. As a consequence, Exillon continued to operate as it had prior to listing in
relation to the payments to Mr Arip and the relevant senior officers, including
Mr Arip, failed to identify the transactions as related party transactions and
take the necessary steps to comply with LR11.1.10R(2). Exillon therefore
breached Listing Principle 2 by failing to take reasonable steps to establish and
maintain adequate procedures, systems and controls to enable it to comply
with its obligations.

8. The FSA did not conclude that Mr Arip acted improperly in relation to the
payments made to him. Neither was there any evidence to suggest that Mr
Arip or Exillon benefited financially from the payments or that Exillon’s
shareholders suffered any losses.

DEFINITIONS

9. The following definitions are used in this Notice:

“the Act”
means the Financial Services and Markets Act 2000.

“the FSA”
means the Financial Services Authority.

“Exillon”
means Exillon Energy plc.

“the RPT Policy” means the Related Party Transaction Policy Exillon had
in place at the time it was admitted to listing.

“UKLA”
means the United Kingdom Listing Authority.

“DEPP”
means the FSA’s Decision Procedure and Penalties
Guide.

“the Tribunal”
means the Upper Tribunal (Tax and Chancery
Chamber).

FACTS AND MATTERS

10. Exillon was admitted to trading on the London Stock Exchange’s Main Market
and placed on the UKLA’s Official List with a premium listing on 17
December 2009. Mr Arip and the other board members approved the RPT

Policy on 10 December 2009. Mr Arip was an operational manager for the
purposes of the RPT Policy and as such had responsibilities under the policy
to identify and take appropriate action in respect of related party transactions.

The Payments

11. Between 26 January 2010 and 27 December 2010 Exillon made payments to
or on behalf of Mr Arip, who was at that time a related party of Exillon by
virtue of being the Chairman of Exillon, totalling approximately £930,000, for
private expenses. Mr Arip was also a beneficiary of a family trust which was
a substantial shareholder of Exillon., The private expenses included his
children’s education expenses, private flights and accommodation for himself
and his family; replenishment of his personal credit card; and other expenses
for which Mr Arip did not provide documentation to show they were for a
business purpose.

12. These payments were made pursuant to an informal arrangement which had
been in place before Exillon was listed whereby Mr Arip would defer receipt
of his salary and the company would pay his personal expenses. At the end of
the year the company would reconcile the unpaid salary against the personal
expenses and either it would pay Mr Arip or he would repay Exillon.

13. Additionally, Mr Arip wrongly assumed that Exillon was obliged to pay his
children’s educational expenses because all employees in the Dubai office
(who were junior to him) received this benefit. It was only after checking the
terms of his Service Agreement with Exillon that he realized that this was not
the case.

14. On 9 June 2010 Mr Arip requested two payments which when aggregated with
prior payments caused the total amount to reach £587,627, which exceeded
0.25% of the aggregate market value of all Exillon’s ordinary shares and
triggered Exillon’s obligations under LR 11.1.10R(2). However Mr Arip and
the operational managers who authorized the transaction failed to identify the
payments as related party transactions and as a result Exillon failed to comply
with the relevant requirements.

15. Following 9 June 2010 a number of further payments were made to Mr Arip,
each of which, pursuant to LR 11.1.11R(3), resulted in a further breach of
related party transaction requirements under LR 11.1.10R(2). The total
amount of all the payments was around £930,000.

16. Between 26 October 2010 and 28 December 2010, in keeping with the practice
that had operated in Exillon before listing, a reconciliation process was
undertaking as a result of which Mr Arip made a series of payments to Exillon,
which resulted in full repayment of the outstanding sum plus interest.
Notwithstanding Mr Arip’s accepting that he had a responsibility to repay the
outstanding amount of private expenses, neither he nor the operational
managers who had calculated the amount to be repaid, identified Exillon’s
payment of Mr Arip’s private expenses as related party transactions.

Discovery of the Breach

17. On 17 February 2011 Exillon’s auditors wrote to Exillon to advise it that
Exillon’s payments to Mr Arip potentially constituted related party
transactions. On 7 March 2011 Exillon’s sponsor wrote to the UKLA advising

it that Exillon had categorised the payments as loans to a related party and that
Exillon’s auditors had agreed with that categorization.

The RPT Policy

18. The RPT Policy relied on the operational managers to identify related party
transactions and take appropriate action. However the training provided to the
operational managers in November 2009 and February 2010 which included
reference to the related party transaction Listing Rules (in LR 11) and the RPT
Policy, failed to provide Mr Arip and the operational managers who
authorized the transactions with a sufficient understanding of the related party
transaction Listing Rules and the RPT Policy. As a result the responsible
operational managers failed to identify the payments of Mr Arip’s private
expenses as related party transactions.

