THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended immediately to seek your own personal financial advice from your stockbroker, bank manager, solicitor, accountant or other appropriate independent financial adviser who is duly authorised under the Financial Services and Markets Act 2000, if you are in the United Kingdom, or from another appropriately authorised independent financial adviser if you are in a territory outside the United Kingdom.

If you sell or transfer or have sold or transferred your entire holding of Existing Ordinary Shares in Cairn, subject as set out below in respect of certain jurisdictions other than the United Kingdom, please send this document (including the Form of Proxy, Dividend Mandate Form and, if one is enclosed, Election Form) as soon as possible to the purchaser or transferee of those shares or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee. If you sell, transfer or have sold or transferred part only of your Existing Ordinary Shares, please consult the stockbroker, bank or other agent through whom the sale or transfer was effected. However, such documents should not be forwarded or transmitted in or into any jurisdiction in which such an act would constitute a violation of the relevant laws of such jurisdiction.

The distribution of this document and any accompanying documents in or into jurisdictions other than the United Kingdom may be restricted by local law and therefore persons into whose possession this document and any accompanying documents come should inform themselves about and observe such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

Applications will be made to the UKLA and the London Stock Exchange for the New Ordinary Shares resulting from the proposed Capital Reorganisation to be admitted to the Official List and to trading on the main market for listed securities of the London Stock Exchange in place of the Existing Ordinary Shares. It is expected that dealings in the Existing Ordinary Shares will continue until 4.30 p.m. on 3 February 2012 and that Listing of the New Ordinary Shares will become effective and dealings in them for normal settlement will commence on the London Stock Exchange at 8.00 a.m. on 6 February 2012. No application will be made to the UKLA or to the London Stock Exchange, respectively, for any of the B Shares or Deferred Shares to be admitted to the Official List or to trading on the main market for listed securities of the London Stock Exchange, nor will the B Shares or Deferred Shares be listed or admitted to trading on any other recognised investment exchange.

Nothing in this document should be taken as constituting an offer of shares in Cairn.

CAIRN ENERGY PLC

(incorporated in Scotland with Registered number SC226712)

Proposed Return of Cash to Shareholders, Capital Reorganisation, proposed authority to dispose of or reduce residual interest in Cairn India, proposed share award in favour of Sir Bill Gammell and Notice of General Meeting

This document should be read as a whole and in conjunction with the accompanying Form of Proxy, Dividend Mandate Form and, if one is enclosed, Election Form. Your attention is drawn to the letter from the Chairman of Cairn which is set out in Part I of this document recommending, on behalf of the Directors, that you vote in favour of the resolutions to be proposed at the General Meeting referred to below and also to the letter from the Chairman of Cairn's Remuneration Committee which is set out in Part II of this document recommending, on behalf of the Directors, that you vote in favour of resolution 2 to be proposed at the General Meeting. You should note that the Return of Cash is conditional upon, among other things, the approval by Shareholders of resolution 1 to be proposed at the General Meeting and the Listing of the New Ordinary Shares.

Notice of the General Meeting, to be held in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ at 10.00 a.m. on 30 January 2012, is set out at the end of this document.

Enclosed with this document is a Form of Proxy for use in respect of the General Meeting. Whether or not you intend to be present at the General Meeting you are requested to complete, sign and return the Form of Proxy in accordance with the instructions printed on it as soon as possible, and in any event, so as to arrive at the offices of the Company's registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, not later than 10.00 a.m. on 26 January 2012. Alternatively, you may register your proxy appointment or voting directions electronically via the www.sharevote.co.uk website not later than 10.00 a.m. on 26 January 2012 (further information regarding the use of this facility is set out in the notes to the notice of General Meeting). If you hold your Existing Ordinary Shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction so as to be received by the Company's registrars, Equiniti, not later than 10.00 a.m. on 26 January 2012. Completion and return of a Form of Proxy or a CREST Proxy Instruction or submission of an electronic proxy appointment or voting direction will not prevent Shareholders from attending and voting in person at the General Meeting should they so wish.

Rothschild is acting as sponsor and financial adviser to Cairn and is acting for no one else in connection with the Return of Cash and will not be responsible to anyone other than Cairn for providing the protections afforded to customers of Rothschild nor for providing advice in connection with the Return of Cash or the contents of this document or any other matter referred to herein.

Morgan Stanley is acting as broker to Cairn and is acting for no one else in connection with the Initial Purchase Offer, any Future Purchase Offer and any purchase of Deferred Shares and will not be responsible to anyone other than Cairn for providing the protections afforded to customers of Morgan Stanley nor for providing advice in connection with the Initial Purchase Offer, any Future Purchase Offer and any purchase of Deferred Shares or the contents of this document or any other matter referred to herein.

Apart from the responsibilities and liabilities, if any, which may be imposed on Rothschild and Morgan Stanley by FSMA or the regulatory regime established thereunder, none of Rothschild and Morgan Stanley accepts any responsibility whatsoever nor makes any representation or warranty, express or implied, concerning the contents of this document, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with Cairn, the B Shares, the B Share Scheme, the Return of Cash, the Initial Purchase Offer, any Future Purchase Offer, any purchase of Deferred Shares, the Share Award or the Residual Interest Disposal Authority. Each of Morgan Stanley and Rothschild accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document.

None of the Existing Ordinary Shares, New Ordinary Shares or the B Shares have been or will be registered under the US Securities Act or the securities laws or regulations of any state of the United States, and none of them may be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and any applicable state securities laws.

None of the Existing Ordinary Shares, New Ordinary Shares, the B Shares or this document have been approved, disapproved or otherwise recommended by the SEC or any US state securities commission or any non-US securities commission or regulatory authority nor have such authorities confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offence in the United States.

Please read the whole of this document. In particular, your attention is drawn to the risk factors set out in Part IV of this document. A summary of the action to be taken by Shareholders in relation to the General Meeting is set out in paragraph 15 of Part I of this document and in the accompanying Notice of General Meeting.

The attention of Overseas Shareholders is drawn to paragraph 8 of Part V of this document. Shareholders resident or with a registered address in any Prohibited Territory will not be able to elect for the Initial Purchase Offer in respect of their B Shares or to retain any of their B Shares until a Future Purchase Offer (if any) has been made. Such Shareholders will be deemed to have elected for (and will receive) the Single B Share Dividend in respect of all of their B Shares, subject to that dividend being declared.

This document does not constitute an invitation to participate in the Return of Cash in or from any jurisdiction in or from which, or to or from whom, it is unlawful to make such offer under applicable securities laws or otherwise.

This document is a circular relating to the proposed Return of Cash and Residual Interest Disposal Authority which has been prepared in accordance with the Listing Rules made under section 73A of FSMA.

Forward-looking statements

This document contains (or may contain) certain forward-looking statements with respect to certain of Cairn's plans and its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. Cairn cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", or other words of similar meaning. Examples of forward-looking statements include statements regarding or which make assumptions in respect of future events. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in the price of oil or changes in interest rates and foreign exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the success of future acquisitions and other strategic transactions and the impact of competition. A number of these factors are beyond Cairn's control. As a result, Cairn's actual future results may differ materially from the plans, goals and expectations set forth in Cairn's forward-looking statements. Any forward-looking statements made in this document by or on behalf of Cairn speak only as of the date they are made. Except as required by any applicable laws, the Listing Rules, the Disclosure and Transparency Rules or other regulations, Cairn expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any changes in Cairn's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Note regarding presentation of currencies

All references in this document to "pounds sterling" or "£" are to the lawful currency of the United Kingdom, all references to "US dollars", "US$" and "$" are to the lawful currency of the United States and all references to "Rupees", "Rs" and "INR" are to the lawful currency of India.

TABLE OF CONTENTS

PART I	Letter from the Chairman of Cairn Energy PLC	Page
PART II	Letter from the Chairman of the Remuneration Committee of Cairn Energy PLC	14
PART III	Expected timetable of events	17
PART IV	Risk factors	18
PART V	Details of the Return of Cash	27
PART VI	Rights and restrictions attached to the B Shares and to the Deferred Shares	36
PART VII	United Kingdom taxation in relation to the Return of Cash	42
PART VIII	Additional information	46
PART IX	Frequently asked questions in relation to the Return of Cash with answers	58
DEFINITIONS		63
NOTICE OF GENERAL MEETING		68

HELPLINE

Questions of a factual nature relating to the resolutions to be proposed at the General Meeting may be directed to the Company's registrars, Equiniti, using the telephone helpline number 0871 384 2964 (for calls from within the United Kingdom) and +44 121 415 0222 (for calls from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day. Please note that calls to these numbers may be monitored or recorded. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers' costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates.

This helpline will not be able to provide advice on the merits of the resolutions to be proposed at the General Meeting, the Return of Cash, the B Share Choices or the Residual Interest Disposal Authority, or give personal, legal, financial or tax advice.

PART I

LETTER FROM THE CHAIRMAN OF CAIRN ENERGY PLC

CAIRN ENERGY PLC

(Incorporated in Scotland with registered number SC226712)

Sir Bill Gammell (Non-Executive Chairman)
Todd Hunt (Non-Executive Director)
Iain McLaren (Non-Executive Director)
Dr James Buckee (Non-Executive Director)
Alexander Berger (Non-Executive Director)
Jackie Sheppard (Non-Executive Director)
Simon Thomson (Chief Executive)
Dr Mike Watts (Deputy Chief Executive)
Jann Brown (Managing Director and Chief Financial Officer)

Registered and Head Office:
50 Lothian Road
Edinburgh
EH3 9BY

10 January 2012

To Shareholders and, for information only, to participants in the Cairn Share Schemes

Dear Shareholder

Proposed Return of Cash to Shareholders, authority to dispose of or reduce Cairn’s residual interest in Cairn India and share award in favour of Sir Bill Gammell

Introduction

On 8 December 2011, the Company announced that its sale of 40 per cent. of the fully diluted share capital of Cairn India had completed in full. The sale was implemented in two stages: the first tranche of 10 per cent. was completed on 11 July 2011 and the second tranche of a further 30 per cent. was completed on 8 December 2011.

The Company now proposes to return to Shareholders approximately US$3.5 billion of the proceeds of the sale, representing a return of £1.60 for each Existing Ordinary Share. This return is proposed to be made in a manner that should provide certain Shareholders with an element of choice as to when and in what form they receive the cash. The remainder of the sale proceeds will be retained to fund and grow the Group’s business, thereby providing financial flexibility, with the aim of creating and realising further value for Shareholders in the future.

The purpose of this document is to provide Shareholders with information on the proposed Return of Cash (including the choices available to them in relation to it and how those choices can be made). In addition, your Board is seeking authority from Shareholders to dispose of, if it so chooses, some or all of Cairn’s residual interest in Cairn India. Due to the value of Cairn’s residual interest in Cairn India, the grant of such authority requires Shareholder approval. Shareholders will also be asked to approve the grant of a share award in favour of Sir Bill Gammell by way of additional remuneration following the completion of the Disposal. Further details of this are set out in a letter from Dr James Buckee, Chairman of the Company’s Remuneration Committee, in Part II of this document.

A general meeting of the Company is to be held in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ at 10.00 a.m. on 30 January 2012 to seek both the approval of Shareholders to the proposed Return of Cash (and certain matters related to it), the Residual Interest Disposal Authority and the Share Award. The notice of that general meeting is set out at the end of this document.

Shareholders should read the whole of this document and not just rely on the summarised information set out in this letter or in Part IX of this document.

Return of Cash

The Return of Cash is proposed to be made by means of a B share structure with a connected Share Capital Consolidation, in terms of which each Shareholder will receive:

For each Existing Ordinary Share held on 3 February 2012
1 B Share

For every 33 Existing Ordinary Shares held on 3 February 2012
13 New Ordinary Shares

The B Shares will not be listed on the Official List or admitted to trading on the London Stock Exchange. The New Ordinary Shares will be listed on the Official List and admitted to trading on the London Stock Exchange and will replace the Existing Ordinary Shares.

The choices which will be available to certain holders of B Shares in respect of the Return of Cash, if approved by Shareholders at the General Meeting, are summarised below.

3. The B Share Choices

Under the Return of Cash, Shareholders will have the following three choices in relation to the B Shares held by them on the B Share Record Date. However, Shareholders resident or with a registered address in the Prohibited Territories and Shareholders who do not make a valid election will be deemed to have elected for the Single B Share Dividend (choice 1 below) in respect of all of their B Shares. Any Shareholder who makes an invalid election for the Initial Purchase Offer in respect of some or all of their B Shares and/or to retain some or all of their B Shares until the Future Purchase Offer is made will also be deemed to have elected for the Single B Share Dividend in respect of those B Shares.

Shareholders resident in the United Kingdom should read Part VII of this document carefully as it explains the United Kingdom tax consequences of the three choices under current law. If you are in any doubt as to your tax position, or are resident for tax purposes in a jurisdiction other than the United Kingdom, you should consult an appropriate professional adviser without delay.

Save as noted above, you may elect to receive any one of, or a combination of, the B Share Choices.

3.1 Choice 1: Single B Share Dividend

If you validly elect (or are deemed to have elected) for this choice in respect of some or all of your B Shares, you will receive a single dividend of £1.60 in respect of each of those B Shares. On declaration of this dividend (which is expected to take place on 14 February 2012), the B Shares which you have validly elected (or are deemed to have elected) for this choice will automatically convert into Deferred Shares, which will have negligible value and very limited rights. The Deferred Shares may then be purchased by Morgan Stanley and then repurchased by the Company at a later date in each case for the aggregate sum of one penny for all of the Deferred Shares which are purchased or repurchased (as the case may be).

The Single B Share Dividend will be taxed as income for United Kingdom tax purposes, as more fully described in Part VII of this document.

3.2 Choice 2: Initial Purchase Offer

If you validly elect for this choice in respect of all or some of your B Shares, it is expected that those B Shares will be purchased from you by Morgan Stanley under the Initial Purchase Offer on 14 February 2012 at £1.60 per B Share, free of all dealing expenses and commissions. Any such B Shares purchased by Morgan Stanley under the Initial Purchase Offer would, in turn, be purchased by the Company from Morgan Stanley and then cancelled. Details of the terms of the Initial Purchase Offer are set out in paragraphs 4 to 8 of Part V of this document.

Shareholders should note that the Initial Purchase Offer will not be made if the conditions thereto are not satisfied or waived by Morgan Stanley or if the Initial Purchase Offer Deed is terminated. A summary of these conditions and the circumstances in which the Initial Purchase Offer Deed may be terminated is set out in paragraph 13 of Part VIII of this document. If the Initial Purchase Offer is not made, it expected that the Shareholders who had validly elected (or were deemed to have elected) for the Initial Purchase Offer in respect of some or all of their B Shares will receive the Single B Share Dividend in respect of those B Shares, subject to that dividend being declared.

It is expected that the proceeds from any purchase of B Shares pursuant to the Initial Purchase Offer Deed should be treated as capital for United Kingdom tax purposes, on the basis of current practice.

3.3 Choice 3: Future Purchase Offer

If you validly elect for this choice in respect of all or some of your B Shares, those B Shares for which you make this choice will be retained by you for the time being. It is expected that Morgan Stanley will make an offer to acquire such B shares during April 2012 at £1.60 per B Share, free of all dealing expenses and

commissions. Any B Shares purchased by Morgan Stanley under the Future Purchase Offer would, in turn, be purchased by the Company from Morgan Stanley and then cancelled. It is expected that the conditions to the making of the Future Purchase Offer and its terms will be similar to those in respect of the Initial Purchase Offer.

If you validly elect for this choice, you should note that the Company will have the power to convert any B Shares outstanding following the annual general meeting of the Company held in 2012 into New Ordinary Shares. You should also note that there is no guarantee that Morgan Stanley will make an offer to acquire some or all of the B Shares you have retained or that the Company will exercise its power to convert the B Shares into New Ordinary Shares.

It is expected that, if the Future Purchase Offer is made by Morgan Stanley, the proceeds from any purchase of B Shares resulting from an acceptance of that offer should be treated as capital for United Kingdom tax purposes, assuming there has been no change in current practice.

If you hold your Existing Ordinary Shares in certificated form, and are not resident and do not have your registered address in a Prohibited Territory, then you will find enclosed and should complete an Election Form. Details of how to complete and return your Election Form are set out on that form. If you hold your Existing Ordinary Shares in CREST, then you should not complete an Election Form and instead should make your election through CREST in accordance with the instructions set out in paragraphs 11 and 12 of Part VIII of this document. Properly completed and returned Election Forms and elections made through CREST will not become effective until 4.30 p.m. on 10 February 2012.

If you do not properly complete and return your Election Form, are a CREST holder and you do not send a valid TTE Instruction or are resident or have your registered address in a Prohibited Territory, you will be deemed to have elected for Choice 1: Single B Share Dividend in respect of all of your B Shares.

None of the B Shares or the Deferred Shares will be admitted to the Official List or to trading on the London Stock Exchange’s main market for listed securities, nor will the B Shares or Deferred Shares be listed or admitted to trading on any other recognised investment exchange.

Further information on each of the B Share Choices is set out in Part V of this document. The rights attaching to the B Shares and the Deferred Shares are set out in Part VI of this document.

4. Share Capital Consolidation

The aggregate amount proposed to be returned to Shareholders pursuant to the Return of Cash is equivalent to approximately 60.6 per cent. of the market capitalisation of the Company at the close of business on 6 January 2012 (being the latest practicable date before the publication of this document).

The effect of the Share Capital Consolidation is that the Existing Ordinary Shares will be replaced by the New Ordinary Shares so as to reduce the number of shares in issue to reflect the amount of cash to be returned to Shareholders. The aim of this is to seek to make the market price of a Cairn share comparable before and after the Return of Cash, subject to normal market movements following the date of this document.

The ratio used for the Share Capital Consolidation has been set by reference to the closing middle-market price of £2.64 per Existing Ordinary Share on 6 January 2012. On that basis, the Share Capital Consolidation will result in each Existing Ordinary Share being consolidated and divided into approximately 0.39 of a New Ordinary Share. Fractional entitlements arising from the Share Capital Consolidation will be aggregated and sold in the market on behalf of the relevant Shareholders. The proceeds of sale are expected to be sent to Shareholders on 21 February 2012 (or, if less than £3.00 in the case of any one Shareholder, donated to charities chosen by the Board). The value of any one Shareholder’s fractional entitlement will not exceed the value of one New Ordinary Share.

As all ordinary shareholdings in the Company will be consolidated, Shareholders’ percentage holdings in the issued ordinary share capital of the Company will (save in respect of fractional entitlements) remain unchanged immediately following the Share Capital Consolidation. Similarly, although the nominal value of each Ordinary Share will change from $\frac{8}{13}$ pence to $\frac{231}{169}$ pence, the New Ordinary Shares will be equivalent in all respects to the Existing Ordinary Shares, including their dividend, voting and other rights and will be admitted to trading in the same way as the Existing Ordinary Shares.

Following the Share Capital Consolidation, and assuming no further shares are issued between 6 January 2012 (being the latest practicable date before publication of this document) and the date on which the Share Capital Consolidation becomes effective, the Company’s issued equity share capital will comprise 554,509,486 New Ordinary Shares.

Further information on the Share Capital Consolidation is set out in Part V of this document.

5. Cairn Share Schemes – impact of Return of Cash on outstanding awards and options

Separate letters are being sent to participants in the Cairn Share Schemes to advise them of the effect (if any) that the Share Capital Consolidation will have on their outstanding awards and options and as to whether they will be entitled to participate in the Return of Cash. In general terms, the position will be as follows:

5.1 The SIP

Participants in the SIP are the beneficial owners of a number of Existing Ordinary Shares which the trustee of the plan is holding on their behalf and accordingly they will (subject, in some cases, to certain restrictions imposed by the rules of the SIP) be entitled to participate in the Return of Cash in respect of those shares.

5.2 The 2006 LTIP and the Replacement LTIP

All awards granted under the 2006 LTIP and the Replacement LTIP have already vested in accordance with the terms of the applicable performance conditions. As a result, any outstanding entitlements of participants in these plans relate to Existing Ordinary Shares that are subject to a post-vesting holding period.

To allow these individuals to participate fully in the Return of Cash in respect of such Existing Ordinary Shares, the Company’s Remuneration Committee has exercised a pre-existing discretionary power contained within the rules of the 2006 LTIP and the Replacement LTIP to terminate the applicable holding periods with effect from (and conditionally upon) the passing of resolution 1 to be proposed at the General Meeting.

5.3 Other Cairn Share Schemes

Participants in the remaining Cairn Share Schemes (i.e. those arrangements other than the SIP, the 2006 LTIP and the Replacement LTIP) who hold options or awards entitling them to acquire Existing Ordinary Shares will not be eligible to participate in the Return of Cash in respect of those options or awards. As a result of the Share Capital Consolidation, no adjustment will be required to the terms of these entitlements. Options or awards over Existing Ordinary Shares will take effect as options or awards over the same number of New Ordinary Shares, which are expected to have approximately the same value per share following the Share Capital Consolidation.

6. Cairn Share Schemes – impact of Share Capital Consolidation on dilution limits

Under the rules of the Cairn Share Schemes and consistent with guidance issued by the Association of British Insurers, two limits are placed on the number of share options or awards that can be granted which are to be satisfied by the issue of new shares.

The first limit provides that, on any day, the total number of Ordinary Shares which have been issued or which require to be issued in connection with options or awards that have been granted under any of the Company’s executive or discretionary share schemes during the immediately preceding period of ten years cannot exceed 5 per cent. of the issued ordinary share capital of the Company immediately prior to that day (the “executive schemes limit”).

The second limit provides that, on any day, the total number of Ordinary Shares which have been issued or which require to be issued in connection with options or awards that have been granted under all the Company’s employee share schemes during the immediately preceding period of ten years cannot exceed 10 per cent. of the issued ordinary share capital of the Company immediately prior to that day (the “all schemes limit”).

As at 6 January 2012 (being the last practicable date prior to the publication of this document), the headroom available under the above rules was 2.19 per cent. in the case of the executive schemes limit and 7.19 per cent. in the case of the all schemes limit.

However, the impact of the Share Capital Consolidation will be to reduce significantly the number of Ordinary Shares in issue. In the absence of any change to the terms of the Cairn Share Schemes, this would have the effect of entirely eliminating the currently available headroom under the executive schemes limit meaning that, for the foreseeable future, it would not be possible to satisfy any new grants of discretionary options and awards using newly issued New Ordinary Shares.

To address the above issue, the Remuneration Committee proposes to make an amendment to the terms of the 2009 LTIP and 2009 Option Plans, being those of the Cairn Share Schemes under which future options and awards can be granted over New Ordinary Shares. In particular, the rules of these schemes will be changed so that, for the purposes of assessing both the executive schemes limit and the all schemes limit, the number of Existing Ordinary Shares which have been issued in connection with options and awards prior to the date on which the Share Capital Consolidation becomes effective will be adjusted in accordance with the ratio set out at paragraph 2 above. For the avoidance of doubt, any New Ordinary Shares that are issued in connection with options and awards after that date will continue to be taken into account in full under these limits.

Following the Share Capital Consolidation, and assuming that (i) the above changes to the 2009 LTIP and 2009 Option Plans are made; (ii) no options or awards are granted or exercised, and no such entitlements vest or lapse, under these arrangements between 6 January 2012 and the date on which the Share Capital Consolidation becomes effective; and (iii) no further shares are issued during that period, it is anticipated that the headroom available under the executive schemes limit and the all schemes limit will be 1.73 per cent. and 6.73 per cent. respectively.

Resolution 1 to be proposed at the General Meeting includes the Shareholder approval required to implement the changes to the rules of the 2009 LTIP and 2009 Option Plans described above. The full terms of the 2009 LTIP and 2009 Option Plans, showing the amendments proposed to be made at the General Meeting, are available for inspection as set out in paragraph 15 of Part VIII of this document.

7. Amendment of the Articles of Association

A number of consequential amendments to the Articles of Association are required in order to implement the Return of Cash. Details of these are set out in Part VI of this document.

8. Background and reasons for seeking authority to dispose of or reduce the Company's residual interest in Cairn India

The Company's strategy has always been to focus on exploration, appraisal and development opportunities where the Board believes there is a strategic fit with the Group's ongoing goal to add and, where appropriate, realise value for Shareholders. The Company's residual interest in Cairn India represents a substantial proportion of the Group's assets and therefore, due to its size, the sale of any material part of the residual interest would be subject to shareholder approval under the Listing Rules. The Company is therefore seeking authority from Shareholders to provide the necessary flexibility, if it so chooses, to dispose of a part, and up to all of, the residual interest in Cairn India in a way which delivers best value for Shareholders. The purpose of any such sales would be to invest the proceeds elsewhere in the Company's portfolio and in other exploration, appraisal and development opportunities that it identifies in accordance with its stated strategy.

As the shares of Cairn India are listed and freely traded on the Indian Stock Exchanges, the Board believes that potential purchasers would expect to be able to purchase Cairn India shares at the prevailing market price on the basis of normal market terms. Accordingly, potential purchasers of Cairn India shares are unlikely to be willing to enter into any agreement to purchase Cairn India shares which is conditional on Shareholder approval, given the readily available alternative of making market purchases without such a condition.

9. Terms of Residual Interest Disposal Authority

The Board believes that, in order to obtain the best terms when disposing of all or part of its residual shareholding in Cairn India, it needs to be able to sell or agree to sell those shares on normal market terms without having to obtain prior approval from Shareholders. The Board is therefore seeking approval in advance for the Company to be able to sell its residual interest in Cairn India at or as close as reasonably possible to the prevailing market price if and when the Company considers it appropriate to make such disposals. Cairn is seeking Shareholder authority to make disposals via on-market transactions. Disposals may be executed via bought deal block-trades where an underwriting bank will assume the risk of disposing of the relevant interest efficiently. Larger disposals may be executed via accelerated book build offerings where a bank will use "best efforts" to complete a sale as agent. However the risk of completing the disposal will remain with Cairn.

The Company only intends to utilise the Residual Interest Disposal Authority where it believes that a sale is in the best interests of Shareholders as a whole and in the meantime the Company will continue to benefit from the growth and success of the discoveries in Rajasthan and elsewhere through the retained interest in Cairn India. Unless renewed, the Residual Interest Disposal Authority will expire on 30 January 2013 (prior to which expiry the Company will assess the necessity and desirability of renewing the authority). Any disposal outside of the scope of the Residual Interest Disposal Authority will remain subject to the requirements for significant transactions under Listing Rule 10.

10. Information on Cairn India and the residual interest

Cairn India is listed on the Indian Stock Exchanges and currently has a market capitalisation in excess of US$12.2 billion based on an exchange rate of US$1: INR52.7225. Cairn India is primarily engaged in the business of oil and gas exploration, production and transportation. It is based in India and has a strong institutional shareholder base both within India and internationally.

Cairn India has interests in 10 blocks in India and Sri Lanka, including:

a 70 per cent. operated working interest in three contiguous development areas totalling 3,111 km² in Rajasthan. The main development area (1,859 km²) includes the Mangala, Aishwariya, Raageshwari and Saraswati fields. Further development areas comprise the Bhagyam and Shakti fields (430 km²) and the Kaameshwari West development area (822 km²). Current production is approximately 125,000 barrels a day from the Mangala field via the 590 km heated export pipeline. ONGC is Cairn India’s joint venture partner in Rajasthan with a 30 per cent. participating interest;
a 22.5 per cent. operated working interest in producing fields within the Ravva Block, on the east coast of India. Cairn India’s operations in this area are centred around the Ravva oil and gas field in the Krishna-Godavari Basin. Developed in partnership with ONGC, Videocon and Ravva Oil, Cairn India became the operator in 1996, working under a PSC that runs until 2019. Crude oil and natural gas production from Ravva commenced in 1993;
a 40 per cent. operated working interest in Block CB/OS-2 in the Cambay Basin, on the west coast of India. Cairn India commenced gas production from the Lakshmi gas field in 2002, with gas production from Gauri commencing in 2004. Production of commingled crude oil from Gauri commenced in 2005; and
equity interests in seven blocks within India and Sri Lanka where there is currently no production or development but which are in various stages of exploration.

As at 30 June 2011, Cairn India had gross assets of US$5,643.8 million (unaudited). For the 12 months ended 31 December 2010, the result before tax was US$1,049.4 million. The financial information contained in this paragraph has been extracted without material adjustment from the consolidation schedules that support the consolidated financial information of the Company for the periods stated. Shareholders should read the whole of this document and not rely solely on the summarised financial information above.

The table set out below shows the prevailing Cairn India share price on the first trading day of each of the six months prior to the date of this document:

Month	Closing Share price (INR)
July 2011	325.80
August 2011	311.10
September 2011	284.95
October 2011	270.65
November 2011	299.90
December 2011	311.85
6 January 2012 (latest practicable date)	339.15

Source: Bloomberg

Following the completion of the Disposal, the Company retains approximately a 22 per cent. residual shareholding in Cairn India, which is held as an asset available for sale on the Group’s balance sheet. As at 6 January 2012, being the latest practicable date prior to the publication of this document, the market value of the Company’s residual interest in Cairn India was approximately US$2.673 billion, based on an exchange rate of US$1: INR52.7225. The

Company's future results will reflect any disposals of Cairn India shares through a reduction in assets held for sale, on a marked-to-market basis, and corresponding increase in cash, subject to that cash being redeployed elsewhere within the business of the Group. Cairn India does not currently pay any dividends and the Company has no financial commitments in respect of the residual interest. The Company would expect to benefit from interest receivable from short-term deposits of the cash proceeds from disposals of Cairn India shares.

11. Current trading and prospects

On 23 August 2011, the Company released its half-yearly results announcement for the period ended 30 June 2011, which included the following statements:

"Group oil and gas revenues for the period were $1,336 million, compared with $333 million in H1 2010. Average entitlement production increased to 77,056 boepd (H1 2010: 32,866 boepd), of which oil production accounted for 98% (H1 2010: 88%). Production costs also rose to $199 million from $68 million.

The increases in revenue, production and production costs reflect the contribution of the Rajasthan field which produced on average ~122,000 bopd for the period to June 2011. For the H1 2010, where production through the pipeline commenced in May 2010, gross production averaged ~31,000 bopd.

At 30 June 2011, the Group had net cash of $1,003 million (H1 2010: $267 million). CIL had net cash of $1,048 million, comprising $1,452 million cash and $404 million debt. PLC/Capricorn had net debt of $45 million, comprising $75 million cash and $120 million debt.

Cairn has contracted a sixth generation drill ship (the Ocean Rig Corcovado) and a fifth generation semi-submersible drilling unit (the Leiv Eiriksson) to drill up to four, possibly five, wells this drilling season.

LF7-1 Well: Lady Franklin Block, South Ungavva Area: the LF7-1 exploration well, located in 1,002 metres (m) of water approximately 300km offshore Nuuk, reached target depth (TD) in basement strata and has been plugged and abandoned. The well encountered a thick Upper Cretaceous section with tight (cemented) sandstones although the anticipated older stratigraphy with reservoir section was absent at this location. Initial geochemical analysis of the background gas composition indicates the presence of pre-Tertiary oil prone source rocks in the basin. AT7-1 Well: Atammik Block, South Ungavva Area: The AT7-1 exploration well in the Atammik Block, located in 909m of water 200km offshore Nuuk, has been temporarily suspended by the Ocean Rig Leiv Eiriksson. The AT7-1 well is currently suspended above the prognosed target objectives and is scheduled to be re-entered and drilled to planned TD at a later date in the current programme. The Leiv Eiriksson subsequently moved 750km north to commence operations on the Delta prospect in the Napariaq Block. Delta-1 Well: Napariaq Block, West Disko Area: The Delta-1 well has spudded on the Delta prospect, located in a water depth of 293m approximately 100km off the Greenland coast and 110km northeast of the Alpha-1S1 well drilled in the Sigguk Block in 2010 and is being drilled using the Leiv Eiriksson. Gamma-1 Well: Eqqua Block, West Disko Area: The Gamma-1 well has spudded on the Eqqua block, located in 1,520m of water and 110km southwest of the Alpha-1S1 well and is being drilled using the Ocean Rig Corcovado. AT2 Prospect: Atammik Block, South Ungavva Area: If sufficient time is available in the current exploration programme, and the necessary approvals granted, an additional well to target the AT2 prospect is being considered."

Since the date of the half-yearly results, the Company has continued its 2011 exploration campaign in Greenland with the Ocean Rig Corcovado and the Leiv Eiriksson. The Company issued operational updates to the market on 13 and 28 September and 8 and 30 November 2011. The Gamma-1 well reached its TD and intersected the prognosed basin floor fan at the anticipated depth, although no reservoir or hydrocarbon shows were encountered in the interval and the well was plugged and abandoned. The Delta-1 well, which was targeting the Cretaceous Section beneath the Tertiary volcanic, reached TD at 2,977m still within Tertiary volcanics without encountering hydrocarbon shows and was plugged and abandoned. The AT7-1 well was re-entered and encountered a 113m gross interval with 53m of net reservoir quality sands of Cretaceous age. Severe mud losses and poor hole conditions hampered the full evaluation of this interval which was thought to be of interest because of oil and gas shows. A modular dynamic tester ("MDT") programme recovered fluid samples to surface and those samples examined at the rig revealed only mud filtrate and failed to establish hydrocarbons. Whilst interpretation of MDT pressures indicate that the reservoir in AT7-1 is water-filled, further evaluation is required to confirm the origin of the hydrocarbon shows. A fifth well in the 2011 programme was drilled. The AT2-1 well, located in a water depth of 1,045m and approximately 181km offshore Nuuk and 46km from AT7-1, reached TD at 4,847m in Cretaceous sediments having encountered minor hydrocarbon shows. The well was plugged and abandoned.

Following the well results noted above, impairments to non-drilling costs of approximately US$80m have been recorded and goodwill of approximately US$60m has been fully impaired in accordance with Cairn's accounting

policies. Well costs incurred in connection with the 2011 Greenland drilling campaign and the Alpha-1 well drilled in 2010 will also be written off in accordance with Cairn's accounting policies. It is estimated that such costs will amount to US$855 million in the second half of 2011 (which include US$209 million in respect of the Alpha-1 well).

Following completion of the first tranche of the Company's sale of 40% of the fully diluted share capital of Cairn India, Cairn cancelled its US$900 million loan facility after repaying US$200 million which had already been drawn down.

The Directors remain confident about the prospects for the Group for the current financial year.

12. General Meeting

A general meeting of the Company will be held in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ at 10.00 a.m. on 30 January 2012 to seek the approval of Shareholders to the Return of Cash (and certain matters related to it), the Residual Interest Disposal Authority and the Share Award. The notice of that meeting is set out at the end of this document.

13. Summary explanation of the resolutions to be proposed at the General Meeting

There are six resolutions to be proposed at the General Meeting. Resolutions 1, 5 and 6 are to be proposed as special resolutions and accordingly will be passed if at least 75 per cent. of the votes cast are in favour. Resolutions 2, 3 and 4 are to be proposed as ordinary resolutions and accordingly will be passed if more than 50 per cent. of the votes cast are in favour. If passed, the resolutions (other than in respect of the Residual Interest Disposal Authority and the Share Award) will only become effective on Listing of the New Ordinary Shares. The main terms of the resolutions are summarised below.

Resolution	Explanation
1	Paragraph (a) subdivides each Existing Ordinary Share held by a Shareholder on the Record Date into one intermediate ordinary share and one B Share.

Paragraph (b) consolidates each member's holding of intermediate shares and then subdivides these into New Ordinary Shares. This paragraph also deals with fractional entitlements to New Ordinary Shares. Please see paragraph 4 above for further details on the share capital consolidation effected by this paragraph.

Paragraph (c) approves the terms of the Put Option Agreement entered into between Morgan Stanley and the Company for the purposes of section 694 of the Companies Act. This authority will expire on 31 December 2012. Further details of the Put Option Agreement can be found at paragraph 13 of Part VIII of this document. All B Shares and Deferred Shares purchased by the Company from Morgan Stanley under the Put Option Agreement will be cancelled.

Paragraph (d) proposes the amendment of the 2009 LTIP and 2009 Option Plans to allow options and awards to be granted over New Ordinary Shares under these plans in the future without breaching the dilution limits set out in the rules of those plans. Further details on this matter are set out in paragraph 6 above.

Paragraph (e) proposes the amendment of the Articles of Association to incorporate the rights and restrictions attaching to the B Shares and the Deferred Shares, as set out in Part VI of this document.

Paragraph (f) proposes that the Directors be given authority to transfer any Deferred Shares arising on the reclassification of any B Shares in accordance with the amended Articles of Association following the payment of the B Share Dividend. It is expected that, if the Directors so decide, any such Deferred Shares will be transferred to Morgan Stanley and then repurchased by the Company, pursuant to the Put Option Agreement (further details of which are set out in paragraph 13 of Part VIII of this document). |
| 2 | This resolution approves the grant of the proposed share award in favour of Sir Bill Gammell by way of additional remuneration, as described in Part II of this document. |
| 3 | This resolution proposes that any disposal by any member of the Group of any shares in Cairn India on the terms described in paragraph 9 above be approved. |

Resolution

Explanation

This resolution is conditional on resolution 1 being passed and becoming effective.

The resolution proposes the replacement of the Directors' existing authorities to allot new shares which were granted at the Company's annual general meeting in 2011 to take account of the reduction of the number of issued ordinary shares in the Company as a result of resolution 1 and to comply with investor guidelines.

Paragraph (a) proposes that an authority be granted to allot securities up to a maximum nominal amount of £2,501,199, which represents approximately 33 per cent. of the New Ordinary Shares which will be created as a result of resolution 1 (assuming that no Existing Ordinary Shares are issued by the Company between 6 January 2012 (being the last practicable date prior to the publication of this document) and Listing).

Paragraph (b) proposes that an additional authority be granted to allot securities in connection with a pre-emptive offer by way of a rights issue up to a maximum nominal amount of £2,501,199, which represents approximately 33 per cent. of the New Ordinary Shares which will be created as a result of resolution 1 (assuming that no Existing Ordinary Shares are issued by the Company between 6 January 2012 (being the last practicable date prior to the publication of this document) and Listing).

Paragraph (c) provides that (as with the existing authorities), the replacement authorities will expire on 30 June 2012 or, if earlier, at the end of the next annual general meeting of the Company to be held in 2012, unless previously renewed, revoked or varied in accordance with the Companies Act.

Paragraph (d) sets out the meaning of pre-emptive offer for the purposes of this resolution and resolution 5.

The Directors consider that the authorities sought pursuant to this resolution are desirable to allow the Company to retain flexibility, although they have no present intention of exercising these authorities.

This resolution is conditional on resolutions 1 and 4 being passed and becoming effective.

Section 561 of the Companies Act provides that if the Directors wish to allot any equity securities, or sell treasury shares (if the Company holds any) for cash it must first offer them to existing shareholders in proportion to the their existing shareholdings. Section 561 does not apply to allotments of equity securities made in connection with an employees' share scheme.

This resolution proposes the replacement of Directors' existing powers to allot shares and sell treasury shares as if section 561 did not apply to take account of the reduced issued ordinary share capital of the Company and to comply with investor guidelines. The Directors will have such powers in connection with:

the allotment of shares and/or the sale of treasury shares pursuant to the authority in paragraph (a) of resolution 4 in connection with a pre-emptive offer;
the allotment of shares pursuant to the authority in paragraph (a) of resolution 4 otherwise in connection with a pre-emptive offer and/or the sale of treasury shares up to a maximum nominal amount of £378,970 in aggregate, which represents approximately 5 per cent. of the New Ordinary Shares which will be created as a result of resolution 1 (assuming that no Existing Ordinary Shares are issued by the Company between 6 January 2012 (being the last practicable date prior to the publication of this document) and Listing); and
the allotment of shares and/or the sale of treasury shares pursuant to the authority in paragraph (b) of resolution 4 in connection with a pre-emptive offer undertaken by means of a rights issue.

These powers will expire at the same time as the allotment authorities conferred by resolution 4, unless previously renewed, revoked or varied in accordance with the Companies Act.

Resolution

Explanation

This resolution is conditional on resolution 1 being passed and becoming effective.

The resolution proposes the replacement of the authority of the Company to make market purchases of its own ordinary shares to take account of the reduction of the number of issued ordinary shares in the Company as a result of resolution 1 and to comply with the Listing Rules.

Ordinary shares repurchased by the Company pursuant to the replacement authority may be cancelled or held in treasury and then either sold (in whole or in part) for cash or cancelled (in whole or in part). The Directors do not intend at present to use this power but wish to retain the flexibility to do so in the future. If conferred, the authority will only be exercised if the Directors consider that any purchase will result in an increase in earnings per share of the ordinary share capital in issue after the purchase and, accordingly, would be in the best interests of shareholders generally. No dividends will be paid on treasury shares and no voting rights attach to them.

The maximum aggregate number of New Ordinary Shares that may be purchased pursuant to the authority is 83,120,972. This represents approximately 14.99 per cent. of the New Ordinary Shares which will be created as a result of resolution 1 (assuming that no Existing Ordinary Shares are issued by the Company between 6 January 2011 (being the last practicable date prior to the publication of this document) and Listing).

The minimum price that may be paid for an ordinary share pursuant to this resolution (exclusive of expenses) shall be the nominal value of a New Ordinary Share. The maximum price which may be paid for each New Ordinary Share pursuant to this resolution (exclusive of expenses) is the higher of (i) 105 per cent. of the average of the middle market prices shown in the quotations for New Ordinary Shares in the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which that New Ordinary Share is contracted to be purchased and (ii) an amount equal to the higher of the last independent trade of a New Ordinary Share and the highest current independent bid for a New Ordinary Share as derived from the London Stock Exchange's trading systems.

In accordance with the Listing Rules, the Company will not repurchase shares in the period of 60 days immediately preceding the announcement of its interim results or the preliminary announcement of its annual results or, if shorter, the period from the end of the financial period concerned up to and including the time of a relevant announcement or, except in accordance with the Listing Rules, at any other time when, in terms of the Company's dealing rules, the Directors would be prohibited from dealing in shares.

The amended authority will expire on the earlier of 30 June 2012 or the conclusion of the annual general meeting of the Company to be held in 2012, unless previously revoked, varied or renewed by the Company in general meeting. The Directors intend to seek renewal of this authority at subsequent annual general meetings.

The Company did not purchase any of its own shares between 1 January 2011 and 6 January 2012.

Key dates

A detailed timetable is set out in Part III of this document. The following are key dates in respect of the Return of Cash:

Latest time and date for receipt of Electronic Proxy Instruction, CREST Proxy Instruction or Form of Proxy for General Meeting 10.00 a.m. on 26 January 2012

General Meeting 10.00 a.m. on 30 January 2012

Latest time and date for receipt of Election Forms and TTE Instructions from CREST holders in relation to the B Share Choices and Election Form Effective Date 4.30 p.m. on 10 February 2012

Despatch of cheques or bank accounts credited, as appropriate, in respect of the Single B Share Dividend (Choice 1) 21 February 2012

Despatch of cheques or CREST accounts credited, as appropriate, in respect of the B Shares purchased on the Initial Purchase Date (Choice 2) 21 February 2012

These dates may, however, be subject to change.

Action to be taken

Enclosed with this document is a Form of Proxy for use in respect of the General Meeting. Whether or not you intend to be present at the General Meeting, you are requested to complete, sign and return the Form of Proxy as soon as possible, and in any event, so as to arrive at the offices of the Company's registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, not later than 10.00 a.m. on 26 January 2012. Alternatively, you may register your proxy appointment or voting directions electronically via the www.sharevote.co.uk website not later than 10.00 a.m. on 26 January 2012. Further information regarding the use of this facility is set out in the notes to the notice of General Meeting. If you hold your Existing Ordinary shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction so as to be received by the Company's registrars, Equiniti, by no later than 10.00 a.m. on 26 January 2012. Completion and return of a Form of Proxy or a CREST Proxy Instruction or submission of an electronic proxy appointment or voting direction will not prevent Shareholders from attending and voting in person at the General Meeting should they so wish.

If you hold your Existing Ordinary Shares in certificated form and are not resident in and do not have your registered address in a Prohibited Territory you will also find enclosed with this document an Election Form. If you wish to elect to receive any one of, or a combination of, the B Share Choices, then you should complete, sign and return that form, although you do not have to complete and return a form if you wish to elect for the Single B Share Dividend (Choice 1) in respect of all your B Shares. Details of how to complete and return your Election Form are set out on that form. If you hold your Existing Ordinary Shares in CREST and wish to elect to receive any one of, or a combination of, the B Share Choices, then you should not complete an Election Form and instead should make your election through CREST in accordance with the instructions set out in paragraphs 11 and 12 of Part VIII of this document.

Shareholders resident in or with a registered address in a Prohibited Territory will not be sent an Election Form and will be deemed to have elected for the Single B Share Dividend in respect of all of their B Shares.

You will also find a Dividend Mandate Form enclosed with this document. If you hold your Existing Ordinary Shares in certificated form, wish to receive the Single B Share Dividend (Choice 1) directly into a nominated bank account and have not previously submitted a dividend mandate form, you should complete and return a Dividend Mandate Form. If you do not complete and return a Dividend Mandate Form and have not previously submitted a dividend mandate form, that dividend will be paid to you by cheque. The consideration to be paid to you by Morgan Stanley in relation to the B Shares in respect of which you elect (or are deemed to elect) for the Initial Purchase Offer (Choice 2) and/or the Future Purchase Offer (Choice 3) (if any) will be paid to you by cheque.

If you hold your Existing Ordinary Shares in CREST, elect (or are deemed to have elected) for the Single B Share Dividend (Choice 1), wish to receive that dividend directly into a nominated bank account and have not previously submitted a dividend mandate form, you should also complete and return a Dividend Mandate Form. If you do not complete and return a Dividend Mandate Form and have not previously submitted a dividend mandate form, the Single B Share Dividend will be paid to you by cheque. The consideration to be paid to you by Morgan Stanley in relation to any B Shares in respect of which you elect (or are deemed to elect) for the Initial Purchase Offer (Choice 2) and/or the Future Purchase Offer (Choice 3) (if any) will be credited to your CREST account.

To be effective in relation to any payments to be made in relation to the Return of Cash, Dividend Mandate Forms must be completed and returned to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA or submitted electronically, in each case in accordance with the instructions set out on the Dividend Mandate Form and to be received not later than 4.30 p.m. on 10 February 2012.

If you have submitted a dividend mandate form previously, and you elect for the Single B Share Dividend (Choice 1), your dividend payment will be paid directly to the bank account specified on that form. If you have since changed your bank, or account details, you should submit a new Dividend Mandate Form in order to ensure no delay in receiving the payment. Should payment be made to a bank account which is now closed, payment will then be made by cheque although this may not be issued to you until two weeks or more after the payment is made to all other Shareholders.

If you have any queries in relation to the Form of Proxy, Election Form or Dividend Mandate Form, you may call the Shareholder helpline on 0871 384 2964 (for calls from within the United Kingdom) and +44 121 415 0222

(for calls from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day. Please note that calls to these numbers may be monitored or recorded. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers' costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates.

Please note that the Shareholder helpline will not provide advice on the merits of the resolutions to be proposed at the General Meeting, the Return of Cash, the B Share Choices, the Residual Interest Disposal Authority and the Share Award or give any personal, legal, financial or tax advice.

16. Further information

Your attention is drawn to the further information set out in Parts II to IX of this document.

17. Recommendation

The Board is of the opinion that the Return of Cash, the Residual Interest Disposal Authority, the Share Award and the resolutions to be proposed at the General Meeting are in the best interests of Shareholders as a whole. Accordingly, the Board unanimously recommends that you vote in favour of the resolutions, as the Directors intend to do in respect of their own beneficial holdings amounting in aggregate to 8,010,227 Existing Ordinary Shares representing approximately 0.569 per cent. of the current issued share capital of Cairn (as at 6 January 2012, being the last practicable date prior to the publication of this document).

Yours sincerely,

Sir Bill Gammell
Chairman

PART II

LETTER FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE OF CAIRN ENERGY PLC

CAIRN ENERGY PLC

(Incorporated in Scotland with registered number SC226712)

Registered and Head Office:
50 Lothian Road
Edinburgh
EH3 9BY

10 January 2012

To Shareholders and, for information only, to participants in the Cairn Share Schemes

Dear Shareholder

Proposed share award for Sir Bill Gammell

1. Reasons for and background to the proposed share award

On 16 June 2011, the Company announced a number of changes to the composition of the Board. These changes included Norman Murray stepping down as Chairman, and Sir Bill Gammell stepping down as Chief Executive Officer and becoming Non-Executive Chairman. This was to enable the introduction of a new management structure focused on the future of the Company following the Disposal.

However, at that time, the consents from the Government of India (“GoI”) that were necessary in order to satisfy the conditions to completion of the Disposal had not been granted. Given Sir Bill’s strong relationships with the GoI, his profound understanding of India and his extensive experience and networks in the region, the Board believed that his continuing leadership of deal negotiations would be of unique and vital importance in securing these consents, and that it was therefore in the best interests of the Company and Shareholders to retain him in an executive capacity to manage the completion of the Disposal.

At the end of June 2011, the Company agreed with Vedanta to restructure the Disposal into two tranches, completing the sale of a 10 per cent. shareholding in Cairn India in July 2011 and setting a revised longstop date of 15 December 2011 to complete the sale of the balancing 30 per cent. shareholding which remained subject to GoI consents. Negotiations were on-going when these Board and management changes were agreed and the Remuneration Committee therefore saw it as essential to incentivise Sir Bill to deliver the Disposal prior to the longstop date.

It was agreed, given his cessation of employment as Chief Executive, that Sir Bill should receive immediately his contractual entitlements, which amounted to approximately £1.4 million, as reflected in paragraph 6 of Part VIII of this document, and that, subject to shareholder approval, an incentive package worth up to £3.5 million would be awarded if the Disposal was completed successfully by 15 December 2011. Following completion of the Disposal, the details of that package have been agreed as set out in this letter.

The Remuneration Committee has agreed with Sir Bill that the Company grant him an award over £2.5 million worth of Ordinary Shares (the “Share Award”). Under the Share Award, the right to acquire the Ordinary Shares is deferred for three years and further details are provided below. As originally agreed, the Share Award will be subject to Shareholder approval at the General Meeting.

In addition, the Remuneration Committee has agreed that, subject to the Share Award being approved at the General Meeting, the Company will commit to making a £1 million charitable donation to a charity or charities nominated by Sir Bill which will benefit the development of young people in Scotland with a particular focus on their participation in sport.

2. Terms of the proposed Share Award

The Share Award will be granted pursuant to an agreement to be entered into between the Company and Sir Bill (the "Share Award Agreement"), the principal terms of which can be summarised as follows:

2.1 Form and timing of award

The Share Award will take the form of an option to acquire a total of 940,321 Ordinary Shares at a price per share equal to their nominal value at the point of exercise. This number of Ordinary Shares has been calculated by dividing £2.5 million by the average of the closing middle market quotations of an Ordinary Share (derived from the Daily Official List) for the 3 dealing days immediately prior to 6 January 2012, being the last practicable date prior to the publication of this document.

It is anticipated that the Share Award Agreement will be signed, and the Share Award granted, as soon as reasonably practicable after receipt of Shareholder approval at the General Meeting.

2.2 Award personal to Sir Bill and non-pensionable

The Share Award will be personal to Sir Bill and may not be assigned or transferred in any way, except on death. In addition, benefits derived from the Share Award Agreement will not constitute pensionable earnings of any individual.

2.3 Vesting and exercise of the Share Award

The Share Award will vest in full on the third anniversary of its date of grant. Following vesting, it can be exercised at any time during the following period of six months, failing which it will normally lapse.

For the avoidance of doubt, the vesting of the Share Award will not be subject to the satisfaction of any performance conditions.

2.4 Sir Bill’s rights and release of Ordinary Shares following exercise

The Share Award will not confer any shareholder rights unless and until it has been exercised and Sir Bill has received his Ordinary Shares. As a consequence, Sir Bill will not be eligible to participate in the Return of Cash in respect of the Ordinary Shares over which the Share Award subsists.

On exercise of the Share Award, the relevant Ordinary Shares will normally be allotted within thirty days and will rank pari passu with other Ordinary Shares in issue at that time.

2.5 Source of Ordinary Shares

The Share Award will be satisfied by the issue by the Company of Ordinary Shares.

2.6 Cessation of office and death

The vesting of the Share Award will not be conditional on Sir Bill continuing to be a director of the Company. If, therefore, he ceases to hold office with the Company for any reason (except death) then the Share Award will not lapse and will continue to vest on the third anniversary of its grant.

If, however, Sir Bill dies then the Share Award will vest immediately and may be exercised by his personal representatives at any time during the following period of twelve months.

2.7 Takeover

In the event of a takeover of the Company (or similar event), the Share Award will vest immediately and may generally be exercised at any time during the following period of six months.

2.8 Variation of share capital

In the event of any variation of the share capital of the Company, the number of Ordinary Shares subject to the Share Award and the exercise price payable may be adjusted in such manner as the auditors confirm in writing to be fair and reasonable.

2.9 Alteration

The terms of the Share Award Agreement may be amended by the Board at any time, but only with the prior written consent of Sir Bill. In addition, the provisions relating to:

the maximum entitlement and the basis for determining the entitlement of Sir Bill;
the terms upon which Ordinary Shares may be transferred to Sir Bill under the Share Award;
the adjustments to the Share Award in the event of a variation of capital; and
the amendment provisions,

cannot be altered to the advantage of Sir Bill without the prior approval of Shareholders (except for minor amendments to benefit the administration of the Share Award Agreement, to comply with or take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Sir Bill or for the Company or any other member of the Group).

3. Recommendation

Bringing the Disposal to completion required Sir Bill to engage in extensive and rigorous negotiation and discussions with stakeholders at the highest level in both New Delhi and London along with the regulatory authorities in India. The Board believes that Sir Bill was instrumental in delivering the Disposal which realises for Shareholders value created over a prolonged period and reflects a further step in more than 20 years of creating and returning to Shareholders significant increases in shareholder value. The Board is of the opinion that the Share Award is in the best interests of Shareholders as a whole and recommends that Shareholders approve the proposed Share Award.