19. The operational managers failed to identify the related party transactions
because they saw the payments as pertaining to Mr Arip as an employee rather
than a related party. The operational manager who approved the transactions
did not speak English and the RPT Policy was only in English and some of the
operational managers only spoke Russian (although Russian translation was
provided during training). Furthermore comments from two of the operational
managers after discovery of the related party transactions regarding their
initial training indicated that: (1) future training should be more from an
accountants’ perspective; (2) there were too many changes to digest in the
time provided for the training; (3) additional training in Russian was required;
and (4) training should have been repeated subsequently to reinforce it.

20. In a prospectus published on 29 March 2011 Exillon disclosed in the risk
factors that it had failed to comply with its corporate governance, accounting,
reporting and compliance policies and procedures with respect to related party
transactions and that such failure may have resulted in a breach of FSA rules.
In the prospectus Exillon went on to describe the payments to Mr Arip as
primarily in the form of cash advances intended to fund business expenses and
living expenses.

21. In late April 2011, Exillon disclosed the payments to Mr Arip as interest free
loans to the ‘Major Shareholder’ in Notes to Exillon’s audited 2010 IFRS
financial statements. It stated in the Notes: “During the year, the Group made
a series of payments to the major shareholder to fund business expenses.
These amounts were subsequently reclassified as personal loans, and were
fully repaid by 31 December 2010.”

22. As a consequence of discovery of these related party transactions Exillon
made the following changes:

i.
on 3 March 2011 it adopted an emergency procedure whereby the head
of the Audit Committee had to approve all payments to related parties;

ii.
on 27 March 2011 additional related party transaction training was
held for directors;

iii.
on 8 July 2011 Exillon appointed a Managing Director from Exillon’s
sponsor as its CEO;

iv.
on 17 August 2011 Exillon replaced the emergency procedure with
new procedures that included a requirement that the CEO sign off all
payments to related parties and that the Chairman or head of the Audit
Committee sign off all related party transactions exceeding $10,000
(note that Mr Arip is no longer Exillon’s Chairman);

v.
on 1 November 2011 Exillon provided further training on compliance
with the listing rules to senior management in Russian;

vi.
Exillon created an Internal Audit position; and

vii.
Exillon started using corporate credit cards and a corporate travel
agency.

FAILINGS

23. The UKLA Listing Rules relevant to this Warning Notice are at Annex A.
They are:

i.
LR 11.1.4R (Definition of “related party”);

ii.
LR11.1.5R (Definition of “related party transaction”);

iii.
LR11.1.10R(2) (Modified requirements for smaller related party
transactions);

iv.
LR11.1.11R(3) (requirement to aggregate certain related party
transactions for disclosure purposes);

v.
LR10 Annex 1 (the class tests); and

vi.
Listing Principle 2 (duty to take reasonable steps to establish and
maintain adequate procedures, systems and controls).

24. Exillon was throughout 2010 a company incorporated in the Isle of Man with a
premium listing of its ordinary shares on the Official List.

25. Exillon breached LR11.1.10R(2) by failing, prior to the aggregate value of the
related party transactions exceeding 0.25% of the aggregate market value of
all Exillon’s ordinary shares on 9 June 2010, and in relation to each
subsequent Payment, to:

i.
inform the FSA in writing of the details of the transactions;

ii.
provide the FSA with written confirmation from an independent
adviser acceptable to the FSA that the terms of the transactions were
fair and reasonable as far as the shareholders of Exillon were
concerned; and

iii.
undertake in writing to the FSA to include details of the transactions in
Exillon’s next published annual accounts including the identity of the
related party, the value of the consideration for the transactions and all
other relevant circumstances.

26. In addition, at the time Exillon considered making each payment to Mr Arip
after 9 June 2010 Exillon failed to comply with LR 11.1.11(3) by failing to:

i.
provide the FSA with written confirmation from an independent
adviser acceptable to the FSA that the terms of the latest transaction

was fair and reasonable as far as the shareholders of Exillon were
concerned;

ii.
inform the FSA in writing of the details of the aggregated transactions;
and

iii.
undertake in writing to the FSA to include details of the aggregate
transactions in Exillon’s next published annual accounts including the
identity of the related party, the value of the consideration for the
transactions and all other relevant circumstances

27. Exillon also failed to comply with Listing Principle 2 by failing to take
reasonable steps to establish and maintain adequate procedures, systems and
controls to enable it to comply with its related party transaction obligations.
Exillon sought to satisfy Listing Principle 2 by implementing the RPT Policy,
which was drafted by external advisers. However, the main control the RPT
Policy established was to rely on operational managers to identify potential
related party transactions but Exillon failed during 2010 to ensure that the
operational managers had the requisite knowledge and understanding of the
related party transactions definition and rules to identify all potential related
party transactions.