Yours sincerely

Dr James Buckee
Chairman of the Remuneration Committee

PART III

EXPECTED TIMETABLE OF EVENTS

	2012
Latest time and date for receipt of Electronic Proxy Instructions, Form of Proxy or CREST Proxy Instruction in respect of General Meeting	10.00 a.m. on 26 January
General Meeting	10.00 a.m. on 30 January
Latest time and date for dealings in Existing Ordinary Shares	4.30 p.m. on 3 February
Record Date for the Capital Reorganisation, Existing Ordinary Share register closed and Existing Ordinary Shares disabled in CREST	6.00 p.m. on 3 February
New Ordinary Shares admitted to the Official List and admitted to trading on the London Stock Exchange’s main market for listed securities	8.00 a.m. on 6 February
Dealings in the New Ordinary Shares commence and enablement in CREST of New Ordinary Shares and interim B Shares	8.00 a.m. on 6 February
Latest time and date for receipt of Election Forms and TTE Instructions from CREST holders in relation to the B Share Choices and Dividend Mandate Forms, and Election Form Effective Date	4.30 p.m. on 10 February
B Share Record Date	6.00 p.m. on 10 February
Morgan Stanley makes the Initial Purchase Offer by means of an announcement through a RIS	14 February
Initial Purchase Date and Single B Share Dividend Date, B Shares in respect of which the Single B Share Dividend is payable will convert into Deferred Shares	14 February
CREST accounts credited with B Shares if the relevant holder has elected to retain B Shares until any Future Purchase Offer is made (Choice 3)	14 February
Despatch of the New Ordinary Share certificates and retained B Share certificates, despatch of cheques or CREST accounts credited, as appropriate, for fractional entitlements to New Ordinary Shares	21 February
Despatch of cheques or bank accounts credited, as appropriate, in respect of the Single B Share Dividend (Choice 1)	21 February
Despatch of cheques or CREST accounts credited, as appropriate, in respect of the B Shares purchased on the Initial Purchase Date (Choice 2)	21 February

Notes:
1. All dates are subject to change. If any of the above times or dates change, the revised times and/or dates will be notified to Shareholders by an announcement on a RIS.
2. References to time in this document are to London time.
3. All events in the above timetable following the General Meeting are conditional upon approval by Shareholders of resolution 1 to be proposed at the General Meeting. All events in the above timetable following Listing of the New Ordinary Shares are conditional upon Listing of the New Ordinary Shares.

PART IV

RISK FACTORS

Shareholders should carefully consider, in addition to the other information set out in this document, the risk factors relating to the Return of Cash and the Group set out below. Any of the risks set out in sections 2 to 4 below could have a material adverse effect on the Company's business, reputation, financial condition and/or operating results and could cause the trading price of the Ordinary Shares to decline. In addition, the risks set out below may not be exhaustive and additional risks and uncertainties, not presently known to the Company, or which the Company currently deems immaterial, may arise or become material in the future.

1. Risks relating to the Return of Cash

The Return of Cash is conditional

The Return of Cash is conditional on, amongst other matters, the approval of Shareholders and cannot proceed if resolution 1 to be proposed at the General Meeting is not approved by 75 per cent. of the votes cast.

There is no guarantee that the Initial Purchase Offer will be made

The Initial Purchase Offer will not be made if the conditions thereto are not satisfied or waived by Morgan Stanley or if the Initial Purchase Offer Deed is terminated. In these circumstances, it expected that the Shareholders who had elected (or were deemed to have elected) for the Initial Purchase Offer in respect of some or all of their B Shares will receive the Single B Share Dividend in respect of those B Shares, subject to that dividend being declared. If this happens, those Shareholders may not receive their preferred tax treatment in respect of those B Shares.

There is no guarantee that the Future Purchase Offer will be made

Whilst the Company expects a Future Purchase Offer to be made, there is no guarantee that it will be made within any specific period (or at all). In particular, a Future Purchase Offer will only be made if the Company has sufficient distributable profits to enable it to buy back any B Shares which are acquired by Morgan Stanley pursuant to the Future Purchase Offer at the time of that acquisition and if Morgan Stanley agree to make the Future Purchase Offer. If the Future Purchase Offer is not made, B Shares that holders have elected to retain in order to participate in the Future Purchase Offer will have very limited rights. In particular, they will not carry any right to receive any dividend (including the Single B Share Dividend) or carry any right for the holder to attend and vote at a general meeting of the Company. While the Company will have the power to convert any B Shares which are still in issue into Ordinary Shares at any time after its 2012 annual general meeting, there can be no guarantee that this power will be exercised in these circumstances.

Liquidity of the B Shares

The B Shares will not be admitted to the Official List or to trading on the London Stock Exchange or any other stock exchange. Accordingly, it is highly unlikely that there will be a liquid market for the B Shares.

United Kingdom taxation

The general guide on United Kingdom taxation in relation to the Return of Cash which is set out in Part VII of this document is based on current United Kingdom tax law and HM Revenue & Customs practice as at the date of this document. The current legislation and practice may change and any such changes may affect the taxation liabilities of Shareholders in relation to the B Shares.

2. Risks relating to the oil and gas industry

The following risks relate to the Group and its investment in the Cairn India Group.

Hydrocarbon prices are subject to fluctuations due to a variety of factors beyond the control of the Group

Historically, hydrocarbon prices have been subject to large fluctuations in response to a variety of factors beyond the control of the Group. No assurance can be given that hydrocarbon prices will increase, or that existing price

levels will be maintained, in the future. Lower hydrocarbon prices may result in a reduction in revenues or net income and could materially adversely affect the business, prospects and financial condition of the Group or the market value of the Group’s investment in the Cairn India Group.

There are uncertainties inherent in estimating the quantity of reserves and resources

Estimating the volume of hydrocarbon reserves and resources is a subjective process. The results of seismic surveys, drilling, testing and production subsequent to the date of an estimate may result in revisions to original estimates.

Any reserves and resources data published by the Group or the Cairn India Group are estimates only and should not be construed as representing exact quantities. Reserves and resources estimates are based on production data, prices, costs, ownership, geophysical, geological and engineering data and other information. Estimates may prove to be incorrect and Shareholders should not place undue reliance on any forward-looking statements concerning reserves and resources or production levels. Whilst reserves are generally stated in accordance with reserve and resources definitions by the Society of Petroleum Engineers (“SPE”) / World Petroleum Council (“WPC”) / American Association of Petroleum Geologists (“AAPG”) / Society of Petroleum Evaluation Engineers (“SPEE”) in the Petroleum Resources Management System (“PRMS”), Shareholders should be aware that certain categories of reserves and resources (such as prospective and contingent resources) are inherently less certain than certain other categories (such as proved reserves).

If the assumptions upon which estimates of hydrocarbon reserves or resources have been based prove to be incorrect, it may not be possible to recover and produce the estimated levels or quality of hydrocarbons and the Group’s business, prospects, financial condition, results of operations or the market value of the Group’s investment in the Cairn India Group could be materially and adversely affected.

Exploration and production operations will involve risks normally incident to such activities

Exploration and production operations will involve risks normally incident to such activities including blowouts, oil spills, gas leaks, explosions, fires, equipment damage or failure, natural disasters, unexploded ordnance, geological uncertainties, unusual or unexpected rock formations and abnormal pressures. Offshore operations are also subject to natural disasters as well as to hazards inherent in marine operations and damage to pipelines, platforms, facilities and sub-sea facilities from trawlers, anchors and vessels. The occurrence of any of these events could result in injury to persons and loss of life, environmental damage, production delays, failure to produce oil or gas in commercial quantities or an inability to produce fully discovered reserves.

Consequent delays to seismic, drilling or production activities and declines from normal field operating conditions can be expected to lead to increased costs or adversely affect revenue and cash flow levels to varying degrees and could have a material adverse impact on the Group’s business and financial condition or the market value of the Group’s investment in the Cairn India Group.

The results of appraising discoveries are uncertain

The results of appraising discoveries are uncertain, which may result in reductions in projected reserves or resources and production declines and may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but uneconomic to develop. Appraisal and development activities may be subject to delays in obtaining governmental approvals or consents, shut-ins of connected wells, insufficient storage or transportation capacity or other geological and mechanical conditions all of which may variously increase costs of operations or delay anticipated revenues.

Exploration activities are capital intensive and inherently uncertain in their outcome

Exploration activities are capital intensive and inherently uncertain in their outcome. There is a risk that exploration activities are undertaken and incur significant costs, with no assurance that such expenditure will result in the discovery of hydrocarbons, whether or not in commercially viable quantities.

Interruptions in the availability of exploration, production or supply equipment or infrastructure and/or increased costs

Interruptions or delays in the availability of equipment or infrastructure, including seismic survey vessels, rigs, pipelines and storage tanks, on which exploration and production activities are dependent are a common

occurrence in the oil and gas industry. Such interruptions or delays could result in disruptions to exploration activities, production, oil and gas offtake arrangements, increased costs, and may have an adverse effect on the Group's business, prospects, financial condition, results of operations or the market value of the Group's investment in the Cairn India Group.

Reliance upon third party contractors and providers of equipment

It is a common practice of the Group, and within the oil and gas industry more generally, to contract or lease services and equipment from third party providers. Such services and equipment can be scarce and may not be readily available at the times and places required.

In addition, the costs of third party services and equipment have increased significantly over recent years and may continue to rise. Scarcity of services and equipment and increased prices may in particular result from any significant increase in regional exploration and development activities, which in turn may be the consequence of increased or continued high hydrocarbon prices. The scarcity of such services and equipment, as well as their potentially high costs, could delay, restrict or lower the profitability and viability of projects which may have an adverse effect on the Group's business, prospects, financial condition, results of operations or the market value of the Group's investment in the Cairn India Group.

Operators of assets may incur liabilities and other joint venture partners may restrict activities

Operators of assets within the oil and gas industry may incur liabilities as a result of mismanagement of an asset by them, which may give rise to liabilities to the other joint venture partners. There is also a risk that other parties with interests in assets may elect not to participate in certain activities relating to those assets which require that party's consent. In such circumstances, it may not be possible for such activities to be undertaken alone or in conjunction with other participants at the desired time or at all. In addition, other joint venture partners may default in their obligations to fund capital or other funding obligations in relation to the assets. A requirement to contribute all or part of any such funding shortfall could have an adverse effect on the Group's business, prospects, financial condition or results of operations or the market value of the Group's investment in the Cairn India Group.

Health, safety and the environment

Operators within the oil and gas industry are subject to laws and regulations relating to the protection of health and safety as well as the environment. Health, safety and environment policies seek to ensure compliance with applicable legal and regulatory requirements, as well as to apply recognised international standards. Failure to comply with applicable legal and regulatory requirements or recognised international standards may give rise to significant liabilities.

Health, safety and environment laws and regulations may over time become more complex and stringent or the subject of increasingly strict interpretation or enforcement. The terms of the grant of licences or production sharing contracts ("PSCs") may include more stringent environmental and/or health and safety requirements. The obtaining of exploration, development or production licences and permits for operations may become more difficult or be the subject of delay by reason of governmental, regional or local environmental consultation, approvals or other considerations or requirements. These factors may lead to delayed or reduced exploration, development or production activity as well as to increased costs.

Failure to meet environmental requirements or the occurrence of a major accident or disaster may result in administrative, civil and criminal proceedings by governmental authorities, as well as civil proceedings by environmental groups and other individuals, which could result in substantial fines, penalties and damages against the Group as well as orders that could limit or halt or even cause closure of its operations, any of which could have a material adverse effect on the Group's business, results of operations and financial condition or the market value of the Group's investment in the Cairn India Group.

Involvement in litigation or other proceedings relating to safety, health and environmental matters, could result in material costs. Clean-up and remediation costs and related litigation may have a material adverse effect on the Group's reputation, cash flow, results of operations and financial condition or the market value of its investment in the Cairn India Group.

Natural disaster or other catastrophic events

The Group’s and the Cairn India Group’s operations are located in areas that can be subject to extreme weather conditions, flooding, earthquake and other natural disasters. These factors may lead to delayed or reduced exploration, development or production activity as well as to increased costs.

Uninsured risks

Substantial liability claims may arise due to the inherently hazardous nature of oil and gas operations or for acts and omissions of contractors, sub-contractors, operators or joint venture partners. Any indemnities received from such parties may be limited or may be difficult to enforce if such contractors, sub-contractors, operators or joint venture partners lack adequate resources.

The Board believes that the Group’s level of insurance cover is reasonable based on the costs of cover, the risks associated with its business and industry practice and currently includes insurance for out-of-control wells (including coverage of pollution and environmental damage caused thereby), third party liability coverage (including employer’s liability insurance) and directors’ and officers’ liability insurance, in each case subject to deductibles, exclusions and limitations. The Group does not, however, carry business interruption, key-man or sabotage insurance.

The Group can give no assurance that the proceeds of insurance applicable to covered risks will be adequate to cover expenses relating to losses or liabilities. Accordingly, the Group may suffer material losses from uninsurable or uninsured risks or insufficient insurance coverage. The Group is also subject to the risk of unavailability, increased premiums or deductibles, reduced coverage and additional or expanded exclusions in connection with insurance policies and those of the operators of any assets which the Group does not operate itself. All of these factors could adversely affect the Group’s business, results of operations, financial condition or prospects. Uninsured risks relating to the Cairn India Group could impact the market value of the Group’s investment in the Cairn India Group.

Exposure to the political, legal, fiscal, economic, regulatory and social risks of the countries where operations are located or intended to be located

Political, economic, legal, regulatory and social risks may affect operators in the countries in which they operate or intend to operate. These risks potentially include expropriation (including “creeping” expropriation) and nationalisation of property, changes to fiscal regimes or tax law or unexpected changes to the interpretation and enforcement of existing tax law, instability in political, economic or financial systems, uncertainty arising from underdeveloped legal and regulatory systems, corruption, civil strife or labour unrest, acts of war, armed conflict, terrorism, outbreaks of infectious diseases, prohibitions, limitations or price controls on hydrocarbon exports and limitations or the imposition of tariffs or duties on imports of certain goods.

In particular, wars, acts of terrorism and uncertain political or economic prospects or instability in the Middle East and North Africa (“MENA”) may adversely impact global financial markets and increased volatility in the price of crude oil. Recent protests in the MENA countries may continue and broaden across the region and lead to significant political uncertainties in a number of countries, which could materially adversely affect the Group’s business, results of operations, financial condition or prospects or the market value of the Group’s investment in the Cairn India Group.

Transportation, telecommunications and financial services infrastructures within countries where operations are based may present logistical challenges not associated with doing business in more developed locales. There may be difficulty ascertaining legal obligations and enforcing any legal rights. Certain governments in other countries have in the past expropriated or nationalised property of hydrocarbon production companies operating within their jurisdictions. Sovereign or regional governments could require larger shares of hydrocarbons or revenues than previously agreed to or could impose higher rates of taxation.

Once hydrocarbon exploration and/or production operations have been established in a particular country, it may be expensive and logistically burdensome to discontinue such operations should economic, political, physical or other conditions subsequently deteriorate. All of these factors could adversely affect the Group’s business, results of operations, financial condition or prospects or the market value of the Group’s investment in the Cairn India Group.

Licensing, other regulatory requirements and decommissioning

Oil and gas activities are subject to licences, regulations and approvals of governmental authorities including those relating to the exploration, development, operation, production, marketing, pricing, transportation and storage of oil and gas, taxation, and environmental and health and safety matters in the countries where they are located or intended to be located.

Operators have limited control over whether or not necessary approvals or licences (or renewals thereof) are granted or maintained, the timing of obtaining (or renewing) such licences or approvals, the terms on which they are granted or the tax regime to which they or their respective assets will be subject. This may result in limited control over the nature and timing of development and exploration of oil and gas fields where interests are sought or held. Changes in regulatory requirements could preclude or detrimentally affect the schedule or costs associated with planned activities.

Upon the expiry of licences, contractors are generally required, under the terms of relevant licences or local law, to dismantle and remove equipment, cap or seal wells and generally make good production sites. Decommissioning charges may be in excess of those provided for, since local or national governments may require decommissioning to be carried out in circumstances where there is no express obligation to do so, particularly in case of future licence renewals. This could adversely affect the Group's business, results of operations, financial condition or prospects or the market value of the Group's investment in the Cairn India Group.

The oil and gas industry is highly competitive

Participants within the oil and gas industry compete in the search for and acquisition of oil and gas assets and licences. Competitors may include companies with, in many cases, greater financial resources, local contacts, staff and facilities than those of the Group.

Competition for exploration and production licences as well as for other investment or acquisition opportunities may increase in the future. This may lead to increased costs in the carrying out of activities or reduced available growth opportunities and may adversely affect the Group's business, financial condition, results of operations and prospects or the market value of the Group's investment in the Cairn India Group.

Activities and reputation could be affected by unsupportive stakeholders

Business activities and reputation could be affected by the attention of stakeholders who oppose the exploration for oil and gas in the areas where operations are located. Such actions could have a material adverse effect on the operations and reputation of the Group.

Changes to economic or fiscal policy may result in higher tax burden

The oil and gas industry worldwide is characterised by relatively frequent changes in economic and fiscal policy by governments whether through amendments to legislation or PSCs, changes in interpretation of legislative terms or similar actions. Such actions may result in an increased tax burden and therefore reduce the level of post-tax income and could have a material adverse effect on the Group's business, operating results and financial condition or the market value of the Group's investment in the Cairn India Group.

3. Risks relating to the Group

The Group may be unable to implement its growth strategy

The Group's strategy is to focus on exploration, appraisal and development opportunities where the Board believes that there is a strategic fit with the Group's ongoing goal to add and, where appropriate, realise value for Shareholders. There can be no assurance that the Group will continue to implement successfully this strategy and any failure to do so could materially adversely affect the reputation, financial condition and/or operating results of the Group.

There can be no guarantee that the Group will be successful in its future exploration and development efforts

The Group holds extensive exploration acreage in Greenland, Spain, Albania and Nepal, being subject to an ongoing exploration work programme which has focussed recently on Greenland. There can be no assurance that

the Group’s future exploration and development activities will result in the discovery and development of commercial accumulations of oil and gas. Should the Group’s efforts be unsuccessful and result in the Group’s reserves not increasing, this could have a negative impact on the Group’s business, financial condition, prospects and results of operations.

Dependence on certain key employees

The Group’s business is managed by a number of key personnel, including the executive directors and senior management team, many of whom have significant experience within their business and the oil and gas exploration and production sector more generally. Those individuals may be difficult to replace particularly in light of the fact that the Group operates in a highly competitive market. The loss of key personnel could have a material adverse effect on the Group’s business. In addition, as the business develops and expands, the Group’s future success will depend on its continued ability to attract, motivate and retain highly skilled and qualified personnel. There can be no assurance that key personnel will continue to be employed by the Group or that the Group will be able to retain suitably qualified and experienced personnel in the future. The failure to retain or recruit key personnel could materially adversely affect the Group’s reputation, financial condition and/or operating results.

The Group’s retained shareholding in the Cairn India Group represents a significant proportion of its value

One of the Group’s main assets is its retained minority shareholding in the Cairn India Group. Accordingly, following Completion, the value of the Group may continue to be significantly affected by the performance of the Cairn India Group. Any failure by the Cairn India Group to continue to develop its business and/or the occurrence of any of the risks relating to the Cairn India Group set out in sections 2 and 4 of this Part IV could have a material adverse effect on the market value of the Group’s retained interest in the Cairn India Group and, in turn, upon the market value of the Group.

Cairn has no rights to appoint any directors to the board of Cairn India and its shareholding does not provide the Group with the ability to control actions that require a majority shareholder approval. Cairn may not have the ability to prevent Cairn India from engaging in activities or pursuing strategic objectives that may conflict with the interests or overall strategic objectives of the Group. Decisions made by the board of Cairn India could have a material impact on the reported earnings of Cairn, and changes in market or macroeconomic conditions could impact the cashflows and valuation of Cairn’s investment in Cairn India.

Liability for certain obligations of the Cairn India Group

Following completion of the sale of a majority shareholding in Cairn India to Vedanta, Vedanta has submitted parent company guarantees (PCGs) to the Government of India in respect of certain obligations of members of the Cairn India Group under existing PSCs in India. These PCGs have been submitted as replacements for those previously provided by Cairn. As yet, however, the original Cairn PCGs have not been released. While Cairn does have indemnity cover from either Cairn India or Vedanta in respect of these non released PCGs, there is a risk that the Government of India can still call upon these PCGs until such time as they are released. In addition, Cairn is awaiting the release of its PCG in respect of a PSC for a block relinquished by Cairn India following the satisfaction of all conditions and obligations under the PSC by Cairn India. Should these PCGs be called upon, the amount or costs of meeting its obligations under the guarantees may not be fully recoverable by Cairn. Accordingly, liabilities incurred by the relevant members of the Group under those parent company guarantees could adversely affect the Group’s business, operating results and/or financial condition.

Exposure to the political, legal, fiscal, economic, regulatory and social risks of the countries where the Group’s operations are located or intended to be located

Political, economic, legal, regulatory and social risks may affect the Group in countries in which it operates or intends to operate. These risks potentially include expropriation (including “creeping” expropriation) and nationalisation of property, changes to fiscal regimes or tax law or unexpected changes to the interpretation and enforcement of existing tax law, instability in political, economic or financial systems, uncertainty arising from underdeveloped legal and regulatory systems, corruption, civil strife or labour unrest, acts of war, armed conflict, terrorism, outbreaks of infectious diseases, prohibitions, limitations or price controls on hydrocarbon exports and limitations or the imposition of tariffs or duties on imports of certain goods.

Risks arising as a result of the Return of Cash

Following the Return of Cash, the Company will have a materially smaller equity base. This may restrict the Group's ability to implement its growth strategy and/or to compete with other industry participants in the search for or acquisition of oil and gas assets and licences.

In particular, there are certain restrictions in the Group's exploration licences offshore Greenland, whereby, in order to carry out drilling operations a company (or, in some cases, the joint venture as a whole) must be, in the opinion of the Greenlandic authorities, of sufficient reputational and financial standing, as well as either having levels of shareholder equity greater than minimum requirements, or providing some other form of assurance as agreed with the Greenlandic authorities. Upon the Return of Cash, the Company does not foresee any change in the Group's ability to meet these covenants. In the future, depending on a wide variety of factors, including the Group's future strategy, it is possible that the Group's shareholder equity will decrease to a level whereby further discussions will be required with the Greenlandic authorities and further assurance given in order to permit drilling operations.

4. Risks relating to the Group's investment in the Cairn India Group

These risks relate to the financial condition and/or operating results of the Cairn India Group and therefore to the value of the Group's investment in the Cairn India Group.

Volatility of the Cairn India Group share price

The Group owns shares in Cairn India which are listed and traded on the Indian Stock Exchanges. The value of those shares may change significantly and rapidly, and will be determined by factors outside of the Group's control, including general market sentiment on the Indian stock exchanges, global oil prices, the operational status of the Cairn India Group's assets, the strength of the Cairn India Group's management, the actions of Vedanta as the controlling shareholder of the Cairn India Group and the policies of the Government of India with regard to the Cairn India Group and its assets.

Historically, the Cairn India Group has not paid any dividends to its shareholders and there can be no guarantee that it ever will pay dividends. The benefit to the Group of its investment in the Cairn India Group may therefore be solely determined by the market value of the shares.

Production rates from the Rajasthan fields may be lower than forecast

The Cairn India Group's main asset is its participating interest in the Rajasthan fields, which are currently producing 125,000 barrels of oil per day. Continuing and increasing production from these fields is expected to be the key determinant of the Cairn India Group's operating results and revenues.

Certain forecast production increases from the Cairn Indian Group's Rajasthan fields will require the consent of third parties including the joint venture partner, the appropriate regulatory authorities and the Government of India ("GoI"), which may not be forthcoming or which may be delayed and thereby result in a detrimental impact on the Cairn India Group's expected operating results.

Crude produced from the Rajasthan fields is characterised by its viscous nature in the reservoir and its propensity, inside or outside the reservoir, to require higher temperatures for the crude to remain in liquid form than is the case for most producing oil fields. To extract the waxy crude oil, the Cairn India Group is using hot water injection as the recovery technique at these fields. Any operational failure in this technique may have an adverse impact on the overall field production rate and ultimate recovery, which would have a detrimental impact on the Cairn India Group's operating results and revenues. Furthermore, the temperature of the crude oil in the main 24 inch insulated oil pipeline and connecting spur lines should be kept higher than the wax appearance temperature of the crude oil, which has required the installation of a specialised heating system and heating stations at various points along the pipeline. If the specialised heating system does not continue to perform and/or there are problems associated with the performance of the heating stations and/or there are problems supplying fuel to the power generation systems at these heating stations, then this may mean that the temperature of the crude oil cannot be maintained at the required temperature, which will have an adverse impact on the rates at which oil can be transported through the pipeline network. This would also have a detrimental impact on the Cairn India Group's operating results and revenues.

The hot water injection recovery technique requires the Cairn India Group to continue to source its own supply of saline water, and maintaining the requisite temperature of the water for injection and of the crude in the production facilities and the pipelines requires the Cairn India Group to continue to source its own supply of gas or alternative fuel. Any interruption to the supply of water or fuel, or any failure to source sufficient water or fuel to enable the continued development of the Rajasthan fields may result in an adverse impact on production rates and ultimate recovery of crude. This would have a detrimental impact on the Cairn India Group's operating results and revenues.

Production of associated gas from the Rajasthan fields may be greater than expected, and may exceed any environmental limits for the disposal of such associated gas. This could require crude oil production to be reduced to allow such limits to be met, or require the construction of facilities to inject any such excess gas into a suitable reservoir, which would require the construction of additional facilities with the associated additional costs, which could have a material adverse effect on Cairn India's business, operating results and financial condition.

Uncertainty of estimates of recoverable reserves

Any reserves and resources data published by the Cairn India Group are estimates only and may prove not to be correct. Any negative revision to the estimated recoverable reserves of the Cairn India Group could have a material adverse effect on its business, operating results and financial condition.

Certain estimates of recoverable reserves from the Rajasthan fields assume the use of enhanced oil recovery ("EOR") techniques to extract an additional incremental percentage of the estimated oil in place in the reservoirs. There is no guarantee that these techniques will be successful, nor that they can be commercially implemented on a large scale or that their implementation will be economic if global oil prices reduce.

Requirements for the development of incremental infrastructure

Increased production from the Rajasthan fields is expected from the currently producing Mangala field and from the start of production from the Bhagyam and other new fields, but such increased production will rely on, amongst other things, the successful construction of additional infrastructure.

An additional processing train ("MPT Train 4") is required for the processing of the Bhagyam field crude oil and any incremental Mangala field crude oil above the existing approved Mangala field plateau production rate of 125,000 barrels of oil per day ("bopd"). Delays in the construction, installation and commissioning of MPT Train 4 will adversely affect the timing of the start of production from the Bhagyam field and the increase of production from the Mangala field in excess of the currently approved Mangala field plateau production rate, and therefore could have a material adverse effect on Cairn India's business, operating results and financial condition. Completion of MPT Train 4 may cost more than currently estimated and/or MPT Train 4 may not operate in the way currently expected, either of which would have a material adverse effect on Cairn India's business, operating results and financial condition.

The results of the Bhagyam development drilling programme may indicate that additional development wells (whether producers or water injectors) may be required in order that the Bhagyam field can produce at the approved Bhagyam field plateau production rate. If additional wells are required, this will mean an increase in the field development costs, which may require the approval of the joint venture partner, the relevant regulatory authorities and the GoI, which could have a material adverse effect on Cairn India's business, operating results and financial condition.

Construction of the final stretch of the main export pipeline, taking Rajasthan crude to export facilities on the coast, is not yet complete. Whilst work has commenced on the construction and installation of the Salaya to Bhogat section of the main pipeline, there is a risk that the construction, installation and commissioning of the Salaya to Bhogat section, which is approximately 90 km long, could take longer or cost more than planned. A delay or cost overrun in the construction and installation of the Salaya to Bhogat section of the main pipeline could have a material adverse effect on Cairn India's business, operating results and financial condition. Similarly, whilst work has commenced on the construction and installation of the marine terminal and loading facilities, there is a risk that the construction, installation and commissioning of the marine terminal and loading facilities could take longer or cost more than planned. If the completion of the Bhogat terminal and/or marine loading facilities are delayed, this will adversely impact the ability to despatch crude oil to customers who require the marine transportation of the crude oil to their receiving terminals, which could have a material adverse effect on Cairn India's business, operating results and financial condition.

Risks relating to the sale of crude from the Rajasthan fields

Export of crude from the Rajasthan fields is currently by pipeline to fixed onshore delivery points and a limited number of potential buyers. There is no guarantee that buyers can continue to be found for the crude at these delivery points or that buyers can be found for increased production quantities from the fields. Any interruption to the ability or willingness of counterparties to purchase the crude would have a material adverse impact on oil sales and the cash flow of the Cairn India Group. Furthermore, the current limited competition for the purchase of crude from the Rajasthan fields may expose the Cairn India Group to offtake and production delays, adverse pricing or other contractual terms. Completion of the pipeline from Salaya to Bhogat and the Bhogat storage and marine loading facilities will provide a longer term solution allowing access to additional buyers at coastal refineries.

Risk of adverse amendments to the Rajasthan Licence terms, or failure to extend the licence on expiry

The Rajasthan PSC expires in 2020 and there is a risk that the GoI declines an extension request or gives its approval subject to acceptance of revised terms. This could have an adverse impact on the Cairn India Group's oil reserves, sales and cash flow, which ultimately could materially adversely affect the financial condition and/or operating results of the Cairn India Group.

Following the Group's request to the GoI for approval to the transfer of a controlling shareholding in the Cairn India Group to Vedanta, the GoI granted such approval subject to certain conditions being fulfilled, not all of which were directly related to the proposed transfer of shares. Such conditions are expected to have a material adverse effect on the financial results of the Cairn India Group. There is no guarantee that the GoI will not in the future seek to impose conditions in respect of any future requests for approvals, acceptance of which may materially adversely affect the financial condition and/or operating results of the Cairn India Group.

PART V

DETAILS OF THE RETURN OF CASH

1. Return of Cash

The Return of Cash comprises the Capital Reorganisation (on which see paragraph 2 below), which deals with the creation of the B Shares, and the B Share Choices (on which see paragraphs 3, 4 and 5 below), which provide certain Shareholders with an element of choice as to when and in what form they receive the cash proposed to be returned by the Company.

The Return of Cash is conditional on:

(i) the approval by Shareholders of resolution 1 to be proposed at the General Meeting; and
(ii) Listing of the New Ordinary Shares.

If these conditions are not satisfied by 8.00 a.m. on 6 February 2012 (or such other time and/or date as the Directors may determine) no New Ordinary Shares or B Shares will be created and the Return of Cash will not take effect.

2. Capital Reorganisation

The Capital Reorganisation will take effect immediately on Listing of the New Ordinary Shares.

Creation of B Shares

It is proposed to create the B Shares by subdividing each Existing Ordinary Share held on the Record Date into one intermediate ordinary share of $\frac{7}{13}$ pence and one B Share.

The B Shares will carry limited voting rights as more fully set out in Part VI of this document.

Holders of Existing Ordinary Shares whose holdings are registered in CREST will automatically have any B Shares credited to their respective CREST accounts. The Company will apply for the B Shares to be admitted to CREST with effect from 6 February 2012 so that transfers of the B Shares may be settled within the CREST system. No share certificates will be issued for any B Shares in respect of which the Single B Share Dividend is paid (Choice 1) or which are purchased by Morgan Stanley on the Initial Purchase Date (Choice 2). Share certificates will be issued in respect of such B Shares that are to be retained and which may be purchased by Morgan Stanley under any Future Purchase Offer (Choice 3).

The B Shares will neither be admitted to the Official List nor to trading on the main market for listed securities of the London Stock Exchange, nor will the B Shares be listed or admitted to trading on any other recognised investment exchange.

Share Capital Consolidation

Immediately following the subdivision referred to above, the holdings of intermediate ordinary shares will be consolidated and divided so that Shareholders will receive approximately 0.39 of a New Ordinary Share for each Existing Ordinary Share they own on the Record Date. The intention of the Share Capital Consolidation is that, subject to normal market movements following the date of this document, the share price of one New Ordinary Share immediately after Listing of the New Ordinary Shares should be comparable to the share price of one Existing Ordinary Share immediately beforehand. The ratio used for the Share Capital Consolidation has been set by reference to the closing middle-market price of £2.64 per Existing Ordinary Share on 6 January 2012 (being the latest practicable date before the publication of this document). The effect of the Capital Reorganisation will be to reduce the number of issued Existing Ordinary Shares to reflect the return of £1.60 per B Share to Shareholders, but Shareholders will, immediately following the Share Capital Consolidation, own the same proportion of the ordinary share capital of Cairn as they did previously, less any fractional entitlements (on which please see below).

To effect the Share Capital Consolidation it may be necessary to issue such minimum number of additional Existing Ordinary Shares (not exceeding 32) so that the aggregate nominal value of the ordinary share capital of the Company is exactly divisible by 33. It is intended that these additional Ordinary Shares would be issued to a

person to be nominated by the Board and that, following completion of the Share Capital Consolidation, the resulting New Ordinary Shares together with any payment under the Return of Cash and any fractional entitlement would be surrendered to the Company for no consideration.

The Share Capital Consolidation will take place immediately after the subdivision of the Existing Ordinary Shares creating the B Shares.

Application will be made for the New Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchange’s main market for listed securities, with dealings expected to commence at 8.00 a.m. on 6 February 2012.

The Company will apply for the New Ordinary Shares to be admitted to CREST with effect from Listing of the New Ordinary Shares so that general market transactions in the New Ordinary Shares may be settled within the CREST system. Holders of Existing Ordinary Shares whose holdings are registered in CREST will automatically have any New Ordinary Shares credited to their respective CREST accounts.

New Ordinary Shares will be traded on the London Stock Exchange in the same way as Existing Ordinary Shares and will be equivalent in all respects to the Existing Ordinary Shares including their dividend, voting and other rights. New Ordinary Share certificates will be issued following the Capital Reorganisation. It is expected that New Ordinary Share certificates will be despatched on 21 February 2012.

Fractional entitlements to New Ordinary Shares

Unless a holding of Existing Ordinary Shares is exactly divisible by 33, a Shareholder will have a fractional entitlement to a New Ordinary Share following the Share Capital Consolidation. So, for example, a Shareholder having 100 Existing Ordinary Shares would, after the Share Capital Consolidation, be entitled to 39 New Ordinary Shares and to a fractional entitlement of approximately 0.39 of a New Ordinary Share. Further examples of how this will work in practice are set out in paragraph 12 of Part IX of this document.

These Shareholders’ fractional entitlements will be aggregated and sold in the market on their behalf. The proceeds of sale, net of commission, will be distributed pro rata to the relevant Shareholders. Cheques in respect of the proceeds of sale are expected to be despatched to relevant Shareholders or CREST accounts credited with the proceeds, as appropriate, together with certificates for New Ordinary Shares and B Shares, if applicable, on 21 February 2012.

Should the cash consideration for your fractional entitlement be less than £3.00, you will not receive a cheque in respect of that entitlement; rather, the proceeds will be donated to charities chosen by the Board.

3. Choice 1: Single B Share Dividend

Shareholders may elect to receive a Single B Share Dividend of £1.60 per B Share in respect of all or some of their B Shares. Shareholders resident or with a registered address in any of the Prohibited Territories, Shareholders who do nothing and Shareholders who do not make a valid election will be deemed to have elected for the Single B Share Dividend in respect of all of their B Shares. Shareholders whose election for the Initial Purchase Offer in respect of some or all of their B Shares and/or to retain some or all of their B Shares until the Future Purchase Offer is made is invalid will also be deemed to have elected for the Single B Share Dividend in respect of those B Shares.

The attention of Overseas Shareholders (and in particular Overseas Shareholders resident, or with a registered address, in a Prohibited Territory) is drawn to paragraph 8 below.

It is expected that Shareholders receiving the Single B Share Dividend will (subject to that dividend being declared) be sent cheques or, if mandate instructions are held, have their bank accounts credited, as appropriate, in respect of such Single B Share Dividend on 21 February 2012 (or such other date as the Directors may determine). No share certificates will be issued for any B Shares in respect of which the Single B Share Dividend is paid.

To elect for and receive the Single B Share Dividend in respect of some of your B Shares, you should follow the instructions on the Election Form. Shareholders electing through CREST should refer to paragraphs 11 and 12 of Part VIII of this document. Please note that you do not have to complete and return an Election Form if you wish to receive the Single B Share Dividend in respect of all your B Shares as this is the default option.

Immediately following payment of the Single B Share Dividend, those B Shares on which the Single B Share Dividend has been paid will automatically be converted into Deferred Shares, with the Shareholder receiving one Deferred Share for each such B Share. The Deferred Shares will not be listed, will carry extremely limited rights (as more fully described in Part VI of this document) and will have negligible value. No share certificates will be issued to represent the Deferred Shares. Deferred Shares cannot be held in CREST. Any Deferred Shares to which Shareholders become entitled following declaration of the Single B Share Dividend will not be credited to Shareholders' CREST accounts.

The Deferred Shares which are in issue may be purchased by Morgan Stanley and then repurchased by the Company at a later date in each case for the aggregate sum of one penny for all of the Deferred Shares which are purchased or repurchased (as the case may be). Given the negligible amount of the aggregate consideration, Shareholders will not be entitled to receive any payment in connection with this purchase. Any purchase of Deferred Shares by Morgan Stanley from a Shareholder will be treated as a disposal by that Shareholder for capital gains purposes.

Shareholders should carefully read Part VII of this document in relation to United Kingdom taxation before deciding whether to elect for the Single B Share Dividend.

4. Purchase Offers

Subject as set out below, Shareholders may elect to have all or some of their B Shares purchased under the Initial Purchase Offer (Choice 2) or to retain all or some of their B Shares (Choice 3). A Future Purchase Offer is expected to be made during April 2012 in respect of any such retained B Shares, although there is no guarantee that such an offer will be made.

Shareholders resident or who have a registered address in any of the Prohibited Territories will not be able to elect for the Initial Purchase Offer and/or to retain B Shares until any Future Purchase Offer is made. The attention of Overseas Shareholders (and in particular Overseas Shareholders resident, or with a registered address, in a Prohibited Territory) is drawn to paragraph 8 below.

Following completion of any Purchase Offer, Morgan Stanley will have the right pursuant to the Put Option Agreement to require the Company to purchase from it, at £1.60 per B Share (plus an amount equal to any stamp duty or stamp duty reserve tax paid and/or payable by Morgan Stanley under the relevant Purchase Offer), those B Shares purchased from Shareholders pursuant to that Purchase Offer. Any B Shares purchased by the Company from Morgan Stanley will be cancelled.

Choice 2: Initial Purchase Offer

Under the Initial Purchase Offer, it is expected that Shareholders who are not resident and who do not have their registered address in any of the Prohibited Territories and who validly elect for the Initial Purchase Offer in respect of all or some of their B Shares would have those B Shares purchased by Morgan Stanley, acting as principal, on 14 February 2012, at £1.60 per B Share, free of all dealing expenses and commissions. The Initial Purchase Offer is subject to certain conditions, which are set out in paragraph 5 below. The Initial Purchase Offer may be withdrawn or terminated if any of these conditions are not satisfied by 6.00 p.m. on 29 February 2012 (or such other time and/or date as Morgan Stanley and the Company may agree). It may also be extended at any time or from time to time (without an obligation to do so, other than as may be required under any applicable law). Any proposed extension, withdrawal or termination of the Initial Purchase Offer will be publicly announced on the Business Day following the occurrence of the event giving rise to the amendment or extension.

Where the Initial Purchase Offer is not made, it is expected that the Shareholders who had elected (or were deemed to have elected) for it in respect of some or all of their B Shares will receive the Single B Share Dividend in respect of those B Shares, subject to that dividend being declared. In those circumstances such Shareholders will be deemed to have elected for the Single B Share Dividend in respect of such B Shares.

It is expected that Shareholders whose B Shares are purchased on the Initial Purchase Date will be sent cheques or have their CREST accounts credited with the proceeds, as appropriate, in respect of such purchase on 21 February 2012 (or such other date as the Directors may determine). No share certificates will be issued in respect of B Shares that are purchased under the Initial Purchase Offer. Share certificates will only be issued in respect of such B Shares as are retained by Shareholders. It is expected that such share certificates will be despatched to Shareholders (at their own risk) on 21 February 2012 (or such other date as the Directors may determine).

To elect for the Initial Purchase Offer in respect of all or some of your B Shares you should follow the instructions on the Election Form unless you hold your B Shares through CREST. Shareholders electing through CREST should refer to paragraphs 11 and 12 of Part VIII of this document.

Shareholders should carefully read Part VII of this document in relation to United Kingdom taxation before deciding whether to elect for the Initial Purchase Offer.

Choice 3: Future Purchase Offer

Shareholders (who are not resident and do not have their registered address in any of the Prohibited Territories) may elect to retain all or some of their B Shares held on the B Share Record Date.

It is expected that Shareholders who have validly elected to hold all or some of their B Shares until the Future Purchase Date will have such B Shares purchased by Morgan Stanley, acting as principal, during April 2012 although there can be no guarantee that such an offer will be made. If the Future Purchase Offer is made, it is expected that cheques will be despatched or CREST accounts credited with the proceeds, as appropriate, in respect of the outstanding B Shares within 10 Business Days of the offer being made.

In addition, if you validly elect for this choice, you should note that the Company will have the power to convert any B Shares outstanding following the annual general meeting of the Company held in 2012 into New Ordinary Shares. However, there is no guarantee that the Company will exercise this power.

To elect to retain all or some of your B Shares until the Future Purchase Date (subject to the Future Purchase Offer being made by Morgan Stanley, which cannot be guaranteed) you should follow the instructions on the Election Form unless you hold your B Shares through CREST. Shareholders electing through CREST should refer to paragraphs 11 and 12 of Part VIII of this document.

Shareholders should carefully read Part VII of this document in relation to United Kingdom taxation before deciding whether to elect to retain some or all of their B Shares until the Future Purchase Offer (if any) is made.

5. Additional terms of the B Share Choices

The following terms shall apply to the Single B Share Dividend and the Initial Purchase Offer:

(i) the Election Form, any TTE Instruction of a Shareholder electing through CREST and all resulting contracts will be governed by, and construed in accordance with, English law. Execution by, or on behalf of, a Shareholder of an Election Form, or any TTE Instruction submitted by, or on behalf of, a Shareholder electing through CREST, constitutes his submission, in relation to all matters arising out of or in connection with such form or instruction (including, without limitation, the exercise of the powers of attorney and/or authority of any agent appointed thereunder) to the exclusive jurisdiction of the English courts; and

(ii) by making a valid election to participate in the Initial Purchase Offer, each applicable Shareholder agrees that no authority conferred by, or agreed to by, execution of the Election Form or any TTE Instruction submitted by a Shareholder electing through CREST shall be affected by, and all such authority shall survive, the death or incapacity of the Shareholder executing such form or instruction. All obligations of such Shareholder shall be binding upon any surviving joint holder(s), the heirs, executors, personal representatives, successors and assigns of such Shareholder.

The following terms shall apply to the Initial Purchase Offer:

(i) by making a valid election to participate in the Initial Purchase Offer, each applicable Shareholder agrees that no contract between a Shareholder and Morgan Stanley will arise in relation to the sale and purchase of any B Shares, or under which Morgan Stanley may (subject to conditions or otherwise) become entitled or obliged to purchase any B Shares under the Initial Purchase Offer unless and until Morgan Stanley makes the Initial Purchase Offer, which is expected to be by way of an announcement made by the Company through a RIS on 14 February 2012, at which point such offer shall be deemed to be accepted by such Shareholder in respect of the B Shares which they have validly elected for the Initial Purchase Offer;

(ii) upon execution of the Election Form or the giving of a TTE Instruction which includes an election to participate in the Initial Purchase Offer, the Shareholder represents and warrants that he has full power and authority to tender, sell, assign and transfer the B Shares in relation to which the Initial Purchase Offer is elected pursuant to the Election Form or TTE Instruction (as the case may be) and that when such B Shares

are purchased by Morgan Stanley, Morgan Stanley will acquire such B Shares free and clear from all liens, charges, restrictions, claims, equitable interests and encumbrances and together with all rights attaching thereto. In addition, by execution of the Election Form or the giving of a TTE Instruction in respect of the Initial Purchase Offer, the Shareholder (a) agrees that he will do all other things and execute any additional documents which may be necessary or, in the opinion of Morgan Stanley, desirable to effect the purchase of the B Shares in relation to which the Initial Purchase Offer is elected for pursuant to the Election Form or TTE Instruction (as the case may be) by Morgan Stanley and/or to perfect any of the authorities expressed to be given under the Election Form or by virtue of the TTE Instruction (as the case may be) and (b) acknowledges that Morgan Stanley and the Company shall not have any liability whatsoever to such Shareholder in respect of acts done or omitted to be done by them or by one of them on behalf of such Shareholder in connection with the instructions given to them or to one of them by such Shareholder pursuant to the Election Form, TTE Instruction or otherwise in relation to the Initial Purchase Offer;

(iii) the execution by or on behalf of a Shareholder of an Election Form, or the giving of a TTE Instruction, which includes a valid election to participate in the Initial Purchase Offer in respect of any B Shares will irrevocably appoint each of Cairn (and any director, officer or employee of Cairn for the time being) and Morgan Stanley (and any director of Morgan Stanley for the time being), severally, as attorneys for and/or agents of the Shareholder, with authority on that Shareholder's behalf and in his or their name, to exercise all rights, powers and privileges attached to those B Shares or otherwise capable of being exercised by that Shareholder in respect of those B Shares in order to give effect to his or their election(s) (or deemed election(s)) and to do all acts and things and to execute all such deeds, transfers and other documents as any such attorney and/or agent shall consider necessary to give effect to that Shareholder's election(s) (or deemed election(s));

(iv) Morgan Stanley may assign to any member of the Morgan Stanley Group or to the Company all such benefits as Morgan Stanley may have immediately prior to Completion (as defined in the Put Option Agreement) in any covenants, representation and warranties in respect of any B Shares purchased or agreed to be purchased by Morgan Stanley pursuant to the Initial Purchase Offer;

(v) Cairn and Morgan Stanley (acting jointly and who may each delegate this power in whole or in part) may, if they so determine in their absolute discretion, accept an Election Form or TTE Instruction which includes an election to participate in the Initial Purchase Offer which is received after the relevant time, which is not correctly completed or which is otherwise invalid and any such determination will be final and binding;

(vi) the Initial Purchase Offer will not be made to Shareholders who are residents, citizens or nationals of, or who have their registered address in, any of the Prohibited Territories. By completing an Election Form or submitting a TTE Instruction in respect of the Initial Purchase Offer, the Shareholder represents, warrants, undertakes and agrees to and with Morgan Stanley and Cairn that: (i) he is not a resident, citizen or national of, and does not have his registered address in, any of the Prohibited Territories or a trustee, custodian, agent or nominee making an election in respect of the Initial Purchase Offer on behalf of any such person; and (ii) if he is a resident, citizen or national of, or has his registered address in, a jurisdiction outside the UK, he has observed the laws of all relevant jurisdictions, obtained all requisite governmental or other consents, complied with all other necessary formalities and paid any issue, transfer or other taxes or other requisite payments due in any such jurisdictions in connection with any receipt or transfer of B Shares in any territory and his election for the Initial Purchase Offer and he has not taken or omitted to take any action that will or may result in Morgan Stanley or the Company or any other person acting in breach of the legal or regulatory requirements of any territory in connection with the Initial Purchase Offer or his election for it; and

(vii) by execution of an Election Form, or the giving of a TTE Instruction, which includes an election to participate in the Initial Purchase Offer, the Shareholder agrees and undertakes that any transfer, sale, assignment or other disposal of any B Share subject to the Initial Purchase Offer by or on behalf of such Shareholder shall be: (a) effected in accordance with the Company's revised Articles of Association; and (b) subject to the terms of the Initial Purchase Offer (including, for the avoidance of doubt, such Shareholder's grant of a power of attorney on the terms set out in paragraph (iii) above).

If it is made, the terms applying to the Future Purchase Offer will be set out in the announcement in respect of that offer made through a RIS. It is expected that the terms of that offer will be substantially similar to the terms set out above in this paragraph in relation to the Initial Purchase Offer.

The execution by or on behalf of a Shareholder of an Election Form, or the giving of a TTE Instruction, which includes a valid election to retain any B Shares until a Future Purchase Offer (if any) is made will irrevocably appoint each of Cairn (and any director, officer or employee of Cairn for the time being) and Morgan Stanley (and any director of Morgan Stanley for the time being), severally, as attorneys for and/or agents of the Shareholder, with authority on that Shareholder's behalf and in his or their name, to accept the Future Purchase Offer, exercise all rights, powers and privileges attached to those B Shares or otherwise capable of being exercised by that Shareholder in respect of those B Shares in order to give effect to his or their election(s) (or deemed election(s)) and to do all acts and things and to execute all such deeds, transfers and other documents as any such attorney and/or agent shall consider necessary to give effect to that Shareholder's election(s) (or deemed election(s)). Such appointments shall survive the death or incapacity of such Shareholder and such appointments and all obligations of such Shareholder shall be binding upon any person becoming entitled to such B Shares upon a transmission event.

6. Default position on incorrect completion of Election Form

Where Shareholders complete and return an Election Form and make elections that exceed their holding of B Shares on the B Share Record Date, they will have those elections disregarded in the following order:

(i) first, your election (if any) in respect of Choice 3: Future Purchase Offer;
(ii) second, your election (if any) in respect of Choice 2: Initial Purchase Offer; and
(iii) third, your election (if any) in respect of Choice 1: Single B Share Dividend.

If Shareholders enter a number or numbers in boxes 1 to 3 of the Election Form, which in total is less than their holding of B Shares on the B Share Record Date, the balance of their holding will receive Choice 1: the Single B Share Dividend (subject to that dividend being declared).

7. Withdrawal rights

Shareholders should note that any election, whether their B Shares are held in CREST or otherwise, relating to the B Share Choices may be withdrawn prior to the end of the Election Period in the manner and on the terms set out below. After the end of the Election Period, all elections are irrevocable and take effect on the Election Form Effective Date. If the period of time during which the Initial Purchase Offer (or the Future Purchase Offer, if made) is open is extended, if there is a delay in purchasing or paying for B Shares, or if it is not possible to purchase or pay for B Shares as provided, for any reason, then, without prejudice to the rights of the Company and Morgan Stanley under the Return of Cash, such elections may not be withdrawn.

Shareholders wishing to withdraw an election, whether their B Shares are held in CREST or otherwise, MUST first telephone the Shareholder helpline for further information on 0871 384 2964 (or +44 121 415 0222 if calling from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day and, if wishing to re-elect in respect of the B Share Choices, request a Replacement Election Form or submit a new TTE Instruction to re-elect through CREST. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers' costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates.

For a withdrawal of an Election Form in respect of any B Shares not held in CREST to be effective, a written instruction signed by the person(s) who signed the Election Form must:

(i) be received by post by Equiniti, Corporate Actions, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA by noon on 9 February 2012; and
(ii) specify the name(s) and address(es) of the person(s) who is/are tendering the election to be withdrawn and the exact number of B Shares in respect of which the election is to be withdrawn.

Facsimile, electronic mail or other electronic means of transmission or any form of copy of written notice will not constitute a written instruction of withdrawal in relation to an Election Form. Letters that are postmarked in or otherwise appear to have been sent from any of the Prohibited Territories will not be treated as valid.

For a withdrawal of an election in respect of any interim B Shares held in uncertificated form to be effective, an ESA Instruction effecting a withdrawal must settle by noon on 9 February 2012. The ESA Instruction must be properly authenticated in accordance with Euroclear's specifications and must contain the requirements as to authentication and contents which will be provided to you by the Shareholder helpline referred to above.

Furthermore, please note that Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in connection with the ESA Instruction and its settlement. In this regard you are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

Cairn, jointly with Morgan Stanley, will determine all questions as to the form and validity (including time of receipt) of any instruction of withdrawal, in their absolute discretion, which determination shall be final and binding. Cairn, jointly with Morgan Stanley, also reserves the absolute right to waive any defect or irregularity in the withdrawal of an election by any Shareholder, and such determination will be binding on such Shareholder. None of Cairn, Morgan Stanley or Equiniti or any other person will be under any duty to give notification of any defect or irregularity in any instruction of withdrawal or incur any liability for failure to give any such notification or for any reason with regard to withdrawal and re-election.

Withdrawals may not be rescinded. Elections in respect of B Shares that are withdrawn will thereafter be deemed not to have been validly tendered for the purposes of the B Share Choices.

If a written instruction of withdrawal of an election in respect of certain B Shares is received by Equiniti (or an ESA Instruction is settled where the B Shares are held in uncertificated form) before the end of the Election Period in accordance with the provisions of this paragraph, it is possible to re-elect for any of the B Share Choices in respect of those withdrawn B Shares at any time prior to the end of the Election Period. Shareholders wishing to re-elect in respect of Choice 2: Initial Purchase Offer or to retain their shares pursuant to Choice 3: Future Purchase Offer should request a Replacement Election Form from the Shareholder helpline or, if their B Shares are held in uncertificated form, submit a new TTE Instruction to re-elect through CREST. Following a valid withdrawal of an Election, any re-election must be made in accordance with the procedures and terms set out in this document in relation to elections in respect of the B Share Choices. Any Shareholder who withdraws his election before the end of the Election Period and does not validly re-elect those B Shares will receive Choice 1: Single B Share Dividend in respect of his B Shares (subject to that dividend being declared).

8. Overseas Shareholders

Overseas Shareholders should consult their professional advisers to ascertain whether the Return of Cash will be subject to any restrictions or require compliance with any formalities imposed by the laws or regulations of, or any body or authority located in, the jurisdiction in which they are resident or to which they are subject. In particular, it is the responsibility of any Shareholder not resident in the United Kingdom or a citizen, resident or national of another country wishing to receive the Return of Cash, including receiving the Single B Share Dividend or having B Shares purchased or otherwise disposing of any shares in Cairn, to satisfy himself as to full observance of the laws of each relevant jurisdiction in connection with the Return of Cash, including the obtaining of any government, exchange control or other consents which may be required, or the compliance with other necessary formalities needing to be observed and the payment of any issue, transfer or other taxes or duties in such jurisdiction.

The distribution of this document and any accompanying documents in jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute, among other things, a violation of the securities laws of any such jurisdiction. Neither this document nor any other document issued or to be issued by or on behalf of Cairn in connection with the Return of Cash constitutes an invitation, offer or other action on the part of Cairn in any jurisdiction in which such invitation, offer or other action is unlawful.

The Initial Purchase Offer and the retention of B Shares until any Future Purchase Offer is made are not being offered in any of the Prohibited Territories and Shareholders who are resident or have their registered address in any of the Prohibited Territories may not elect for either the Initial Purchase Offer or to retain their B Shares. Such Shareholders are deemed to have elected for the Single B Share Dividend in respect of all of their B Shares.

Each Shareholder who is not resident in the United Kingdom or who is a citizen, resident or national of other countries by whom, or on whose behalf, an Election Form is executed or a TTE Instruction is submitted, irrevocably represents, warrants, undertakes and agrees to and with Cairn and Morgan Stanley that such Shareholder has observed the laws of all relevant territories, obtained any requisite governmental or other consents, complied with all requisite formalities and paid any issue, transfer or other taxes or requisite payments due from such Shareholder in connection with any receipt or transfer of B Shares in any territory and such

Shareholder has not taken or omitted to take any action which may result in Cairn, Morgan Stanley or any other persons acting in breach of the legal or regulatory requirements of any territory in connection with the Return of Cash or such Shareholder’s acceptance of any of the B Share Choices.