SANCTION

28. The FSA’s approach in deciding whether to take action and determining the
appropriate financial penalty is set out in Chapter 6 of DEPP in force at the
time of the misconduct.

29. The principal purpose of imposing a financial penalty is to promote high
standards of regulatory conduct by deterring firms and approved persons who
have
breached
regulatory
requirements
from
committing
further
contraventions, helping to deter other firms and approved persons from
committing contraventions and demonstrating to firms and approved persons,
the benefit of compliant behaviour (DEPP 6.1.2G).

30. In determining whether a financial penalty is appropriate and proportionate,
the FSA refers to the five steps to determine the penalty to be imposed on
firms set out in DEPP 6.5A.

i.
At Step 1 (disgorgement) the FSA seeks to deprive a firm of the
financial benefit derived directly from the breach. In this case Exillon
did not derive any financial benefit from the breach.

ii.
At Step 2 (the seriousness of the breach) the FSA determines a figure
to reflect the seriousness of the breach, which will be based on a
percentage of the firm’s revenue from the relevant product or business
area, unless this is not an appropriate indicator, in which case the FSA
will determine an appropriate alternative. In this case, revenue is not
an appropriate indicator because Exillon’s revenue stream did not
benefit from the payments in question. Accordingly, the FSA has
determined to use the value of the related party transactions as the
relevant indicator. However, when using related party transactions as
the relevant indicator, it is not appropriate to use a 0-20% penalty
range considering the related party transactions are the impugned
transactions. Accordingly, the FSA has used a 0-100% range to ensure

the penalty properly reflects the seriousness of the breach. The FSA
has determined that the breach is a level 3 breach1 (50% of the value of
the related party transactions being £465,000) because:

• it was not a level 4 or 5 breach because it was not deliberate
or reckless, did not affect consumers or investors, did not
have an adverse effect on markets and did not profit Exillon;
but

• it was more serious than a level 1 or 2 breach because it
involved a series of transactions continuing over the course of
a year and resulted from serious weaknesses in Exillon’s
related party transaction procedures.

iii.
At Step 3 (mitigating and aggravating factors) the FSA may increase or
decrease the amount of the financial penalty by a percentage to take
into account mitigating or aggravating factors. In this case, Exillon’s
conduct is aggravated because the listing should have been a trigger for
it to ensure all its procedures were effective and fully operational and it
failed to do so. Exillon’s conduct was, however, mitigated by the
following:

• it took a number of remedial steps after the breach was
identified to bring its related party transaction compliance
procedures up to a high standard;

• its cooperation during the investigation, including waiving
privilege over all relevant documents at an early stage
without being asked and making Mr Arip available for
meetings and interviews at the earliest opportunity (despite
him residing overseas), went well beyond the typical level of
cooperation experienced by the FSA;

• Mr Arip repaid the payments with interest before it was
brought to Exillon’s attention that they constituted related
party transactions.

Accordingly, the FSA reduced the penalty by 10% to £418,500.

iv.
At Step 4 (adjustment for deterrence) the FSA may increase the penalty
if it considers it is insufficient to act as an effective deterrent. The FSA
did not consider the penalty was insufficient so did not make an
adjustment at Step 4.

v.
At Step 5 Exillon was given a discount of 30% for settlement at Stage
1 of the settlement process which reduced the penalty by £125,550 to
£292,950.

PROCEDURAL MATTERS

Decision maker

1 On the basis that level 1 would be 0% of the value of the related party transaction, level 2-25%, level

3-50%, level 4-75% and level 5-100%.

31. The decision which gave rise to the obligation to give this Notice was made by
the Settlement Decision Makers.

32. This Final Notice is given under, and in accordance with, section 390 of the
Act.

Manner of and time for Payment

33. The financial penalty must be paid in full by Exillon to the FSA by no later
than 10 May 2012, 14 days from the date of the Final Notice.

If the financial penalty is not paid

34. If all or any of the financial penalty is outstanding on 10 May 2012, the FSA
may recover the outstanding amount as a debt owed by Exillon and due to the
FSA.

35. Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this notice relates. Under those
provisions, the FSA must publish such information about the matter to which
this notice relates as the FSA considers appropriate. The information may be
published in such manner as the FSA considers appropriate. However, the
FSA may not publish information if such publication would, in the opinion of
the FSA, be unfair to you or prejudicial to the interests of consumers.

36. The FSA intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.

FSA contacts

37. For more information concerning this matter generally, contact Steven Clark
(direct line: 020 7066 2172) of the Enforcement and Financial Crime Division
of the FSA.