In the event that Cairn is advised that it would or might be in breach of any legal or regulatory requirements in any jurisdiction, or Cairn would or might be required to make filings or take any other action in any jurisdiction as a result of its issuing B Shares to Overseas Shareholders, it is proposed that the B Shares to which such Shareholders are entitled will nevertheless be allotted to such Shareholders but may be issued to a nominee and then sold with the net proceeds of sale being remitted to such Shareholders.

The above provisions relating to overseas Shareholders may be waived, varied or modified as regards specific Shareholders or on a general basis by Cairn in its absolute discretion.

9. General Meeting

A general meeting of Cairn will be held in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ at 10.00 a.m. on 30 January 2012. The notice of the General Meeting is set out at the end of this document. You will find enclosed with this document a Form of Proxy for use in respect of the General Meeting.

Whether or not you intend to attend the General Meeting, you are requested to complete and sign the enclosed Form of Proxy and return it in accordance with the instructions printed on it.

The completion and return of the Form of Proxy, an Electronic Proxy Instruction or a CREST Proxy Instruction will not prevent you from attending and voting in person at the General Meeting (or any adjournment), if you so wish and are entitled to do so.

10. Amendment of the Articles of Association

A number of consequential amendments to the Articles of Association are required in order to implement the Return of Cash. Details of these amendments are set out in Part VI of this document.

11. Dealings and despatch of documents

The Share Capital Consolidation and the issue of B Shares will be made by reference to holdings of Existing Ordinary Shares on the register of members as at the Record Date.

It is expected that dealings and settlement within the CREST system of the Existing Ordinary Shares will continue until the Record Date when, in the case of Existing Ordinary Shares held in certificated form, the register of members will be closed for transfers and no further transfers of Existing Ordinary Shares will be able to be made. The registration of uncertificated holdings in respect of the Existing Ordinary Shares will be “disabled” in CREST on the Record Date.

On 21 February 2012, the Company expects to despatch definitive share certificates in respect of the New Ordinary Shares held in certificated form and expects to despatch cheques or credit CREST accounts in respect of the sale of fractional entitlements to New Ordinary Shares following the subdivision and consolidation. From Listing of the New Ordinary Shares, certificates in respect of the Existing Ordinary Shares will no longer be valid. Share certificates for New Ordinary Shares will be despatched to Shareholders at their own risk.

No share certificates will be issued by the Company for any B Shares in respect of which the Single B Share Dividend is paid (Choice 1) or which are purchased by Morgan Stanley on the Initial Purchase Date (Choice 2). The company expects to despatch definitive share certificates in respect of such B Shares that are retained by Shareholders and which may be purchased by Morgan Stanley on the Future Purchase Date (Choice 3) on 21 February 2012. No share certificates will be issued by the Company in respect of any Deferred Shares.

It is expected that Shareholders who hold their Existing Ordinary Shares through the CREST system will, on Listing of the New Ordinary Shares, have their CREST accounts credited with the New Ordinary Shares and interim B Shares. If Shareholders elect for the Future Purchase Offer (Choice 3) and thereby to retain their B Shares pending such an offer being made, the relevant CREST accounts are expected to be credited with the B Shares at 8 a.m. on 14 February 2012. Shareholders holding New Ordinary Shares and B Shares through the CREST system will not receive any share certificates.

Temporary documents of title will not be issued (pending despatch of definitive share certificates). Transfers of New Ordinary Shares or of B Shares held in certificated form will, prior to the receipt of definitive share certificates, be certified against the register held by Equiniti.

It is expected that cheques in respect of any fractional entitlements and B Shares purchased under the Initial Purchase Offer, will be despatched to relevant Shareholders or CREST accounts will be credited, as appropriate, on 21 February 2012 (or such other date as the Directors may determine). It is also expected that cheques in respect of the Single B Share Dividend will (subject to that dividend being declared) be despatched to the relevant Shareholders or, if mandate instructions are held, Shareholders will have their bank accounts credited, as appropriate, on 21 February 2012 (or such other date as the Directors may determine). If the Future Purchase Offer is made, it is expected that cheques will be despatched to relevant Shareholders or CREST accounts will be credited, as appropriate, within 10 Business Days after the Future Purchase Date. Cheques and remittances will be despatched to Shareholders at their own risk.

PART VI

RIGHTS AND RESTRICTIONS ATTACHED TO THE B SHARES
AND TO THE DEFERRED SHARES

Definition of shares

It is proposed that the words “ordinary shares of 8/13 pence each in the capital of the Company;” where they appear in the definition of “shares” in Article 2 of the Articles of Association be deleted and replaced with the words “ordinary shares of 231/169 pence each in the capital of the Company;”

The B Shares

The following sets out the amendments which are proposed to be made to the Articles of Association under resolution 1 to be proposed at the General Meeting in respect of the rights and the restrictions attached to the B Shares.

The following paragraphs will be inserted as Article 9A of the Articles of Association:

“9A Rights and restrictions attaching to the B Shares

The B Shares (as defined below) shall have the rights attaching to shares set out in these Articles save that in the event of a conflict between any provision in this Article 9A and any other provision in these Articles, the provisions in this Article 9A shall prevail.

9A.1 Elections

(i) Together with a circular to members dated 10 January 2012 (the “Circular”), certain members were sent a form of election (a “B Share Election Form”) or, if they held uncertificated shares, invited to submit a TTE Instruction relating to limited-voting preference shares of 1/13 pence each (“B Shares”) under which, by following the instructions and taking the actions set out in the Circular they could elect (on and subject to the terms and conditions set out in the Circular) in relation to any B Shares to be held by them to (a) receive, out of the profits of the Company available for distribution, a single dividend of £1.60 (the “Single B Share Dividend”) or (b) participate in a sale to Morgan Stanley Securities Limited (“Morgan Stanley”) (the “Initial B Share Purchase Offer”) or (c) retain B Shares for the time being until an offer is made by Morgan Stanley for these B Shares (the “Future B Share Purchase Offer”).

(ii) For the purposes of this Article any reference to an election or deemed election in respect of any B Shares is to an election for the Single B Share Dividend, Initial B Share Purchase Offer or Future B Share Purchase Offer in respect of those B Shares which is validly made or which has deemed to have been made (as the case may be) pursuant to and in accordance with the terms and conditions set out in the Circular in respect of such election.

9A.2 Income

(i) Out of the profits available for distribution, the Single B Share Dividend shall be payable in respect of each B Share whose holder has elected, or is deemed to have elected, to receive the Single B Share Dividend.

(ii) Such dividend shall, if declared by resolution of the Directors, or a duly authorised committee thereof, become payable on 14 February 2012 or such later date as the Directors may determine (the “Single B Share Dividend Date”). Each B Share in respect of which such dividend becomes payable shall, on such date (or such other date as the Directors may determine), be automatically converted into a non-voting deferred share of 1/13 pence nominal value with the rights and restrictions described in Article 9B.1 (a “Deferred Share”).

(iii) The holders of the B Shares shall not be entitled to any further right of participation in the profits of the Company.

9A.3 Capital

(i) Except as provided in Article 9A.6 below, on a return of capital on a winding-up (excluding any intra-group reorganisation on a solvent basis), the holders of the B Shares shall be entitled, in priority to any payment to the holders of ordinary shares, to £1.60 per B Share held by them.

(ii) The holders of the B Shares shall not be entitled to any further right of participation in the profits or assets of the Company in excess of that specified in Article 9A.3(i) above. If on such a winding-up the

amounts available for payment are insufficient to cover in full the amounts payable on the B Shares, the holders of such shares will share rateably in the distribution of assets (if any) in proportion to the full preferential amounts to which they are entitled.

9A.4 Attendance and Voting at General Meetings

(i) The holders of the B Shares shall not be entitled, in their capacity as holders of such shares, to receive notice of any general meeting of the Company nor to attend, speak or vote at any such general meeting unless the business of the meeting includes the consideration of a resolution for the winding-up (excluding any intra-group reorganisation on a solvent basis) of the Company, in which case the holders of the B Shares shall have the right to attend the general meeting and shall be entitled to speak and vote only on any such resolution.

(ii) Whenever the holders of the B Shares are entitled to vote at a general meeting of the Company, on a show of hands every holder thereof who (being an individual) is present in person or by proxy or (being a corporation) by a representative shall have one vote, and on a poll every such holder shall have such number of votes as he would have been entitled to exercise had he been the holder of such number of ordinary shares as would have arisen if the B Shares registered in the name of such holder had been converted into such ordinary shares immediately prior to the deadline for determining entitlements to vote at such meeting in accordance with the rights of the B Shares.

9A.5 Company’s Right to Purchase

Subject to the provisions of the Statutes and to compliance with applicable securities law and regulations but without the need to obtain the sanction of a special resolution of the holders of the B Shares, the Company may at any time and at its sole discretion purchase B Shares (a) in the market or (b) by tender available alike to all holders of B Shares or (c) by private treaty, in each case at a price and upon such other terms and conditions as the Directors may think fit.

9A.6 Class Rights

(i) The Company may from time to time create, allot and issue further shares, whether ranking pari passu with or in priority to the B Shares. The creation, allotment or issue of any such further shares (whether or not ranking in any respect in priority to the B Shares) shall be treated as being in accordance with the rights attaching to the B Shares and shall not involve a variation of such rights for any purpose or require the consent of the holders of B Shares.

(ii) A reduction by the Company of the capital paid up or credited as paid up on the B Shares and the cancellation of such shares shall be treated as being in accordance with the rights attaching to the B Shares and shall not involve a variation of such rights for any purpose. The Company will be authorised to reduce its capital (subject to the confirmation of the court in accordance with the Statutes and without obtaining the consent of the holders of the B Shares) including by paying to the holders of the B Shares the preferential amounts to which they are entitled as set out above.

(iii) If at any time a currency other than pounds sterling is accepted as legal tender in the United Kingdom in place of or in addition to pounds sterling, the Directors shall be entitled, without the consent of ordinary shareholders or holders of the B Shares, to make such arrangements and adjustments in respect of the method of calculation and payment of any of the entitlements of holders of B Shares under these Articles as the Directors consider necessary, fair and reasonable in the circumstances to give effect to the rights attaching to the B Shares. Any such arrangements and adjustments shall not involve a variation of any rights attaching to the B Shares for any purpose.

9A.7 Transfer: Initial Purchase Offer

Subject to such of the provisions of these Articles as may be applicable, no transfer of any B Share in respect of which an election for the Initial B Share Purchase Offer has been made (or is deemed to have been made) will be registered:

(i) after 6.00 p.m. on the second Business Day prior to 14 February 2012 or such other date as the Directors may determine (the "Initial Purchase Date") unless (a) such transfer is to or from Morgan Stanley in accordance with the terms of the Initial B Share Purchase Offer or (b) determined to the contrary by the Directors; and

(ii) unless and until the transferee of any B Shares in respect of which an election to participate in the Initial Purchase Offer has been made (or deemed to have been made) has irrevocably appointed the Company (or any director, officer or employee of the Company for the time being) or Morgan Stanley (or any director of Morgan Stanley for the time being), as attorney for and/or agent of the transferee (and provided evidence satisfactory to the Company and Morgan Stanley of such appointment) with authority on such transferee’s behalf and in his or their name (subject to registration), to exercise all rights, powers and privileges attached to such B Shares or otherwise capable (subject to registration) of being exercised by that transferee in respect of such B Shares in order to give effect to his or their election (or deemed election) and to do all acts and things and to execute all such deeds, transfers and other documents as such attorney and/or agent shall consider necessary to give effect to that transferee’s election(s) (or deemed election(s)).

9A.8 Transfer: Future Purchase Offer

Subject to such of the provisions of these Articles as may be applicable, no transfer of any B Share in respect of which an election has been made (or is deemed to have been made) to retain any B Shares until a Future B Share Purchase Offer has been made (a “Future B Share Purchase Offer Election”) will be registered:

(i) after 6.00 p.m. on the second Business Day prior to the date on which the Directors determine that such B Shares will be purchased by Morgan Stanley pursuant to the Future B Share Purchase Offer or such other date as the Directors may determine, unless (a) such transfer is to or from Morgan Stanley in accordance with the terms of the Future B Share Purchase Offer or (b) determined to the contrary by the Directors; and

(ii) unless and until the transferee of any B Shares in respect of which a Future B Share Purchase Offer Election has been made (or deemed to have been made) has irrevocably appointed each of the Company (and any director, officer or employee of the Company for the time being) and Morgan Stanley (and any director of Morgan Stanley for the time being), severally as attorneys for and/or agents of the transferee (and provided evidence satisfactory to the Company and Morgan Stanley of such appointments) with authority on such transferee’s behalf and in his or their name (subject to registration), to accept the Future B Share Purchase Offer, exercise all rights, powers and privileges attached to such B Shares or otherwise capable (subject to registration) of being exercised by that transferee in respect of such B Shares in order to give effect to his or their election(s) (or deemed election(s)) and to do all acts and things and to execute all such deeds, transfers and other documents as any such attorney and/or agent shall consider necessary to give effect to that transferee’s election(s) (or deemed election(s)). Such appointments shall survive the death or incapacity of any such transferee and such appointments and all obligations of such transferee shall be binding upon any person becoming entitled to such B Shares upon a transmission event.

9A.9 Conversion into Ordinary Shares at the Company’s Option

(i) The Company may (subject to the provisions of the Statutes) at any time after the Company’s annual general meeting to be held in 2012 on the giving of not less than 10 days’ nor more than 42 days’ notice in writing to the holders of the B Shares, convert all but not some only of the outstanding B Shares into ordinary shares on the date specified in the notice (the “B Share Conversion Date”). The conversion shall be on the basis of one ordinary share for every M/160 B Share(s) (where M represents the average of the closing mid-market quotations in pence of an ordinary share on the London Stock Exchange, as derived from the daily official list of the London Stock Exchange for the five business days immediately preceding the B Share Conversion Date), fractional entitlements being disregarded and the balance of such shares (including any fractions) shall be Deferred Shares, which shall have the same rights and be subject to the same restrictions as the Deferred Shares of $1/_{13}$ pence set out in Article 9B.1. The Company shall use its reasonable endeavours to list the ordinary shares into which B Shares are converted on the London Stock Exchange if on the B Share Conversion Date the Company’s ordinary shares are also so listed.

(ii) Conversion of the B Shares may be effected in such manner as the Directors shall from time to time determine (subject to the provisions of the Statutes) including, without prejudice to the generality of the foregoing, in accordance with the provisions of Article 9A.9(iii) or the provisions of Article 9A.9(iv) pursuant to the authority given by the passing of the resolution to create the B Shares.

(iii) If the aggregate nominal value of the B Shares is lower than the aggregate nominal value of the ordinary shares into which the B Shares will convert on the B Share Conversion Date, the Directors may effect conversion by:

(a) capitalising an amount of share premium account equal to the difference between the aggregate nominal value of the B Shares and the aggregate nominal value of the ordinary shares into which those B Shares are to convert (the “B Share Shortfall Amount”), and applying such amount in allotting to the holders of the B Shares (in proportion to their holdings of B Shares) and paying up in full a number of undesignated shares (with such par value as the Directors may determine) having an aggregate nominal value equal to the B Share Shortfall Amount; and

(b) in respect of each holder or joint holders consolidating the B Shares and the undesignated shares allotted pursuant to (a) above into one share and subdividing and re-designating such share into:

(ba) the number of ordinary shares to which that holder is entitled on conversion; and

(bb) a number of Deferred Shares of nominal value equal to the highest amount that will not result in any holder or holders being entitled to a fraction of such a Deferred Share, such Deferred Shares having an aggregate nominal value equal to the sum of the aggregate nominal value of the B Shares held by the relevant holder or holders less the aggregate nominal value of the ordinary shares referred to in (ba) above, and otherwise having the rights and being subject to the restrictions set out in Article 9B.1.

(iv) If the aggregate nominal value of the B Shares is lower than the aggregate nominal value of the ordinary shares into which the B Shares will convert on the B Share Conversion Date and if the Company does not have sufficient reserves available to effect conversion in the manner described in Article 9A.9(iii), the Directors may effect conversion by consolidating into one share all the B Shares held by any holder or joint holders at the B Share Conversion Date and sub-dividing such share into the appropriate number of ordinary shares and such ordinary shares, notwithstanding that they may have a different nominal amount from the other ordinary shares then in issue, shall form a uniform class with the other ordinary shares then in issue and shall, subject to Article 9A.9(v) but notwithstanding any other contrary provision herein, for all purposes and in all respects (including, without limitation, entitlement to dividends or other distributions, participation in offers, voting rights, and rights on a liquidation or return of capital) rank pari passu with the other ordinary shares then in issue, for which purposes the nominal amount of each ordinary share arising on such consolidation and sub-division shall be deemed to be the same as the nominal amount per ordinary share then in issue.

(v) Any ordinary shares arising on conversion of the B Shares shall rank pari passu with the ordinary shares already in issue at the date of conversion in all respects save that such ordinary shares shall not be entitled to any dividend or other distribution declared, paid or made by reference to a record date prior to the B Share Conversion Date.

9A.10 Definition of shares

For the purposes of these Articles, while any B Shares are in existence, the definition of ‘shares’ in Article 2 shall (if not inconsistent with the subject or context and unless otherwise provided) include such B Shares.

9A.11 Deletion of Article 9A.1 to 9A.11 when no B Shares in existence

Article 9A.1 to 9A.11 shall remain in force until there are no longer any B Shares in existence whether by way of conversion into Deferred Shares, purchase and cancellation or conversion into ordinary shares, whichever is earlier, notwithstanding any provision in the Articles to the contrary. Thereafter Article 9A.1 to 9A.11 shall be and shall be deemed to be of no effect (save to the extent that the provisions of Article 9A.1 to 9A.11 are referred to in other Articles) and shall be deleted and replaced with the wording “Article 9A.1 to 9A.11 has been deleted”, and the separate register for the holders of B Shares shall no longer be required to be maintained by the Company; but the validity of anything done under Article 9A.1 to 9A.11 before that date shall not otherwise be affected and any actions taken under Article 9A.1 to 9A.11 before that date shall be conclusive and shall not be open to challenge on any grounds whatsoever.”

The Deferred Shares

The following paragraphs will be inserted as Article 9B of the Articles of Association:

“9B.1 Rights and restrictions attaching to the Deferred Shares

(i) Income

The Deferred Shares (as defined in Article 9A.2 above) shall confer no right to participate in the profits of the Company.

(ii) Capital

On a return of capital on a winding-up (excluding any intra-group re-organisation on a solvent basis) there shall be paid to the holders of the Deferred Shares the nominal capital paid up or credited as paid up on such Deferred Shares after:

(a) firstly, paying to the holders of the B Shares the sum of £1.60 per B Share; and

(b) secondly, paying to the holders of the ordinary shares the nominal capital paid up or credited as paid up on the ordinary shares held by them respectively, together with the sum of £100,000,000 on each ordinary share.

The holders of the Deferred Shares shall not be entitled to any further right of participation in the assets of the Company.

(iii) Attendance and Voting at General Meetings

The holders of the Deferred Shares shall not be entitled to receive notice of any general meeting of the Company or to attend, speak or vote at any such meeting.

(iv) Form

The Deferred Shares shall not be listed on any stock exchange nor shall any share certificates be issued in respect of such shares. The Deferred Shares shall not be transferable except in accordance with Article 9B.1(vi) below or with the written consent of the Directors.

(v) Class Rights

The Company may from time to time create, allot and issue further shares, whether ranking pari passu with or in priority to the Deferred Shares, and on such creation, allotment or issue any such further shares (whether or not ranking in any respect in priority to the Deferred Shares) shall be treated as being in accordance with the rights attaching to the Deferred Shares and shall not involve a variation of such rights for any purpose or require the consent of the holders of the Deferred Shares.

A reduction by the Company of the capital paid up on the Deferred Shares shall be in accordance with the rights attaching to the Deferred Shares and shall not involve a variation of such rights for any purpose and the Company shall be authorised at any time to reduce its capital (subject to the confirmation of the court in accordance with the Statutes) without obtaining the consent of the holders of the Deferred Shares.

(vi) Transfer and Purchase

The Company may at any time (and from time to time) (subject to the provisions of the Statutes), without obtaining the sanction of the holder or holders of the Deferred Shares:

(a) appoint any person to execute on behalf of any or all holders of Deferred Shares a transfer of all of the Deferred Shares or any part thereof (and/or an agreement to transfer the same) to the Company, to Morgan Stanley Securities Limited, or to such other person as the Directors may determine (whether or not an officer of the Company), in any case for not more than one penny for all of the Deferred Shares then in issue; and

(b) cancel all or any of the Deferred Shares so purchased by the Company in accordance with the Statutes.

9B.2 Definition of shares

For the purposes of these Articles, while any Deferred Shares are in existence, the definition of ‘shares’ in Article 2 shall (if not inconsistent with the subject or context and unless otherwise provided) include such Deferred Shares.

9B.3 Deletion of Article 9B.1 to 9B.3 when no Deferred Shares in existence

Article 9B.1 to 9B.3 shall remain in force until there are no longer any Deferred Shares in existence, notwithstanding any provision in these Articles to the contrary. Thereafter Article 9B.1 to 9B.3 shall be and shall be deemed to be of no effect (save to the extent that the provisions of Article 9B.1 to 9B.3 are referred to in other Articles) and shall be deleted and replaced with the wording “Article 9B.1 to 9B.3 has been deleted”, and the separate register for the holders of Deferred Shares shall no longer be required to be maintained by the Company; but the validity of anything done under Article 9B.1 to 9B.3 before that date shall not otherwise be affected and any actions taken under Article 9B.1 to 9B.3 before that date shall be conclusive and shall not be open to challenge on any grounds whatsoever.

PART VII

UNITED KINGDOM TAXATION IN RELATION TO
THE RETURN OF CASH

The comments below are intended as a general guide only and do not constitute tax advice to any Shareholders. They are based on current United Kingdom tax law and the published practice of HM Revenue and Customs, both of which are subject to change and possibly with retrospective effect. Any change may affect the taxation liabilities of Shareholders in relation to the B Shares, Existing Ordinary Shares and New Ordinary Shares. The comments below apply only to Shareholders who are resident and ordinarily resident in the United Kingdom for tax purposes and who hold their Existing Ordinary Shares, and who will hold their New Ordinary Shares and B Shares, beneficially as investments and not on trading account.

Furthermore, the comments below may not apply to Shareholders in special circumstances, such as those who do not hold their Existing Ordinary Shares, New Ordinary Shares, B Shares and Deferred Shares beneficially as investments, insurance companies, collective investment schemes, dealers in securities and Shareholders who acquired (or are deemed to have acquired) their Existing Ordinary Shares by virtue of an office or employment. The position may be different for any future transactions and may alter between the date of this document and the implementation of the Return of Cash.

Shareholders are urged to consult an appropriate professional adviser without delay in respect of their tax position. Shareholders who are not tax resident in the United Kingdom or who are otherwise taxable outside of the United Kingdom should consult their own professional advisers on the possible application of taxation laws in their individual countries of residence.

Capital Reorganisation

The receipt of the New Ordinary Shares and B Shares arising from the Capital Reorganisation should each be treated as a reorganisation of the share capital of the Company for the purposes of United Kingdom capital gains tax and corporation tax on chargeable gains (“CGT”). Accordingly, the receipt of the New Ordinary Shares and B Shares will not itself give rise to any liability to CGT in a Shareholder’s hands. Instead, the Shareholder’s resultant holding of New Ordinary Shares and B Shares will together be treated as the same asset as the Shareholder’s holding of Existing Ordinary Shares and as having been acquired at the same time, and for the same consideration, as that holding of Existing Ordinary Shares.

Upon a subsequent disposal of all or part of the Shareholder’s holding of New Ordinary Shares or (as the case may be) B Shares, a Shareholder’s aggregate CGT base cost in such Shareholder’s holding of Existing Ordinary Shares will have to be apportioned between the New Ordinary Shares and the B Shares, so as to ascertain that part of the base cost which is attributable to the New Ordinary Shares and that part of the base cost which is attributable to the B Shares. That apportionment will be made by reference to the respective market values of the New Ordinary Shares and the B Shares on the first day after the date of issue of the New Ordinary Shares and B Shares on which market values or prices are quoted or published for the New Ordinary Shares.

The sale, on behalf of the relevant Shareholders, of fractional entitlements to New Ordinary Shares resulting from the Capital Reorganisation will not constitute a part disposal for CGT purposes. Instead the amount of any payment received by the Shareholder will be deducted from the base cost of the B Shares and any New Ordinary Shares received.

The issue of the New Ordinary Shares and B Shares will not itself give rise to any liability to UK income tax (or corporation tax on income) in a Shareholder’s hands.

Single B Share Dividend

(A) Income Tax

The tax treatment of the Single B Share Dividend will be as income and will be as summarised below.

UK Resident Individual Shareholders

The Company will not be required to withhold tax at source when paying the Single B Share Dividend. A Shareholder who is an individual resident (for tax purposes) in the United Kingdom and who receives the Single B Share Dividend will be entitled to a tax credit equal to one-ninth of the Single B Share Dividend.

The individual will be taxable on the total of the Single B Share Dividend and the related tax credit (the "gross Single B Share Dividend"), which will be regarded as the top slice of the individual's income. However, in calculating the Shareholder's liability to income tax in respect of the gross Single B Share Dividend, the tax credit (which equates to 10 per cent. of the gross Single B Share Dividend) is set off against the tax chargeable on the gross Single B Share Dividend.

Basic Rate Taxpayers

In the case of a Shareholder who is liable to income tax at the basic rate, the Shareholder will be subject to tax on the gross Single B Share Dividend at the rate of 10 per cent. The tax credit will, in consequence, satisfy in full the Shareholder's liability to income tax on the gross Single B Share Dividend.

Higher Rate Taxpayers

To the extent that the gross Single B Share Dividend falls above the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax, the Shareholder will be subject to tax on the gross Single B Share Dividend at the rate of 32.5 per cent. This means that the tax credit will satisfy only part of the Shareholder's liability to income tax on the gross Single B Share Dividend, so that to that extent the Shareholder will have to account for income tax equal to 22.5 per cent. of the gross Single B Share Dividend (which equates to 25 per cent. of the dividend received). For example, assuming the entire gross Single B Share Dividend falls above the higher rate threshold and below the additional rate threshold, a dividend of £90 from the Company would represent a gross dividend of £100 (after the addition of the tax credit of £10) and the Shareholder would be required to account for income tax of £22.50 on the dividend, being £32.50 (i.e. 32.5 per cent. of £100.00) less £10 (the amount of the tax credit).

Additional Rate Taxpayers

To the extent that the gross Single B Share Dividend falls above the threshold for the additional rate of income tax, the Shareholder will be subject to tax on the gross Single B Share Dividend at the rate of 42.5 per cent. This means that the tax credit will satisfy only part of the Shareholder's liability to income tax on the gross Single B Share Dividend, so that to that extent the Shareholder will have to account for income tax equal to 32.5 per cent. of the gross Single B Share Dividend (which equates to approximately 36.1 per cent. of the Single B Share Dividend received). For example, assuming the entire gross Single B Share Dividend falls above the additional rate threshold, a dividend of £90 from the Company would represent a gross dividend of £100 (after the addition of the tax credit of £10) and the Shareholder would be required to account for income tax of £32.50 on the dividend, being £42.50 (i.e. 42.5 per cent. of £100.00) less £10 (the amount of the tax credit).

Corporate Shareholders within the charge to United Kingdom corporation tax

Shareholders within the charge to United Kingdom corporation tax which are "small companies" (for the purposes of United Kingdom taxation of dividends) may not generally expect to be subject to tax on dividends from the Company.

Other Shareholders within the charge to United Kingdom corporation tax will not be subject to tax on dividends from the Company so long as the dividends fall within an exempt class and certain conditions are met. In general, dividends paid to a UK corporate Shareholder holding less than 10 per cent. of the issued share capital of the payer (or any class of that share capital in respect of which the dividend is paid) is an example of a dividend that falls within an exempt class. Shareholders will need to ensure that they satisfy the requirements of any exempt class before treating any dividend as exempt, and seek appropriate professional advice where necessary.

No Payment of Tax Credit

A Shareholder who is not liable to tax on the Single B Share Dividend will not be entitled to claim repayment of the tax credit in respect of the Single B Share Dividend.

Non-Residents

The right of a Shareholder who is not resident (for tax purposes) in the United Kingdom to a tax credit in respect of the Single B Share Dividend and to claim repayment of any part of that tax credit will depend on the existence and terms of any double taxation convention between the United Kingdom and the country in which the Shareholder is resident for tax purposes. Shareholders who are not solely resident in the United Kingdom for tax purposes should consult their own tax advisers concerning their tax liabilities on the Single B Share Dividend under local law, whether they are entitled to claim any part of the tax credit and, if so, the procedure for doing so.

(B) Taxation of chargeable gains

For CGT purposes, neither the payment of the Single B Share Dividend (and the consequent conversion of the B Shares into Deferred Shares) nor any conversion of B Shares into New Ordinary Shares will be treated as giving rise to a disposal or part disposal of the B Shares.

Shareholders who receive the Single B Share Dividend should note that, consequent to the Capital Reorganisation, a proportion of the base cost, for CGT purposes, of their holding of Existing Ordinary Shares will, as explained in paragraph 1 above, be attributed to their B Shares; and this amount will continue to be attributed to those B Shares following their conversion into Deferred Shares, notwithstanding that the Deferred Shares have only limited rights and value. Correspondingly, only a proportion of the base cost, for CGT purposes, of the original holding of Existing Ordinary Shares will be available on a subsequent disposal of New Ordinary Shares.

A disposal of the Deferred Shares (such as upon a repurchase of the Deferred Shares by the Company) will be treated as described in paragraph 3 below and may result in a Shareholder realising a capital loss. However, Shareholders should note that it is possible that the so-called ‘value-shifting’ rules may be regarded as being applicable to such Shareholders on a disposal of the Deferred Shares. If these rules apply, the consideration, if any, actually received on a disposal of Deferred Shares (including on a repurchase by the Company) would be treated for the purpose of CGT as increased by such amount as is just and reasonable having regard to the payment of the Single B Share Dividend.

Purchase of B Shares

A sale of B Shares by a Shareholder to Morgan Stanley, acting as principal, pursuant to the Initial Purchase Offer or the Future Purchase Offer, if made, is expected to be treated as a normal third party disposal for UK tax purposes. Accordingly, on the basis of current practice:

(i) a Shareholder who sells all or part of his holding of B Shares pursuant to any Purchase Offer is expected thereby to crystallise a disposal of those B Shares for CGT purposes. This may, depending on individual circumstances, give rise to a liability to CGT. Any gain or loss should be calculated by reference to the difference between the purchase price and the Shareholder’s base cost, for CGT purposes, in the B Shares disposed of. Shareholders are referred to paragraph 1 above for an outline of the principles that should apply in determining the base cost that is attributable to their B Shares for CGT purposes and that should, as such, be taken into account in the computation of any gain or loss arising on any disposal of their B Shares;

(ii) subject to paragraph 4 below, no part of the proceeds received by a Shareholder pursuant to a Purchase Offer should be treated as an income distribution in the Shareholder’s hands;

(iii) the amount of CGT, if any, payable by an individual Shareholder as a consequence of accepting any Purchase Offer will depend on his or her personal tax position. No tax will be payable on any gain realised on a disposal of B Shares if the amount of the chargeable gain, when aggregated with other chargeable gains realised by the Shareholder in the year of assessment in question (and after taking account of allowable losses), does not exceed the annual allowance of tax-free capital gains (£10,600 for the tax year 2011/2012). Broadly, any gains in excess of this amount will be taxed at a rate of 18 per cent. for a taxpayer paying tax at the basic rate and 28 per cent. for a taxpayer paying tax at a rate above the basic rate of income tax. Where the gains of a basic rate taxpayer subject to CGT exceed the unused part of his basic rate band, that excess is subject to tax at the 28 per cent. rate; and

(iv) a corporate Shareholder is expected to be taxable on all of its chargeable gains, subject to other reliefs. Corporate Shareholders are entitled to indexation allowance up to the date the chargeable gain is realised. Indexation allowance cannot create or increase a capital loss.

Transactions in securities

Under the provisions of part 15, CTA 2010 (for companies) and part 13, chapter 1 ITA 2007 (for individuals), HM Revenue & Customs can in certain circumstances counteract tax advantages arising in relation to a transaction or transactions in securities. If these provisions were to be applied by HM Revenue & Customs to the proposed Return of Cash, in broad terms, those Shareholders who elected to receive a capital return might be liable to taxation as if they had received an income amount.

No application has been made to HM Revenue & Customs seeking clearance that these provisions will not be applied to the proposed Return of Cash, as the Company does not expect these provisions to be applied. Any Shareholder who is in doubt as to his tax position in the light of his own particular circumstances should take appropriate professional advice.

Stamp Duty and Stamp Duty Reserve Tax

Except in relation to depository receipt arrangements or clearance services, where special rules apply:

(i) no stamp duty or stamp duty reserve tax (“SDRT”) will be payable on the Capital Reorganisation;

(ii) an agreement to sell B Shares will normally give rise to a liability on the part of the purchaser to SDRT at the rate of 0.5 per cent. of the actual consideration paid. If an instrument of transfer of the B Shares is subsequently produced, it will generally be subject to stamp duty at the rate of 0.5 per cent. of the actual consideration paid (rounded up, if necessary, to the nearest £5). When such stamp duty is paid, the SDRT charge will normally be cancelled and any SDRT already paid will be refunded;

(iii) as the B Shares are not listed, liability for stamp duty or SDRT will arise on the purchase by Morgan Stanley of B Shares pursuant to the Purchase Offers. As consideration for Morgan Stanley making the Purchase Offers, the Company has agreed to pay to Morgan Stanley an amount equal to the total stamp duty or SDRT payable by it pursuant to the purchase of B Shares under the Purchase Offers;

(iv) for the avoidance of doubt, a sale of B Shares under any of the Purchase Offers will not give rise to any liability to stamp duty or SDRT for the selling Shareholder; and

(v) there will be no liability to stamp duty or SDRT if the B Shares are converted into Deferred Shares or New Ordinary Shares.

PART VIII

ADDITIONAL INFORMATION

Responsibility statements and Directors

The Directors, whose names are set out in paragraph 2.2 below, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

Directors' and others' interests

2.1 Save as set out below, none of the Directors or other persons discharging managerial responsibilities ("PDMRs") has any interest in the share capital of the Company or any of its subsidiary undertakings.

2.2 The interests (all of which are beneficial) of the Directors, of their respective immediate families and (so far as is known or could with reasonable diligence be ascertained by the relevant Director) of any person connected with a Director in the share capital of the Company as at 6 January 2012 (being the latest practicable date prior to the publication of this document) are as follows:

Director	Number of Ordinary Shares	Percentage of issued share capital*
Sir Bill Gammell(4)	3,317,473	0.236%
Todd Hunt	182,800	0.013%
Iain McLaren	20,000	0.001%
Dr James Buckee	58,314	0.004%
Alexander Berger	Nil	Nil
Jackie Sheppard	Nil	Nil
Simon Thomson(3)(4)	900,841	0.064%
Dr Mike Watts(3)(4)	2,864,926	0.204%
Jann Brown(3)(4)	665,873	0.047%

(rounded to the nearest third decimal place)

Notes:

(1) The table set out above assumes no dealings by the Directors or their connected persons and that no further Ordinary Shares are issued, whether pursuant to the exercise of options or otherwise, in each case after 6 January 2012 (being the last practicable date prior to the publication of this document).

(2) The interests of the Directors together represent 0.569 per cent. (rounded to the nearest third decimal place) of the issued share capital of the Company as at 6 January 2012 (being the last practicable date prior to the publication of this document).

(3) The interests of the executive Directors include Ordinary Shares awarded to them under the SIP. These awards consist of "partnership shares" purchased using deductions from the relevant Director's salary and also "free shares" and free "matching shares" awarded by the Company. These shares are beneficially owned by the Director from the date of purchase/award and, as a consequence, are included in the numbers of Ordinary Shares shown above.

(4) The interests of these Directors also include Ordinary Shares acquired by them on the vesting of certain awards granted under the Replacement LTIP. Although these Ordinary Shares are currently subject to a holding period during which they cannot normally be sold and may be forfeited if certain events occur, they are beneficially owned by the Directors and, as such, have been included in the numbers of Ordinary Shares shown above. As explained at paragraph 5.2 of Part I of this document, all holding periods under the Replacement LTIP will be terminated with effect from (and conditionally upon) the passing of resolution 1 to be proposed at the General Meeting.

2.3 The interests (all of which are beneficial) of the PDMRs (other than the Directors) in the share capital of the Company as at 6 January 2012 (being the latest practicable date prior to the publication of this document) are as follows:

PDMR	Number of Ordinary Shares	Percentage of issued share capital*
Phil Dolan, Director of Operations(3)	537,414	0.038%
Richard Heaton, Exploration Director(2)(3)	1,205,212	0.086%
Paul Mayland, Director of Planning and Business Development(2)	19,145	0.001%
Douglas Taylor, Deputy Finance Director(2)(3)	88,303	0.006%

(rounded to the nearest third decimal place)

Notes:

(1) The table set out above assumes no dealings by the PDMRs or their connected persons and that no further Ordinary Shares are issued, whether pursuant to the exercise of options or otherwise, in each case after 6 January 2012 (being the last practicable date prior to the publication of this document).
(2) The interests of these PDMRs include Ordinary Shares awarded to them under the SIP. These awards consist of "partnership shares" purchased using deductions from the relevant PDMR's salary and also "free shares" and free "matching shares" awarded by the Company. These shares are beneficially owned by the PDMR from the date of purchase/award and, as a consequence, are included in the numbers of Ordinary Shares shown above.
(3) The interests of these PDMRs also include Ordinary Shares acquired by them on the vesting of certain awards granted under the Replacement LTIP. Although these Ordinary Shares are subject to a holding period during which they cannot normally be sold and may be forfeited if certain events occur, they are beneficially owned by the PDMRs in question and, as such, have been included in the numbers of Ordinary Shares shown above. As explained in paragraph 5.2 of Part I of this document, all holding periods under the Replacement LTIP will be terminated with effect from (and conditionally upon) the passing of resolution 1 to be proposed at the General Meeting.

2.4 As at 6 January 2012 (being the latest practicable date prior to the publication of this document), the Directors and other PDMRs held the following outstanding rights to acquire Ordinary Shares under the 2006 LTIP and 2009 LTIP:

	Outstanding Awards under the 2006 LTIP	Outstanding Awards under the 2009 LTIP
	Ordinary Shares (currently subject to holding period)(1)	Ordinary Shares
Director
Sir Bill Gammell	Nil	1,095,800
Simon Thomson	24,238	1,027,440
Dr Mike Watts	33,932	1,229,510
Jann Brown	48,475	1,069,540
PDMR
Phil Dolan	Nil	183,236
Richard Heaton	Nil	642,525
Paul Mayland	Nil	232,791
Douglas Taylor	Nil	95,675

Notes:
(1) Under the 2006 LTIP, any Ordinary Shares not released immediately on the vesting of an award are not beneficially owned by the participant until the expiry of a specified holding period. As explained at paragraph 5.2 of Part I of this document, all holding periods under the 2006 LTIP will be terminated with effect from (and conditionally upon) the passing of resolution 1 to be proposed at the General Meeting.

2.5 As at 6 January 2012 (being the latest practicable date prior to publication of this document) the aggregate number of Existing Ordinary Shares in respect of which options or other rights to subscribe had been granted by the Company was 4,281,752 (representing approximately 0.304 per cent. of the issued share capital of the Company, excluding shares held in treasury at that date).

If the authority in resolution 6 to be proposed at the General Meeting was utilised in full following the resolution becoming effective, the options to subscribe for Ordinary Shares which were outstanding as at 6 January 2012 would represent 0.908 per cent. of the issued share capital of the Company immediately following the Share Capital Consolidation (assuming that no Existing Ordinary Shares are issued between 6 January 2012 and Listing).

3. Major Interests

3.1 Insofar as is known to the Company, as at 6 January 2012 (being the latest practicable date prior to the publication of this document), the name of each person who, whether directly or indirectly, held a notifiable interest in 3 per cent. or more of the issued Ordinary Share capital of the Company, and the amount of each person's interest, was as follows:

Shareholder	Number of Ordinary Shares	Percentage of Number of issued share capital
BlackRock	131,150,459	9.32
HSBC Global Asset Management	125,153,674	8.89
MFS Investment Management	74,336,936	5.28
Legal & General Investment Management	68,540,241	4.87
Capital Group International	65,990,100	4.69
Walter Scott & Partners	64,169,216	4.56
Scottish Widows	57,403,108	4.08

4. Remuneration of Directors and service contracts

4.1. Executive Directors' service agreements

On 6 December 2002, Dr. Mike Watts entered into an agreement with Cairn to act as an executive director and exploration director. On 17 November 2006, Jann Brown entered into an agreement with Cairn to act as an executive director and finance director. On 29 June 2011, Simon Thomson entered into an agreement with Cairn to act as an executive director and chief executive with effect from 1 July 2011.

The service agreements are permanent contracts but can be terminated by either the Director concerned or Cairn on giving 12 months' notice of termination. The retirement age for Dr Mike Watts and Jann Brown under their service agreements is 60 and 65 respectively. Simon Thomson's service agreement does not specify a retirement age.

Under the service agreements, as amended, the current annual basic salary of Simon Thomson, Dr. Mike Watts and Jann Brown is as follows:

Simon Thomson	£494,000
Dr Mike Watts	£452,000
Jann Brown	£416,000

Salaries are reviewed on an annual basis by the remuneration committee. Bonus payments are at the sole discretion of the remuneration committee.

Each executive director is entitled to a company car up to a maximum value of £70,000, permanent health insurance, private health insurance and death in service benefit of up to four times annual basic salary at the date of death.

The Company operates a defined contribution group personal pension plan in the UK, called the Capricorn Oil Group Pension Plan. The scheme is non-contributory and all UK permanent employees are eligible to participate. The Company contributes 15 per cent. in respect of the annual basic salary of each of the executive directors.

Dr. Mike Watts and Jann Brown are members of the plan and receive a contribution equal to 15 per cent. of their respective annual basic salaries.

Simon Thomson has an individual personal pension plan and receives a contribution from Cairn equal to 15 per cent. of his annual basic salary.

The service agreements do not provide for any commission or profit-sharing arrangements.

On a change of control of the Company resulting in the termination of an executive director's employment within three months of such change of control, each of the executive directors is entitled to receive compensation of a sum equal to his annual basic salary as at the date of termination of employment.

Each executive director is subject to post-termination obligations for a period of six months from the date of termination of employment. The obligations relate to non-competition, non-soliciting of clients or employees, and non-interference with the existing suppliers of the Company.

4.2. Non-executive directors' letters of appointment

Letters of appointment have been entered into between the Company and each of the non-executive directors, which set out their respective responsibilities. Those letters of appointment do not provide for any period of notice. However, under the articles of association of the Company, all non-executive directors must retire by rotation at least every three years. The following table sets out the date of appointment or last reappointment of each non-executive director. No compensation is payable to any non-executive director who retires by rotation and is not re-elected or whose appointment is otherwise terminated by the Company. In addition to an annual fee, each non-executive director is also entitled to be reimbursed for all reasonable out-of-pocket expenses properly incurred in the performance of his or her duties.

Director	Date of appointment or of last reappointment	Annual fee
Sir Bill Gammell	19 May 2011	£213,000
Todd Hunt	19 May 2009	£ 70,000
Iain McLaren	19 May 2009	£ 70,000(1)
Dr James Buckee	19 May 2009	£ 70,000(2)
Alexander Berger	19 May 2011	£ 70,000
Jackie Sheppard	19 May 2011	£ 70,000

Notes:
(1) Iain McLaren is also entitled to an additional annual fee of £10,000 for chairing the Audit Committee.
(2) Dr James Buckee is also entitled to an additional annual fee of £10,000 for chairing the Remuneration Committee.

Save as disclosed in paragraphs 4.1 and 4.2 above, there are no existing or proposed service contracts or letters of appointment between any Director and any member of the Group.

5. Material Contracts

The Group

Other than the Sale Agreement (on which please see below) and the contracts entered into in connection with the Return of Cash (on which please see paragraph 13 below), no member of the Group has entered into any contracts (not being contracts entered into in the ordinary course of business) either: (i) within the two years immediately preceding the publication of this document which are, or may be, material to the Group; or (ii) which contain any provision under which any member of the Group has any obligation or entitlement which is, or may be, material to the Group as at the date of this document.

The Sale Agreement was entered into on 15 August 2010 between Cairn UK Holdings Limited ("CUKHL"), Cairn, Twin Star Energy Holdings Limited ("Twin Star") (a wholly owned subsidiary undertaking of Vedanta) and Vedanta. The Sale Agreement was subsequently amended by various amendment deeds and a side letter. The obligations of CUKHL and Twin Star under the Sale Agreement are guaranteed by Cairn and Vedanta respectively.

Under the Sale Agreement, CUKHL sold Cairn India shares, representing 40 per cent. of Cairn India's fully diluted share capital in two tranches, as follows:

(a) on 11 July 2011, the first tranche of 191,920,207 Cairn India shares (representing 10 per cent. of Cairn India's fully diluted share capital) was completed; and
(b) on 8 December 2011, the second tranche of 575,760,620 Cairn India shares (representing 30 per cent. of Cairn India's fully diluted share capital) was completed.

The consideration paid for each Cairn India share was INR355, and was settled in US dollars (at an agreed exchange rate of US$1 to INR45.25).

Vedanta agreed to use its best endeavours to secure the release of Cairn from certain guarantees provided by Cairn (or a member of the Group (other than Cairn India or its subsidiaries)) of obligations of

Cairn India and its subsidiaries and in the meantime shall indemnify Cairn (or any applicable member of the Group) against any liability thereunder or which may be incurred in relation thereto. Cairn agreed to use its best endeavours to secure the release of Cairn India and its subsidiaries from any guarantees provided by Cairn India or any of its subsidiaries of the obligations of Cairn and member of the Group (other than Cairn India and its subsidiaries) and in the meantime shall indemnify Twin Star (or any applicable member of Vedanta and its subsidiary undertakings (the "Vedanta Group") against any liability thereunder or which may be incurred in relation thereto.

While Vedanta and its subsidiary undertakings hold 51 per cent. or more of the issued equity share capital of Cairn India, no member of the Group may:

(a) purchase any additional shares in Cairn India if the aggregate of the shares purchased would then exceed 1 per cent. of the then issued share capital of Cairn India; or
(b) enter into any agreement or act in concert with any person holding 5 per cent. or more of the issued share capital of Cairn India, so far as such agreement relates to any shares held by any member of the Group in Cairn India.

The Group is, however, entitled to participate in pre-emptive share issues by Cairn India.

Cairn and Vedanta agreed pursuant to the amendment deeds and the side letter referred to above that certain provisions of the Sale Agreement be terminated. These provisions included:

(a) the put and call arrangements under which Twin Star was entitled to require CUKHL to sell, and CUKHL was entitled to require Twin Star to purchase certain additional shares in Cairn India held by CUKHL in certain circumstances;
(b) the restrictive covenant given in relation to the Group and the consideration to be paid to CUKHL in respect of it; and
(c) the pre-emption rights granted by CUKHL to the Vedanta Group in respect of its residual shareholding in Cairn India.

The Group’s shareholding in Cairn India

Other than the Sale Agreement, no member of the Group has entered into any contracts (not being contracts entered into in the ordinary course of business) either: (i) within the two years immediately preceding the publication of this document which are, or may be, material to the Group’s shareholding in Cairn India; or (ii) which contain any provision under which any member of the Group has any obligation or entitlement which is, or may be, material to the Group’s shareholding in Cairn India as at the date of this document.

6. Related party transactions

6.1 Save as set out below, no related party transactions have been entered into by members of the Group between 1 January 2008 and 6 January 2012 (being the latest practicable date prior to the publication of this document).

The related party transactions for the purposes of the standards adopted according to Commission Regulation (EC) No. 1606/2002 which the Company entered into during the financial years ended 31 December 2009 and 31 December 2010 are included in this document through the incorporation by reference of the annual reports and accounts of the Company for the financial years ended 31 December 2008, 31 December 2009 and 31 December 2010.

The information incorporated by reference for the period ended 31 December 2010 can be found on pages 68 to 83 and in note 34 on pages 137 and 138 of the annual report and accounts for the Company for the period ended 31 December 2010.

The information incorporated by reference for the period ended 31 December 2009 can be found on pages 62 to 77 and in note 35 on pages 139 and 140 of the annual report and accounts of the Company for the period ended 31 December 2009.

The information incorporated by reference for the period ended 31 December 2008 can be found on pages 60 to 72 and in note 36 on pages 129 and 130 of the annual report and accounts of the Company for the period ended 31 December 2008.

6.2 The Company entered the following related party transactions for the purposes of the standards adopted according to Commission Regulation (EC) No. 1606/2002 during the period from 1 January 2011 to 6 January 2012 (being the latest practicable date prior to the publication of this document):

(a) Remuneration of key management personnel

The remuneration of the Directors, who are the key management personnel of the Company, is set out below in aggregate:

	US$m
Short-term employee benefits	6.0
Termination payments (Sir Bill Gammell)	2.2
Termination payments (Phil Tracy)	1.5
Termination payments (Malcolm Thoms)	2.1
Pension contributions	0.3
Share-based payments	8.2
	20.3

(b) Subsidiary Undertakings

The following table provides the total amount of transactions which have been entered into by the Company with its subsidiary undertakings:

	US$m
Transactions during the period
Amounts invoiced to subsidiaries	18.6
Amounts invoiced from subsidiaries	6.5
Finance income – dividends received	5,430.0
	5,455.1
	US$m
Balances as at 6 January 2012
Amounts owed by subsidiary undertakings	592.0
Amounts owed to subsidiary undertakings	(78.8)

Litigation

The Group

So far as the Company is aware there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) which in the 12 months immediately preceding the date of this document, may have, or have had, a significant effect on the Group's financial position or profitability.

The Group's shareholding in Cairn India

So far as the Company is aware there are no governmental, legal or arbitration proceedings in relation to the Group's shareholding in Cairn India (including any such proceedings which are pending or threatened) which in the 12 months immediately preceding the date of this document, may have, or have had, a significant effect on the Group's financial position or profitability.

Significant Change

The Group

Save as set out below, there has been no significant change in the trading or financial position of the Group since 30 June 2011, being the date to which the last half-yearly financial report of the Group was prepared.

On 8 December 2011 the Company announced that its sale of 40 per cent. of the fully diluted share capital of Cairn India to Vedanta had been completed in full. The sale was implemented in two stages: the first tranche of 10 per cent. of the fully diluted share capital of Cairn India was completed on 11 July 2011 and the second tranche of a further 30 per cent. of the fully diluted share capital of Cairn India was completed on 8 December 2011.

Following receipt of the proceeds from the initial 10% tranche of Cairn India shares to Vedanta in July 2011, the US$200 million debt that had been drawn from the Group’s US$900 million stand-by secured revolving credit facility was fully repaid, and that facility subsequently closed.

Following the well results noted in paragraph 11 of Part I of this document, impairments to non-drilling costs of approximately US$80m have been recorded and goodwill of approximately US$60m has been fully impaired in accordance with Cairn’s accounting policies. Well costs incurred in connection with the 2011 Greenland drilling campaign and the Alpha-1 well drilled in 2010 will also be written off in accordance with Cairn’s accounting policies. It is estimated that such costs will amount to US$855 million in the second half of 2011 (which include US$209 million in respect of the Alpha-1 well).

The Group’s shareholding in Cairn India

The share price of Cairn India has risen from INR312 on 30 June 2011 (the date at which the last half-yearly financial report of the Group was prepared) to INR339 on 6 January 2012 (the latest practicable date before the publication of this document), leading to a 8.8% increase in the INR market value of the shareholding in Cairn India which the Group has retained following the completion of the sale to Vedanta; however, movements in the USD:INR foreign exchange rates mean that the USD market value of the shareholding has fallen 7.8% over the period. As at 6 January 2012, the market value of the Group’s residual interest in Cairn India was approximately US$2.673 billion, based on an exchange rate of US$1: INR52.7225.

Working Capital

Cairn is of the opinion, assuming that the Return of Cash is implemented in full, that the Group, following the disposal of its residual interest in Cairn India, has sufficient working capital for its present requirements, that is, for at least the 12 months following the date of this document.

10. Summary of the rights and restrictions attaching to the New Ordinary Shares

The rights and restrictions attaching to the New Ordinary Shares will be the same as those set out in or provided by the Articles of Association of the Company in relation to the Existing Ordinary Shares, as amended by the resolution set out in the notice of General Meeting.

These may be summarised, as regards income, return of capital and voting, as follows:

Income: subject only to the payment of the Single B Share Dividend, the holders of the New Ordinary Shares shall be entitled to be paid any profits of the Company available for distribution and determined to be distributed. Any dividend payable on the New Ordinary Shares which has remained unclaimed for 12 years from the date when it became due for payment shall be forfeited and shall cease to remain owing by the Company.

Capital: on a return of capital on a winding-up, after paying such sums as may be due in priority to the holders of any other class of shares in the capital of the Company (if any), any further such amount shall be paid to the holders of the New Ordinary Shares rateably according to the amounts paid up or credited as paid up in respect of each New Ordinary Share, together with the sum of £100,000,000 on each New Ordinary Share.

Voting: the holders of the New Ordinary Shares shall be entitled in respect of their holding of such shares to receive notice of any general meeting of the Company and to attend and vote at any such general meeting. At any such meeting, on a show of hands, every holder of New Ordinary Shares present in person or by proxy shall have one vote and, on a poll, every such holder present in person or by proxy shall have one vote for every New Ordinary Share of which he is the holder. A holder of New Ordinary Shares may appoint more than one proxy to vote on that member’s behalf. A holder of New Ordinary Shares that is a body corporate may appoint one or more persons to act as its representative at any general meeting of the Company.

The New Ordinary Shares and B Shares are not renounceable and will be transferable by an instrument of transfer in usual or common form. The New Ordinary Shares and the B Shares will be in registered form. The Company will apply for the New Ordinary Shares and the B Shares to be admitted to CREST with effect from Listing of the New Ordinary Shares. Accordingly, settlement of transactions in the New Ordinary Shares and the B Shares may take place within the CREST system.

11 CREST

Shareholders who hold their Existing Ordinary Shares in CREST will, following the Share Capital Consolidation, have their CREST accounts credited with New Ordinary Shares under ISIN GB00B74CDH82.