Matthew Nunan
FSA Enforcement and Financial Crime Division


EXILLON ENERGY PLC

ANNEX A - RELEVANT STATUTORY AND REGULATORY PROVISIONS

RELEVANT LAW AND REGULATION

LR 11.1.4R defines a related party as [amongst other things] a person who is a
director.

LR 11.1.5R defines a related party transaction as [amongst other things] a transaction
(other than a transaction of a revenue nature in the ordinary course of business)
between a listed company and a related party.

LR 11.1.10R requires a listed company, when each of the percentage ratios is less
than 5% but one or more of them exceeds 0.25% to inform the FSA of the details of
the transaction, provide a written confirmation from an independent adviser that the
terms of the transaction were fair and reasonable; and undertake to include details of
the transactions in the next published annual accounts. LR 11.1.10R states that “…the
listed company must before entering into the transaction or arrangement…:

(a) inform the FSA in writing of the details of the proposed transaction or
arrangement;

(b) provide the FSA with written confirmation from an independent adviser
acceptable to the FSA that the terms of the proposed transaction or
arrangement with the related party are fair and reasonable as far as the
shareholders of the listed company are concerned; and

(c) undertake in writing to the FSA to include details of the transaction or
arrangement in the listed company’s next published annual accounts,
including, if relevant, the identity of the related party, the value of the
consideration for the transaction and all other relevant circumstances.”

LR 11.1.11R requires listed companies to aggregate transactions with the same related
party in 12 month period. Listing Rule 11.1.11R states:

(1)
If a listed company enters into transactions or arrangements with the
same related party (and any of its associates) in any 12 month period
and transactions or arrangements have not been approved by
shareholders the transactions or arrangements must be aggregated…

…(3) If transactions or arrangements that are small transactions…are
aggregated under paragraph (1) of this rule and for the aggregated
small transactions each of the percentage ratios is less than 5%, but
one or more of the percentage ratios exceeds 0.25% the listed company
must comply with:

(a)
LR 11.1.10 R (2)(b) in respect of the latest small transaction;
and

(b)
LR 11.1.10 R (2)(a) in respect of the aggregated small
transactions.”

The Class Tests

LR Chapter 10 provides a framework for calculating the significance of transactions
entered into by listed companies. A transaction is classified by assessing its size

relative to that of the listed company proposing to make it. The comparison of size is
made by using the percentage ratios resulting from applying the Class Test
calculations to a transaction. The Class Tests are set out in LR 10 Annex 1 G

The Consideration Test is set out in LR10 Annex 1 G (5R):

“(1)
The consideration test is calculated by taking the consideration for the
transaction as a percentage of the aggregate market value of all the
ordinary shares (excluding treasury shares) of the listed company.

(2)
For the purposes of paragraph (1):

(a)
the consideration is the amount paid to the contracting party;

(b)
if all or part of the consideration is in the form of securities to
be traded on a market, the consideration attributable to those
securities is the aggregate market value of those securities; and

(c)
if deferred consideration is or may be payable or receivable by
the listed company in the future, the consideration is the
maximum total consideration payable or receivable under the
agreement.

(3)
If the total consideration is not subject to any maximum (and the other
class tests indicate the transaction to be a class 2 transaction) 2the
transaction is to be treated as a class 1 transaction.

(3A)
If the total consideration is not subject to any maximum (and the other
class tests indicate the transaction to be a class 3 transaction) the
transaction is to be treated as a class 2 transaction.

(4)
For the purposes of sub-paragraph (2)(b), the figures used to
determine consideration consisting of:

(a)
securities of a class already listed, must be the aggregate
market value of all those securities on the last business day
before the announcement; and

(b)
a new class of securities for which an application for listing
will be made, must be the expected aggregate market value of
all those securities.

(5)
For the purposes of paragraph (1), the figure used to determine market
capitalisation is the aggregate market value of all the ordinary shares
(excluding treasury shares) of the listed company at the close of
business on the last business day before the announcement.”

The Listing Principles

Principle 2 requires a listed company to take reasonable steps to establish and
maintain adequate procedures, systems and controls to enable it to comply with its
obligations.

Disciplinary powers

Section 91 of the Financial Services and Markets Act 2000 provides that if the FSA
considers that an issuer of securities has contravened any provision of the listing rules,
it may impose a penalty of such amount as it considers appropriate.

RELEVANT GUIDANCE

Guidance on Principle 2

LR 7.2.2G sets out that Principle 2 is intended to ensure that listed companies have
adequate procedures, systems and controls to enable them to comply with their
obligations under the listing rules and disclosure rules and transparency rules. In
particular, the FSA considers that listed companies should place particular emphasis
on ensuring that they have adequate procedures, systems and controls in relation to:
…LR11 (Related party transactions).