In order to facilitate the B Share Choice elections, the B Shares will, for the purposes of settlement in CREST only, be designated as "interim B Shares" under the ISIN GB00B755X212 for the period from the Listing of the New Ordinary Shares (expected to be 6 February 2012) until the Single B Share Dividend is declared and the Initial Purchase Offer is made (expected to be 14 February 2012). During this period, CREST holders will have their CREST accounts credited with "interim B Shares" to allow them to elect electronically through the CREST system. It is expected that from 14 February 2012 (or such other date as the Directors may determine), the B Shares will, for the purposes of dealings and settlement in CREST, be designated as "B Shares" under the ISIN GB00B5WF7D95. Accordingly, on that date, those CREST holders who have elected to retain B Shares until the Future Purchase Offer is made will have their CREST accounts credited with the "B Shares".

Elections which are made in respect of interim B Shares which are held in CREST on the Election Form Effective Date must have been made by way of a TTE Instruction to be valid. Elections which are made in respect of B Shares which are held in certified form on the Election Form Effective Date must have been made pursuant to an Election Form to be valid. Shareholders who are not resident and do not have their registered address in a Prohibited Territory and who wish to make an election should take care to ensure that they make that election in the correct way. Election Forms can be obtained by calling the Shareholder helpline, details of which are set out on page 1 of this document.

12. Electing in CREST

Electing for Choice 1: the Single B Share Dividend

Shareholders who hold interim B Shares in CREST and who wish to elect for Choice 1: Single B Share Dividend in respect of all their B Shares need take no action. CREST holders who do not return a TTE Instruction will automatically receive the Single B Share Dividend (subject to that dividend being declared) on all of their B Shares. However, if Shareholders who hold interim B Shares in CREST wish to elect for Choice 1: Single B Share Dividend in respect of all of their B Shares or some only of their B Shares, those Shareholders should use the following procedure after their CREST accounts have been credited on 6 February 2012 (or such other date as the Directors may determine).

The prescribed form of election is a TTE Instruction which, on its settlement, will have the effect of crediting a stock account of Equiniti under the participant ID and member account ID specified below with the number of B Shares in respect of which you wish to elect for the Single B Share Dividend. If you are a CREST sponsored member, you should refer to your CREST sponsor before taking any action. Your CREST sponsor will be able to confirm details of your participant ID and the member account ID under which your B Shares are held. In addition, only your CREST sponsor will be able to send the TTE Instruction to Euroclear in relation to your B Shares.

Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in connection with the TTE Instruction and its settlement. You should therefore ensure that all necessary action is taken by you (or by your CREST sponsor) to enable the TTE Instruction relating to your B Shares to settle prior to 4.30 p.m. on 10 February 2012. In this regard you are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

The TTE Instruction must be properly authenticated in accordance with Euroclear's specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details:

(i) the number of interim B Shares to which the election for the Single B Share Dividend relates;

(ii) the participant ID of the holder of the interim B Shares;
(iii) the member account ID of the holder of the interim B Shares from which interim B Shares are to be debited;
(iv) the participant ID of Equiniti. This is 5RA16;
(v) the member account ID of Equiniti. This is CAIRN001;
(vi) the ISIN of the interim B Shares. This is GB00B755X212;
(vii) the Intended Settlement Date. This must be by 4.30 p.m. on 10 February 2012;
(viii) the corporate action number. This is allocated by Euroclear and can be found by viewing the relevant corporate action details in CREST;
(ix) input with standard delivery instruction priority of 80; and
(x) contact name and telephone number inserted in the shared note field.

CREST members and (where applicable) their CREST sponsors should note that in order for an uncertificated election to be valid, the TTE Instruction must comply with the requirements as to authentication and contents set out above and must settle by 4.30 p.m. on 10 February 2012.

Electing for Choice 2: Initial Purchase Offer

Shareholders who hold interim B Shares in CREST who wish to elect for Choice 2: Initial Purchase Offer in respect of all or some of their B Shares should use the following procedure after their CREST accounts have been credited on 6 February 2012 (or such other date as the Directors may determine).

The prescribed form of election is a TTE Instruction which, on its settlement, will have the effect of crediting a stock account of Equiniti under the participant ID and member account ID specified below with the number of B Shares to be purchased. If you are a CREST sponsored member, you should refer to your CREST sponsor before taking any action. Your CREST sponsor will be able to confirm details of your participant ID and the member account ID under which your B Shares are held. In addition, only your CREST sponsor will be able to send the TTE Instruction to Euroclear in relation to your B Shares.

(i) the number of interim B Shares to which the election for the Initial Purchase Offer relates;
(ii) the participant ID of the holder of the interim B Shares;
(iii) the member account ID of the holder of the interim B Shares from which interim B Shares are to be debited;
(iv) the participant ID of Equiniti. This is 5RA16;
(v) the member account ID of Equiniti. This is CAIRN002;
(vi) the ISIN of the interim B Shares. This is GB00B755X212;
(vii) the Intended Settlement Date. This must be by 4.30 p.m. on 10 February 2012;
(viii) the corporate action number. This is allocated by Euroclear and can be found by viewing the relevant corporate action details in CREST;

(ix) input with standard delivery instruction priority of 80; and
(x) contact name and telephone number inserted in the shared note field.

Electing for Choice 3: Future Purchase Offer

Shareholders who hold B Shares in CREST who wish to elect for Choice 3: Future Purchase Offer in respect of all or some of their B Shares should use the following procedure after their CREST accounts have been credited on 6 February 2012 (or such other date as the Directors may determine).

The prescribed form of election is a TTE Instruction which, on its settlement, will have the effect of crediting a stock account of Equiniti under the participant ID and member account ID specified below, with the number of B Shares to be retained. If you are a CREST sponsored member, you should refer to your CREST sponsor before taking any action. Your CREST sponsor will be able to confirm details of your participant ID and the member account ID under which your B Shares are held. In addition, only your CREST sponsor will be able to send the TTE Instruction to Euroclear in relation to your B Shares.

Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in connection with the TTE Instruction and its settlement. You should therefore ensure that all necessary action is taken by you (or by your CREST sponsor) to enable the TTE instruction relating to your B Shares to settle prior to 4.30 p.m. on 10 February 2012. In this regard you are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

(i) the number of interim B Shares to which the election for the Future Purchase Offer relates;
(ii) the participant ID of the holder of the interim B Shares;
(iii) the member account ID of the holder of the interim B Shares from which interim B Shares are to be debited;
(iv) the participant ID of Equiniti. This is 5RA16;
(v) the member account ID of Equiniti. This is CAIRN003;
(vi) the ISIN of the interim B Shares. This is GB00B755X212;
(vii) the Intended Settlement Date. This must be by 4.30 p.m. on 10 February 2012;
(viii) the corporate action number. This is allocated by Euroclear and can be found by viewing the relevant corporate action details in CREST;
(ix) input with standard delivery instruction priority of 80; and
(x) contact name and telephone number inserted in the shared note field.

13. Purchase Offers

The following agreements have been entered into, or are intended to be entered into, in respect of the Purchase Offers:

Initial Purchase Offer Deed

On 10 January 2012, Cairn entered into the Initial Purchase Offer Deed with Morgan Stanley. Under the Initial Purchase Offer Deed, Morgan Stanley has agreed that if Cairn serves upon Morgan Stanley by no later than 6 p.m. on 29 February 2012 (or such later time and/or date as Morgan Stanley and Cairn may agree) a notice requiring Morgan Stanley to make the Initial Purchase Offer it will, by means of an announcement made by Cairn on a RIS, make an off market offer to purchase those B Shares (if any) in respect of which Shareholders have validly elected (or are deemed to have elected) for the Initial Purchase Offer.

The Initial Purchase Offer will be made in the manner and on the terms set out in this document and the Election Form. The obligation of Morgan Stanley to make the Initial Purchase Offer is conditional upon the satisfaction or waiver by Morgan Stanley of a number of conditions, including: (i) the passing without amendment of resolution 1 to be proposed at the General Meeting and that resolution becoming effective; (ii) the Capital Reorganisation taking effect; (iii) Listing; (iv) the execution and delivery by Cairn of the Put Option Agreement referred to below; (v) the execution by Cairn and Citibank of, and their compliance with the terms of, the Escrow Agreement, including the payment by Cairn into the escrow account of an amount to be agreed between Morgan Stanley and Cairn; (vi) Cairn having sufficient distributable reserves to purchase, pursuant to the Put Option Agreement, the B Shares in respect of which valid elections have been made (or are deemed to have been made) for the Initial Purchase Offer and pay the Single B Share Dividend in accordance with this document and (subject to the approval of the Put Option Agreement by Shareholders) there otherwise being nothing that would make such purchase, redemption or payment unlawful.

The Initial Purchase Offer Deed is also conditional upon Morgan Stanley not having exercised its right to terminate the Initial Purchase Offer Deed before making the Initial Purchase Offer. Such termination right is exercisable upon the occurrence of certain events, including: (i) failure by Cairn to comply with its obligations under the Initial Purchase Offer Deed or this document; (ii) breach by Cairn of the representations, warranties and/or undertakings given to Morgan Stanley under the Put Option Agreement and/or the Initial Purchase Offer Deed; (iii) termination by Cairn of the Put Option Agreement; (iv) the occurrence of a material adverse change (in the opinion of Morgan Stanley) in the condition, solvency, liquidity, earnings or business prospects of Cairn or the Group; and (v) certain other force majeure events.

Put Option Agreement

On 10 January 2012 Cairn entered into the Put Option Agreement with Morgan Stanley, the terms of which are subject to the approval of the Shareholders at the General Meeting. Pursuant to the terms of the Put Option Agreement, Cairn has granted to Morgan Stanley rights to require Cairn to purchase (as an off market purchase) any B Shares purchased by Morgan Stanley under the Initial Purchase Offer and, if made, the Future Purchase Offer. Cairn's obligations to purchase such B Shares is conditional on the Put Option Agreement (and any variations or amendments to it) being approved by special resolution of Shareholders, and such approval not having been revoked or expired without being replaced with an equivalent approval.

The amount payable by Cairn to Morgan Stanley upon exercise by Morgan Stanley of its rights under the Put Option Agreement in respect of the B Shares acquired under the Initial Purchase Offer, will be £1.60 per B Share plus an amount equal to the total stamp duty and stamp duty reserve tax paid or payable by Morgan Stanley in respect of the Initial Purchase Offer. In respect of any Future Purchase Offer, Morgan Stanley may require Cairn to pay £1.60 for each B Share so purchased plus an amount equal to the total stamp duty and stamp duty reserve tax paid or payable by Morgan Stanley under any Future Purchase Offer. No fee is payable by Cairn to Morgan Stanley pursuant to the Put Option Agreement.

The Put Option Agreement also includes a provision which allows Cairn to require Morgan Stanley to purchase all Deferred Shares in issue from Shareholders, for an aggregate consideration of one penny. Cairn is then required to purchase such Deferred Shares from Morgan Stanley, again for an aggregate consideration of one penny.

Escrow Account Agreement

On 10 January 2012 Cairn, Morgan Stanley and Citibank entered into the Escrow Account Agreement. Under the Escrow Account Agreement Cairn has agreed to transfer into an escrow account an amount agreed by Morgan Stanley and Cairn as being equal to the maximum amount required to be paid under the Put Option Agreement by it to Morgan Stanley upon the exercise of its put option in respect of the B Shares acquired by them pursuant to the Initial Purchase Offer.

The funds held in the escrow account will be used to pay Morgan Stanley if, as expected, Morgan Stanley exercises its right under the Put Option Agreement to require Cairn to purchase from it the B Shares acquired by Morgan Stanley under the Initial Purchase Offer. Any balance of the account will be returned to Cairn following such payment. It is expected that an escrow account agreement on the same (or substantially the same) terms as the Escrow Account Agreement will be entered into between Cairn, Morgan Stanley and Citibank in connection with any Future Purchase Offer.

14. Treasury shares held by the Company

As at 6 January 2012 (being the latest practicable date before the publication of this document), the Company held no Existing Ordinary Shares as treasury shares.

15. Documents available for inspection

Copies of the following documents will be available for inspection during normal business hours on any weekday (public holidays excepted) at the offices of Shepherd and Wedderburn LLP, Condor House, 10 St. Paul’s Churchyard, London EC4M 8AL and at the registered office of the Company from the date of this document up to and including the date of the General Meeting and will also be available for inspection for at least 15 minutes before and during the General Meeting:

(i) the Articles of Association of the Company;
(ii) a copy of the Articles of Association of the Company showing the amendments to be proposed at the General Meeting;
(iii) the consent letter referred to in paragraph 16 below;
(iv) the Initial Purchase Offer Deed, Put Option Agreement and Escrow Account Agreement;
(v) copies of the 2009 LTIP and 2009 Option Plans, showing the amendments proposed to be made at the General Meeting;
(vi) copies of the Company’s Annual Report and Accounts for 2009 and 2010;
(vii) the Share Award Agreement; and
(viii) this document.

16. Consent

Rothschild has given and has not withdrawn its written consent to the issue of this document with the inclusion herein of references to its name in the form and context in which they appear.

Date: 10 January 2012

PART IX

FREQUENTLY ASKED QUESTIONS IN RELATION TO THE RETURN OF CASH WITH ANSWERS

This document explains the proposed Residual Interest Disposal Authority, Share Award, and the Return of Cash of approximately US$3.5 billion which Cairn proposes to make to its Shareholders. To help you understand what is proposed in connection with the Return of Cash we have prepared the summary below in the form of frequently asked questions with answers on the Return of Cash, which are aimed particularly at Cairn’s Shareholders who are individuals. You should read the whole of this document carefully and not rely solely on the summary information below.

If you still have any questions, you may call the Shareholder helpline on 0871 384 2964 (from within the United Kingdom) or +44 121 415 0222 (if calling from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers’ costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates. All dates are subject to change. The questions with answers below assume you do not hold your shares through CREST unless CREST is specifically mentioned. If you hold your shares through CREST and would like some further information on the Return of Cash, please contact the Shareholder helpline.

The helpline is not able to provide advice on the merits of the Return of Cash, the B Share Choices, the Residual Interest Disposal Authority or give any personal legal, financial or tax advice.

What is being proposed?

Cairn intends to return £1.60 in cash to Shareholders for each Existing Ordinary Share that they hold at 6.00 p.m. on 3 February 2012. This is known as the “return of cash” and amounts to a total aggregate return of approximately US$3.5 billion to Shareholders.

Why is Cairn returning this cash?

Cairn’s long-standing strategy has been to create shareholder value through the discovery and commercialisation of oil and gas resources in frontier hydrocarbon regions. Following the discovery and commercialisation of the Group’s Rajasthan oil fields, Cairn India was formed and floated on the Indian Stock Exchanges and part of the proceeds of that flotation were returned to shareholders in 2007. As the value of Cairn India has increased, Cairn has continued its strategy of crystallising value through a sale of part of its shareholding in Cairn India to Vedanta. Part of the proceeds of that sale are to be returned to shareholders in cash. The remainder of the proceeds will be retained by Cairn to continue its strategy to create value through oil and gas exploration in the rest of its portfolio.

How is this being done?

We have chosen a method of returning the cash which enables Shareholders (other than those resident or who have their registered addressed in Prohibited Territories) to choose whether to receive it as income or capital, known as a “B Share Scheme”. Shareholders resident or who have their registered addressed in Prohibited Territories are not being offered this choice and will receive their cash entitlements as income. Full details of this scheme are set out in this document.

For every Existing Ordinary Share that you hold at 6.00 p.m. on 3 February 2012, you will receive one B Share. Each B Share entitles you to receive £1.60 in cash.

The B Share Scheme will apply to each Existing Ordinary Share registered in your name at 6.00 p.m. on 3 February 2012. You are still able to buy or sell Existing Ordinary Shares up until this time, but you will only be entitled to have B Shares issued in respect of Existing Ordinary Shares held at 6.00 p.m. on 3 February 2012.

What happens to my Cairn shares?

In addition to the return of cash, there will also be a consolidation of Cairn shares and this will reduce the number of ordinary shares that you and all Shareholders hold. If we were to do nothing more than return the cash to Shareholders, Cairn’s share price would probably fall by about £1.60 per share, reflecting the value being returned to Shareholders. Therefore, to help ensure that the share price stays about the same

immediately before and after the Return of Cash (subject to normal market movements following the date of this document), we intend to reduce the total number of shares owned by all Shareholders. This is known as the “Share Capital Consolidation”.

As a result of the Share Capital Consolidation, for every 33 Existing Ordinary Shares that you own at 6.00 p.m. on 3 February 2012, you will receive 13 New Ordinary Shares to replace them.

What does all this mean to me?

You will continue to own the same proportion of Cairn immediately after the Share Capital Consolidation as you did before, subject to fractional entitlements arising on the Share Capital Consolidation which will be sold in the market with the net cash proceeds returned to you or, if less than £3.00, donated to charities chosen by the Board (see question 6 below).

The total value of your new ordinary shareholding in Cairn immediately following the Share Capital Consolidation, plus £1.60 for every B Share that you hold, plus the value of any fractional entitlements for which you will receive cash (or make a donation to charity depending on the amount in question) should be equal to the value of your original holding immediately before the Share Capital Consolidation (subject to normal market movements following the date of this document).

What if the number of Cairn shares I hold at 6.00 p.m. on 3 February 2012 does not divide exactly by 33?

If, immediately before the Share Capital Consolidation, your holding of Cairn shares does not divide exactly by 33, you will be left with a fractional entitlement to a New Ordinary Share. So, for example, a Shareholder with 100 Existing Ordinary Shares would, after the Share Capital Consolidation, be entitled to 39 New Ordinary Shares and a fractional entitlement to approximately 0.39 of a New Ordinary Share. Cairn will combine all the fractions and arrange to have them sold in the market. It is expected that you will be sent a cheque for your proportion of the sale proceeds, net of commission, on 21 February 2012 unless that proportion is less than £3.00. If your proportion is less than £3.00, it will be donated to charities chosen by the Board.

What happens to my current share certificate?

The share certificate that you currently hold will not be valid after the New Ordinary Shares have been listed on the London Stock Exchange (expected to happen on 6 February 2012). When you receive your New Ordinary Share certificate you should destroy the one that you currently hold as it will be worthless.

When will I get my New Ordinary Share certificate?

It is expected that your New Ordinary Share certificate will be sent to you on 21 February 2012.

What if I want to sell my New Ordinary Shares before I have received my New Share Certificate?

Even though you will not receive your new share certificate until after 21 February 2012, you will be able to sell your New Ordinary Shares from 6 February 2012. Cairn will not be issuing temporary documents of title. The New Ordinary Shares will be certified against the register held by the Company’s registrars, Equiniti. You should call the Shareholder helpline on 0871 384 2964 (for calls from within the United Kingdom) and +44 121 415 0222 (for calls from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day. Please note that calls to these numbers may be monitored or recorded. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers’ costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates.

What choices do I have for my B Shares?

You can choose to receive a dividend (which it is expected will generally be treated as an income payment for tax purposes) by electing for Choice 1 or you can choose to have your B Shares purchased by Morgan Stanley (which may be treated as a capital payment for tax purposes) by electing for Choice 2 or to retain your B Shares until a Future Purchase Offer (if any) is made by Morgan Stanley (Choice 3). If you have a registered address in or are resident in any of the Prohibited Territories, you will not have a choice and will be deemed to have elected for the Single B Share Dividend (Choice 1) in respect of all of your B Shares.

Please note you can (unless you have a registered address or are resident in any of the Prohibited Territories) choose to split your choice in respect of your B Shares between one or more of the B Share Choices.

These three choices for your B Shares are set out in more detail below:

Choice 1: Single B Share Dividend

If you elect (or are deemed to have elected) for this choice in respect of all or some of your B Shares, you will receive a single dividend of £1.60 per B Share in respect of those B Shares (subject to that dividend being declared), following which you will no longer hold those B Shares.

Choice 2: Initial Purchase Offer

If you validly elect for this choice in respect of all or some of your B Shares, it is expected that you will have those B Shares purchased by Morgan Stanley on 14 February 2012 at £1.60 per B Share, free of all dealing expenses and commissions.

If you decide to have part only of your holding of B Shares purchased by Morgan Stanley on 14 February 2012 and choose not to receive the Single B Share Dividend in respect of your remaining B Shares you may have the opportunity to sell your remaining B Shares during April 2012 to Morgan Stanley as described in Choice 3: Future Purchase Offer below, although there can be no guarantee that such an offer will be made.

Choice 3: Future Purchase Offer

If you validly elect for this choice in respect of all or some of your B Shares, you may retain those B Shares until you have the opportunity to sell them in the future for £1.60 per B Share, free of all dealing expenses and commissions.

It is currently expected that there will be a further offer by Morgan Stanley to purchase B Shares during April 2012, although there can be no guarantee that such an offer will be made.

Details of how to complete and return your Election Form are set out in that form. Shareholders electing through CREST should not complete or return an Election Form but instead should refer to paragraphs 11 and 12 of Part VIII "Additional information" of this document.

Further information on each of the B Share Choices is set out in Part V "Details of the Return of Cash" of this document.

It is important to note that if you DO NOT fill in your Election Form correctly, do not sign it or do not return it to Cairn's registrars to arrive by 4.30 p.m. on 10 February 2012, you will be treated as if you have chosen Choice 1: Single B Share Dividend for all of your B Shares.

11. What if I do nothing?

If you do not return your Election Form to Cairn's registrars by 4.30 p.m. on 10 February 2012 you will be treated as if you have chosen Choice 1: Single B Share Dividend in respect of all of your B Shares and, on payment of that dividend, you will no longer hold those B Shares. Accordingly, if you wish to receive Choice 1: Single B Share Dividend in respect of all of your B Shares, you do not have to complete and return your Election Form.

12. Example of how this works in practice

The example below illustrates the number of shares and the cash payment you will receive under the three choices if you elect (or are deemed to have elected) all your B Shares for a single B Share Choice:

| Number of Cairn shares owned on 3 February 2012 | Number of B Shares you will receive | Number of New Ordinary Shares you will receive | Fractional entitlement | Choice 1
If you elect ALL your B Shares you will be sent on 21 February 2012 £ | Choice 2
If you elect ALL your B Shares you will be sent on 21 February 2012 £ | Choice 3
If you elect ALL your B Shares you will be sent* £ |
| --- | --- | --- | --- | --- | --- | --- |
| 5 | 5 | 1 | 0.97 | 8.00 | 8.00 | 8.00 |
| 10 | 10 | 3 | 0.94 | 16.00 | 16.00 | 16.00 |
| 50 | 50 | 19 | 0.70 | 80.00 | 80.00 | 80.00 |
| 100 | 100 | 39 | 0.39 | 160.00 | 160.00 | 160.00 |
| 200 | 200 | 78 | 0.79 | 320.00 | 320.00 | 320.00 |

In addition, you will be sent your proportion of the net proceeds of sale of fractional entitlements if your proportion is sold by Morgan Stanley for £3.00 or more.
** Conditional upon the Future Purchase Offer being made, which cannot be guaranteed.

How do I make my choice?

Detailed information on how to make your choice is set out in your Election Form, or alternatively if you hold your shares in CREST, you should make your choice in accordance with the instructions set out in paragraphs 11 and 12 of Part VIII of this document. In summary, you make your choice by completing and signing the Election Form sent to you with this document and sending it back to Cairn’s registrars, Equiniti, Corporate Actions, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA so that it is received by no later than 4.30 p.m. on 10 February 2012.

Will I get a B Share certificate?

You will only be sent a B Share certificate in respect of those B Shares that you have chosen to retain and which may be purchased by Morgan Stanley under the Future Purchase Offer (Choice 3). No B Share certificates will be issued in respect of B Shares for which you have chosen to receive the Single B Share Dividend (Choice 1) or to have purchased by Morgan Stanley on 14 February 2012 (Choice 2). If applicable, your B Share certificate will be sent to you on 21 February 2012.

What is a “Deferred Share”?

The B Shares in respect of which you receive the Single B Share Dividend (Choice 1) (subject to that dividend being declared) will automatically become Deferred Shares when this dividend becomes payable. You do not need to do anything in relation to any Deferred Shares that you hold. Deferred Shares have very limited rights as set out in more detail in this document. Subject to the approval of Shareholders in general meeting of any proposed repurchase contract, all of the Deferred Shares then in issue may automatically be repurchased at a later date by the Company for the total aggregate price of one penny.

Will I get a Deferred Share certificate?

No. No share certificates will be issued in respect of the Deferred Shares.

What if I don’t get my Election Form back in time?

If you do not return your Election Form so as to be received by 4.30 p.m. on 10 February 2012, you will be treated as having chosen to accept Choice 1: Single B Share Dividend in respect of all of your B Shares. This will also happen if you fill in the form incorrectly, or fail to sign it.

What if I change my mind after I have returned my Election Form?

You can change or withdraw your choice at any time before noon on 9 February 2012. If you want to change your choice you should phone the Shareholder helpline on 0871 384 2964 (or +44 121 415 0222 if calling from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day and ask to be sent a “replacement election form”. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers’ costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates. If you change your choice you must ensure that your replacement election form is received by Cairn’s registrars no later than 4.30 p.m. on 10 February 2012 in order for the re-election to be valid. If you withdraw your choice and do not make another choice you will be treated automatically as having elected for Choice 1: Single B Share Dividend.

What is my tax position?

We have set out a general guide to United Kingdom taxation in Part VII “United Kingdom taxation in relation to the Return of Cash” of this document and you should read it carefully. You are urged to consult an appropriate professional adviser in respect of your tax position.

Shareholders who are not tax resident in the United Kingdom or who are otherwise taxable outside of the United Kingdom should consult their own professional advisers on the possible application of taxation laws in their individual countries of residence.

Will the proceeds from the Return of Cash be paid directly into my bank account?

Choice 1: Single B Share Dividend

It is expected that a cheque for the Single B Share Dividend (subject to that dividend being declared) will be sent to you, or, if you have returned a Dividend Mandate Form, that your bank account will be credited, as appropriate, with the proceeds on 21 February 2012 (or such other date as the Directors may determine). If you have submitted a dividend mandate form previously your dividend payment will be paid directly to the bank account specified on that form. If you have since changed your bank, or account details, you should submit a new Dividend Mandate Form in order to ensure no delay in receiving the payment. Should payment be made to a bank account which is now closed, payment will then be made by cheque although this may not be issued to you until two weeks or more after the payment is made to all other Shareholders. Please see paragraph 15 of Part I of this document for further information on the completion and return of Dividend Mandate Forms.

Choice 2: Initial Purchase Offer

It is expected that a cheque for the Initial Purchase Offer will be sent to you or that your CREST account will be credited, as appropriate, on 21 February 2012 (or such other date as the Directors may determine).

Choice 3: Future Purchase Offer

If, as expected, Morgan Stanley makes a further offer to purchase B Shares in or around April 2012, a cheque in relation to the offer will be sent to you or your CREST account will be credited shortly afterwards.

What if I hold my Cairn shares in a PEP or an ISA?

If you hold your existing ordinary shares in a PEP or an ISA, you should be able to hold the New Ordinary Shares which you receive in place of your Cairn shares in a PEP or an ISA (subject to the terms and conditions of your PEP or ISA). You should contact your plan manager who will be able to advise you of the procedure for voting at the General Meeting and making an election in respect of the B Shares that you receive.

What if I am resident outside the United Kingdom?

Shareholders resident outside the United Kingdom or who are nationals or citizens of jurisdictions outside the United Kingdom should read the information set out in paragraph 8 of Part V "Details of the Return of Cash" of this document.

Do I need to vote at the General Meeting?

Yes. The Return of Cash needs Shareholder approval before it can take place. In order for the Return of Cash to happen, you should vote at the General Meeting by completing and signing your Form of Proxy (sent to you with this document) and returning it to Cairn's registrars to arrive as soon as possible. For your convenience, the address of Cairn's registrars, Equiniti, is printed on the back of the Form of Proxy and postage is pre-paid from within the United Kingdom. You may also submit your proxy electronically at www.sharevote.co.uk using the reference number, card ID and account number on your Form of Proxy. To be valid, the completed Form of Proxy or proxies submitted electronically must be sent as soon as possible and in any event so as to be received by Equiniti by no later than 10.00 a.m. on 26 January 2012.

Why have I been sent so much paperwork?

Cairn is required by law to provide all Shareholders with full details of the Return of Cash. This document contains important information and we recommend that you read it carefully as you have a right to vote on the resolutions to be proposed at the General Meeting and make elections in respect of the B Share Choices.

DEFINITIONS

The following definitions apply throughout this document and in the accompanying Form of Proxy, Dividend Mandate Form and (if one is enclosed) Election Form, unless the context requires otherwise:

“2006 LTIP”	the Cairn Energy PLC Long Term Incentive Plan (2006);
“2009 LTIP”	the Cairn Energy PLC Long Term Incentive Plan (2009);
“2009 Option Plans”	the Cairn Energy PLC Approved Share Option Plan (2009) and the Cairn Energy PLC Unapproved Share Option Plan (2009);
“Articles of Association”	the articles of association of the Company from time to time;
“B Share Choices”	the choices of the Single B Share Dividend (Choice 1), the Initial Purchase Offer (Choice 2) and the retention of B Shares until a Future Purchase Offer (Choice 3) (if any) is made;
“B Share Record Date”	6.00 p.m. on 10 February 2012 (or such other time and/or date as the Directors may determine);
“B Shares”	the unlisted limited voting preference shares of $1/13$ pence each in the capital of the Company, the rights and restrictions of which are set out in Part VI “Rights and restrictions attached to the B Shares and to the Deferred Shares” of this document;
“B Share Scheme”	the transaction comprising the B Share Choices;
“Business Day”	a day (other than a Saturday, Sunday or public holiday) on which pound sterling deposits may be dealt in on the London inter-bank market and commercial banks are open for general business in London;
“Cairn India”	Cairn India Limited, incorporated in India;
“Cairn India Group”	Cairn India and its subsidiary undertakings;
“Cairn Share Schemes”	the 2006 LTIP, the Replacement LTIP, the 2009 LTIP, the Cairn Energy PLC 2002 Unapproved Share Option Plan, the Cairn Energy PLC 2003 Approved Share Option Plan, the 2009 Option Plans, the Cairn Energy PLC Replacement Share Option Plan and the SIP;
“Capital Reorganisation”	the reorganisation of Cairn’s share capital comprising the Subdivision and the Share Capital Consolidation;
“Capricorn”	Capricorn Oil Limited and its subsidiaries;
“Citibank”	Citibank N.A., London Branch;
“Companies Act”	the Companies Act 2006;
“Company” or “Cairn”	Cairn Energy PLC, a company incorporated in Scotland with registered number SC226712;
“CREST”	the relevant system for the paperless settlement of trades in securities and the holding of uncertificated securities (as defined in the Uncertificated Securities Regulations 2001 (SI. 2001 No. 3775)) operated by Euroclear;
“CREST Manual”	the current version of the CREST manual from time to time which at the date of this document is available on www.crestco.co.uk;

“CREST Proxy Instruction” a properly authenticated CREST message appointing and instructing a proxy to attend and vote in the place of the Shareholder at the General Meeting and containing the information required to be contained therein by the CREST Manual;

“CTA 2010” Corporation Tax Act 2010;

“Deferred Shares” the unlisted non-voting deferred shares of $\frac{1}{13}$ pence each in the capital of Cairn, the rights and restrictions of which are set out in Part VI “Rights and restrictions attached to the B Shares and to the Deferred Shares” of this document;

“Directors” or “Board” the board of directors of Cairn, from time to time, or, where appropriate, any duly authorised committees of it;

“Disclosure and Transparency Rules” the Disclosure and Transparency Rules of the UKLA;

“Disposal” the disposal of 40 per cent. of the fully diluted share capital of Cairn India by Cairn UK Holdings Limited (a wholly owned subsidiary of Cairn) to Twinstar Energy Holdings Limited (a wholly owned subsidiary of Vedanta) in two tranches, on 11 July 2011 and 8 December 2011;

“Dividend Mandate Form” the dividend mandate form enclosed with this document by which Shareholders can elect to have any future dividends (including the Single B Share Dividend) paid directly into a nominated bank account;

“EEA” the European Economic Area (including, for the purposes of this document, each of the member states of the European Union);

“Election Form” the form by which a Shareholder may elect for one or more of the B Share Choices;

“Election Form Effective Date” 4.30 p.m. on 10 February 2012 (or such other time and/or date as the Directors may determine);

“Election Period” the period from 10 January 2012 until the Election Form Effective Date, during which time Shareholders not resident or with a registered address in a Prohibited Territory may make elections in respect of the B Share Choices but elections shall not take effect until the Election Form Effective Date to the extent not validly withdrawn;

“Electronic Proxy Instruction” a proxy instruction submitted electronically at www.sharevote.co.uk using the numbers included in the Form of Proxy;

“Equiniti” Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA;

“ESA Instruction” escrow account adjustment instruction (as defined in the CREST Manual);

“Escrow Account Agreement” the agreement dated 10 January 2012 between Cairn, Morgan Stanley and Citibank in connection with the escrow arrangements to be put in place in connection with Cairn’s obligations to Morgan Stanley under the Put Option Agreement;

“Euroclear” Euroclear UK & Ireland Limited;

“Existing Ordinary Shares” issued ordinary shares of $\frac{8}{13}$ pence each in the capital of Cairn, existing before the Capital Reorganisation;

"FSA"
the Financial Services Authority;

"Form of Proxy"
the form of proxy enclosed with this document, for use by Shareholders in connection with the General Meeting;

"FSMA"
the Financial Services and Markets Act 2000 (as amended);

"Future Purchase Date"
if any Future Purchase Offer is made by Morgan Stanley, the date on which B Shares retained by Shareholders following the Initial Purchase Date will be purchased by Morgan Stanley (or such other date as the Directors may determine);

"Future Purchase Offer"
the offer expected to be made by Morgan Stanley, acting as principal, to purchase B Shares on the Future Purchase Date;

"General Meeting"
the general meeting of Cairn to be held in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ at 10.00 a.m. on 30 January 2012;

"Group"
Cairn and its subsidiary undertakings;

"Indian Stock Exchanges"
the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited;

"Initial Purchase Date"
14 February 2012 (or such other date as the Directors may determine);

"Initial Purchase Offer"
the initial offer by Morgan Stanley, acting as principal, to purchase B Shares on the Initial Purchase Date;

"Initial Purchase Offer Deed"
the deed dated 10 January 2012 between Morgan Stanley and the Company in respect of the Initial Purchase Offer;

"ISIN"
International Security Identification Number;

"ITA 2007"
Income Tax Act 2007;

"Listing"
the admission of the New Ordinary Shares to the Official List becoming effective in accordance with the Listing Rules and the admission to trading on the London Stock Exchange’s main market for listed securities becoming effective in accordance with the rules of the London Stock Exchange;

"Listing Rules"
the listing rules made by the UKLA for the purposes of Part VI of FSMA;

"London Stock Exchange"
London Stock Exchange plc;

"Morgan Stanley"
Morgan Stanley Securities Limited;

"Morgan Stanley Group"
Morgan Stanley together with its associated companies;

"New Ordinary Shares"
following the Capital Reorganisation, the new ordinary shares of $^{231}I_{169}$ pence each in the capital of the Company admitted to the Official List under the ISIN GB00B74CDH82 and which will replace the Existing Ordinary Shares;

"Official List"
the official list maintained by the UKLA for the purposes of Part VI of FSMA;

"Ordinary Shares"
Existing Ordinary Shares or New Ordinary Shares, as the context may require;

“Overseas Shareholders”
Shareholders who are not resident in the United Kingdom or who are citizens, residents or nationals of a country other than the United Kingdom or who have a registered address which is not in the United Kingdom. For the avoidance of doubt, Shareholders who are not resident in the United Kingdom include Shareholders who are resident in the Channel Islands or the Isle of Man;

“Prohibited Territories”
Australia, Canada, Japan, the Republic of South Africa and the United States and “Prohibited Territory” means any of them;

“Purchase Offer(s)”
the Initial Purchase Offer and/or the Future Purchase Offer, as the context may require;

“Put Option Agreement”
the agreement dated 10 January 2012 between Morgan Stanley and the Company requiring the Company to purchase as an off market purchase the B Shares purchased by Morgan Stanley under the Initial Purchase Offer and, if one is made, the Future Purchase Offer;

“Record Date”
the record date for the Capital Reorganisation, being 6.00 p.m. on 3 February 2012 (or such other time and/or date as the Directors may determine);

“Replacement Election Form”
the election form provided to a Shareholder wishing to re-elect for the B Share Choices following a valid written withdrawal;

“Replacement LTIP”
the Cairn Energy PLC Replacement Long Term Incentive Plan;

“Residual Interest Disposal Authority”
the authority to dispose of or reduce Cairn’s residual interest in Cairn India, as described in this document;

“Return of Cash”
the transaction comprising the Capital Reorganisation and the B Share Choices;

“RIS” or “Regulatory Information Services”
a regulatory information service as defined by the Listing Rules;

“Rothschild”
N M Rothschild & Sons Limited;

“Sale Agreement”
the conditional sale agreement dated 15 August 2010 between Cairn UK Holdings Limited, Cairn, Twinstar Energy Holdings Limited and Vedanta (as amended from time to time);

“SEC”
the U.S. Securities and Exchange Commission;

“Share Award”
the proposed share award in favour of Sir Bill Gammell, as described in Part II of this document;

“Share Award Agreement”
the agreement expected to be entered into between the Company and Sir Bill Gammell in relation to the Share Award, if approved by Shareholders at the General Meeting;

“Share Capital Consolidation”
the consolidation and division of the share capital of the Company in the manner set out in sub-paragraph (b) of resolution 1 in the notice convening the General Meeting set out at the end of this document;

“Shareholders”
holders of Existing Ordinary Shares, New Ordinary Shares and/or B Shares, as the context may require;

“Single B Share Dividend”
the dividend of £1.60 per B Share;

“Single B Share Dividend Date”
14 February 2012 (or such other date as the Directors may determine);

"SIP"
the Cairn Energy PLC 2010 Share Incentive Plan;

"Subdivision"
the subdivision of each Existing Ordinary Share held by a holder on the Record Date into one intermediate ordinary share of $\frac{7}{15}$ pence and one B Share in the manner set out in sub-paragraph (a) of resolution 1 in the notice convening the General Meeting set out at the end of this document;

"TTE Instruction"
a transfer to escrow instruction (as defined in the CREST Manual);

"UKLA"
the FSA acting in its capacity as a competent authority for the purposes of Part VI of FSMA;

"UK" or "United Kingdom"
the United Kingdom of Great Britain and Northern Ireland;

"US" or "United States"
the United States of America, its territories and possessions, any State of the United States of America and the District of Columbia;

"US Securities Act"
the US Securities Act of 1933 (as amended); and

"Vedanta"
Vedanta Resources plc, incorporated in England and Wales with registered number 04740415.

CAIRN ENERGY PLC

(Incorporated in Scotland with registered number SC226712)

NOTICE OF GENERAL MEETING

NOTICE IS HEREBY GIVEN that a general meeting of Cairn Energy PLC (the “Company”) will be held in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ at 10.00 a.m. on 30 January 2012 for the purposes of considering and, if thought fit, passing the following resolutions, of which resolutions 2, 3 and 4 will be proposed as ordinary resolutions and resolutions 1, 5 and 6 will be proposed as special resolutions:

THAT, conditional on and with effect from the admission of the New Ordinary Shares (as defined in sub-paragraph (b) of this resolution) to the Official List of the United Kingdom Listing Authority and to trading on the main market for listed securities of the London Stock Exchange plc becoming effective by 8.00 a.m. on 6 February 2012 (or such later time and/or date as the directors of the Company (the “Directors”) may determine):

(a) each ordinary share of $\frac{8}{13}$ pence in the capital of the Company and in issue as at 6.00 p.m. on 3 February 2012 (or such other time and/or date as the Directors may determine) (the “Record Date”) be subdivided into one intermediate ordinary share of $\frac{7}{13}$ pence and one B Share (as defined in and having the rights and restrictions set out in the Amended Articles (as defined below));

(b) the share capital represented by each holding of intermediate ordinary shares of $\frac{7}{13}$ pence in the capital of the Company as would have been shown in the register of members at the Record Date had such register reflected the effect of sub-paragraph (a) of this resolution at such time (and no other changes) be consolidated into share capital of the Company with a nominal value equal to the product of $\frac{7}{13}$ pence and the number of such intermediate ordinary shares comprised in such holding and the share capital represented by each such consolidation be divided into ordinary shares of $\frac{231}{169}$ pence each (“New Ordinary Shares”) in the capital of the Company, provided that:

(i) where such consolidation and division results in a member being otherwise entitled to a fraction of a New Ordinary Share, such fraction shall be aggregated with the fractions of a New Ordinary Share to which other members of the Company may be entitled into New Ordinary Shares; and

(ii) the Directors be authorised to sell (or appoint any other person to sell), on behalf of the relevant members, all the New Ordinary Shares representing such fractions at the best price reasonably obtainable, and to distribute the proceeds of sale (net of expenses) in due proportion among the relevant members entitled thereto (save that: (i) any fraction of a penny which would otherwise be payable shall be rounded up or down in accordance with the usual practice of the registrar of the Company; and (ii) individual amounts not exceeding £3.00 shall be donated to charities chosen by the Directors) and that any Director (or any person appointed by the Directors) be authorised to execute an instrument of transfer in respect of such shares on behalf of the relevant members and to do all acts and things the Directors consider necessary or desirable to effect the transfer of such shares;

(c) the terms of the contract dated 10 January 2012 between Morgan Stanley Securities Limited (“Morgan Stanley”) and the Company under which Morgan Stanley will be entitled to require the Company to purchase B Shares and/or Deferred Shares (as defined in and having the rights and restrictions set out in the Amended Articles) from Morgan Stanley (in the form produced to the meeting and signed by the Chairman for the purposes of identification) be approved and authorised for the purposes of section 694 of the Companies Act 2006 and otherwise but so that such approval and authority shall expire on 31 December 2012;

(d) the amendments to the rules of the Cairn Energy PLC Long Term Incentive Plan (2009), the Cairn Energy PLC Approved Share Option Plan (2009) and the Cairn Energy PLC Unapproved Share Option Plan (2009) (the “2009 Plans”) that are (i) summarised in paragraph 6 of Part I of the circular dated 10 January 2012 and sent by the Company to its shareholders and (ii) contained in the amended rules of the 2009 Plans produced in draft to the meeting and initialled by the Chairman for the purpose of identification be approved and the Directors be authorised to do all such acts and things as they consider necessary or appropriate to carry the same into effect;

(e) the articles of association of the Company be amended in the manner set out in the list of amendments produced to the meeting and signed by the Chairman for the purposes of identification (such amended articles, being the “Amended Articles”); and

(f) the Directors be authorised to do all such things as they consider necessary or expedient to transfer any Deferred Shares arising as a result of the reclassification of any B Shares in accordance with the Amended Articles.

THAT the share award in favour of Sir Bill Gammell (the “Share Award”), the terms of which are (i) contained within the agreement produced to the meeting and initialled by the Chairman for the purposes of identification (the “Share Award Agreement”); and (ii) summarised in Part II of the circular dated 10 January 2012 and sent by the Company to its shareholders, be approved and the Board or any duly authorised committee thereof be authorised to enter into the Share Award Agreement, subject to such non material modifications as the Board or such committee may consider necessary or desirable to take account of the requirements of the UK Listing Authority, and to do all acts and things necessary or expedient to bring into effect the Share Award.
THAT:

(a) any disposals by the Company or any subsidiary undertaking of the Company of any or all shares in Cairn India Limited held by it in the manner summarised in the circular dated 10 January 2012 and sent by the Company to its shareholders (“Disposals”) be approved; and

(b) the directors of the Company (or a duly authorised committee thereof) be authorised to take all steps as they consider necessary or appropriate to effect any Disposals.

THAT, subject to resolution 1 set out in the notice of general meeting dated 10 January 2012 being approved and becoming effective:

(a) the directors of the Company (the “Directors”) be generally and unconditionally authorised to allot shares in the Company, or to grant rights to subscribe for or to convert any security into shares in the Company, up to a maximum nominal amount of £2,501,199;

(b) in addition to the authority contained in sub-paragraph (a) of this resolution, the Directors be authorised to allot shares in the Company, or to grant rights to subscribe for or to convert any security into shares in the Company, comprising equity securities (within the meaning of section 560(1) of the Companies Act 2006 (the “Act”)) up to a maximum nominal amount of £2,501,199 in connection with a Pre-Emptive Offer undertaken by means of a rights issue;

(i) are given pursuant to section 551 of the Act and shall be in substitution for all pre-existing authorities under that section; and

(ii) unless renewed, revoked or varied in accordance with the Act, shall expire on 30 June 2012 or, if earlier, at the end of the next annual general meeting of the Company to be held in 2012, save that the Company may before such expiry make an offer or agreement which would or might require the allotment of shares in the Company, or the grant of rights to subscribe for or to convert any security into shares in the Company, after such expiry; and

(d) for the purpose of this Resolution, “Pre-Emptive Offer” means an offer of equity securities to:

(i) holders of ordinary shares (other than the Company) on a fixed record date in proportion to their respective holdings of such shares; and

(ii) other persons entitled to participate in such offer by virtue of, and in accordance with, the rights attaching to any other equity securities held by them,

in each case, subject to such exclusions or other arrangements as the Directors may deem necessary or appropriate in relation to fractional entitlements, legal, regulatory or practical problems under the laws or the requirements of any regulatory body or stock exchange of any territory or otherwise.

THAT, subject to resolution 1 set out in the notice of general meeting dated 10 January 2012 being approved and becoming effective and subject to resolution 4 set out in such notice (the “Allotment Authority”) being approved:

(a) the directors of the Company (the “Directors”) be given power pursuant to section 570 of the Companies Act 2006 (the “Act”) to allot equity securities (within the meaning of section 560(1) of the Act) for cash pursuant to the Allotment Authority, and to sell treasury shares wholly for cash, as if section 561(1) of the Act did not apply to any such allotment or sale, provided that such power shall be limited to the allotment of equity securities or the sale of treasury shares:

(i) in the case of sub-paragraph (a) of the Allotment Authority:

(1) in connection with a Pre-Emptive Offer (as defined in the Allotment Authority); or

(2) otherwise than in connection with a Pre-Emptive Offer, up to a maximum nominal amount of £378,970;

(ii) in the case of paragraph (b) of the Allotment Authority, in connection with a Pre-Emptive Offer undertaken by means of a rights issue; and

(b) the power given by this resolution:

(i) shall be in substitution for all pre-existing powers under section 570 of the Act; and

(ii) unless renewed in accordance with the Act, shall expire at the same time as the Allotment Authority, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted, or treasury shares to be sold, after such expiry.

THAT, subject to resolution 1 set out in the notice of general meeting dated 10 January 2012 being approved and becoming effective, in substitution for any existing authority, the Company be generally and unconditionally authorised for the purposes of section 701 of the Companies Act 2006 (the “Act”) to make market purchases (within the meaning of section 693 of the Act) of ordinary shares of $^{231}/_{169}$ pence each (“New Ordinary Shares”) on such terms and in such manner as the directors of the Company may decide, provided that:

(a) the maximum number of New Ordinary Shares that may be purchased by the Company pursuant to this authority is 83,120,972;

(b) the minimum price (exclusive of expenses) that may be paid for any such New Ordinary Share shall be the nominal value of that share;

(c) the maximum price (exclusive of expenses) that may be paid for any New Ordinary Share purchased pursuant to this authority is an amount equal to the higher of (a) $105\%$ of the average of the middle market prices shown in the quotations for New Ordinary Shares in the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which that New Ordinary Share is contracted to be purchased and (b) an amount equal to the higher of the last independent trade of a New Ordinary Share and the highest current independent bid for a New Ordinary Share as derived from the London Stock Exchange’s trading systems; and

(d) this authority shall expire on 30 June 2012 or, if earlier, at the end of the next annual general meeting of the Company to be held in 2012, but the Company may make a contract to purchase New Ordinary Shares under this authority before its expiry which will or may be completed wholly or partly after the expiry of this authority, and may complete such a purchase as if this authority had not expired.

By Order of the Board
Duncan Wood
Company Secretary
50 Lothian Road
Edinburgh EH3 9BY

10 January 2012

Shareholder Notes:

A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend, speak and, on a poll, to vote instead of him or her. A proxy need not be a member of the Company, but must attend the meeting to represent you. A form of proxy accompanies this document and must be lodged with the Company at the office of the Company’s registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA (the “Registrars”) or received via the Sharevote service (see note 2 below) or lodged using the CREST proxy voting service (see note 3 below) not less than 48 hours before the time appointed for the meeting or any adjournment(s) thereof (excluding any part of any day that is not a working day). The appointment of a proxy or submission of an electronic voting direction will not preclude a member entitled to attend and vote at the meeting from doing so if he or she wishes. You can only appoint a proxy using the procedures set out in these notes and the notes to the form of proxy. If you wish to change or revoke your proxy appointment, please contact the Registrars on 0871 384 2964 (for calls from within the United Kingdom) and +44 121 415 0222 (for calls from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day. Please note that calls to these numbers may be monitored or recorded. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers’ costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates.
Members may register their proxy appointments or voting directions electronically via the www.sharevote.co.uk website, where full details of the procedure are given. Members will need the Voting ID, Task ID and Shareholder Reference Number set out on the form of proxy which accompanies this document. Members are advised to read the terms and conditions of use carefully. Electronic communication facilities are available to all shareholders and those who use them will not be disadvantaged. The Company will not accept any communication that is found to contain a computer virus.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

In order for a proxy appointment or instruction made using the CREST service to be valid, the CREST Proxy Instruction must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Registrars (ID RA19) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. No such message received through the CREST network after this time will be accepted. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST core processor) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST members concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings, which can be viewed at www.euroclear.com/CREST. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

You may appoint more than one proxy provided that each proxy is appointed to exercise rights attached to different Ordinary Shares. You may not appoint more than one proxy to exercise rights attached to any one

Ordinary Share. To appoint more than one proxy, please contact the Registrars on 0871 384 2964 (for calls from within the United Kingdom) and +44 121 415 0222 (for calls from outside the United Kingdom) between 8.30 a.m. and 5.30 p.m. (London time) on any Business Day. Please note that calls to these numbers may be monitored or recorded. Calls to 0871 384 2964 are charged at 8 pence per minute from a BT landline. Other service providers' costs may vary. Calls to +44 121 415 0222 from outside the United Kingdom are charged at applicable international rates.

The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with section 146 of the Companies Act 2006 (“Nominated Persons”). Nominated Persons may have a right under an agreement with the registered shareholder who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if Nominated Persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights.
Any corporation which is a shareholder can appoint one or more corporate representative(s) who may exercise on its behalf all of its powers as a shareholder provided that they do not do so in relation to the same Ordinary Shares.
To be entitled to attend and vote at the General Meeting and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered in the register of members of the Company at 6.00 p.m. on 26 January 2012 (or, in the event of any adjournment, on the date which is two days (excluding any part of a day that is not a working day) before the time of the adjourned meeting). Changes to the register of members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting.
As at 6.00 p.m. on 6 January 2012 (being the latest practicable time before printing this Notice), the Company’s issued share capital comprised 1,407,601,003 ordinary shares of $5/13$ pence each. Each such ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 6.00 p.m. on 6 January 2012 was 1,407,601,003.
In accordance with section 311A of the Companies Act 2006, the contents of this Notice of GM, details of the total number of shares in respect of which members are entitled to exercise voting rights at the meeting and, if applicable, any members’ statements, members’ resolutions or members’ matters of business received by the Company after the date of this Notice of General Meeting will be available on the Company’s website at www.cairnenergy.com.
Pursuant to section 319A of the Companies Act 2006, the Company must cause to be answered at the meeting any question relating to the business being dealt with at the meeting which is put by a member attending the meeting, except in certain circumstances, including if it is undesirable in the interests of the Company or the good order of the meeting that the question be answered or if to do so would involve the disclosure of confidential information.
A member may not use any electronic address provided either in this Notice of General Meeting or in any related documents (including the Chairman’s letter, Form of Proxy, Election Form and Dividend Mandate Form), to communicate with Cairn for any purpose other than those expressly stated.

Printed by RR Donnelley 245075

AI assistant

CAPRICORN ENERGY PLC — Proxy Solicitation & Information Statement 2012

4699_rns_2012-01-10_9b2358d3-842c-4804-8658-699fcfd76465.pdf

CAIRN ENERGY PLC

Forward-looking statements

Note regarding presentation of currencies

HELPLINE

3. The B Share Choices

3.1 Choice 1: Single B Share Dividend

3.2 Choice 2: Initial Purchase Offer

3.3 Choice 3: Future Purchase Offer

4. Share Capital Consolidation

5. Cairn Share Schemes – impact of Return of Cash on outstanding awards and options

5.1 The SIP

5.2 The 2006 LTIP and the Replacement LTIP

5.3 Other Cairn Share Schemes

6. Cairn Share Schemes – impact of Share Capital Consolidation on dilution limits

7. Amendment of the Articles of Association

8. Background and reasons for seeking authority to dispose of or reduce the Company's residual interest in Cairn India

9. Terms of Residual Interest Disposal Authority

10. Information on Cairn India and the residual interest

11. Current trading and prospects

12. General Meeting

13. Summary explanation of the resolutions to be proposed at the General Meeting

16. Further information

17. Recommendation

Proposed share award for Sir Bill Gammell

1. Reasons for and background to the proposed share award

2. Terms of the proposed Share Award

2.1 Form and timing of award

2.2 Award personal to Sir Bill and non-pensionable

2.3 Vesting and exercise of the Share Award

2.4 Sir Bill’s rights and release of Ordinary Shares following exercise

2.5 Source of Ordinary Shares

2.6 Cessation of office and death

2.7 Takeover

2.8 Variation of share capital

2.9 Alteration

3. Recommendation

PART III

EXPECTED TIMETABLE OF EVENTS

PART IV

RISK FACTORS

1. Risks relating to the Return of Cash

The Return of Cash is conditional

There is no guarantee that the Initial Purchase Offer will be made

There is no guarantee that the Future Purchase Offer will be made

Liquidity of the B Shares

United Kingdom taxation

2. Risks relating to the oil and gas industry

Hydrocarbon prices are subject to fluctuations due to a variety of factors beyond the control of the Group

There are uncertainties inherent in estimating the quantity of reserves and resources

Exploration and production operations will involve risks normally incident to such activities

The results of appraising discoveries are uncertain

Exploration activities are capital intensive and inherently uncertain in their outcome

Interruptions in the availability of exploration, production or supply equipment or infrastructure and/or increased costs

Reliance upon third party contractors and providers of equipment

Operators of assets may incur liabilities and other joint venture partners may restrict activities

Health, safety and the environment

Natural disaster or other catastrophic events

Uninsured risks

Exposure to the political, legal, fiscal, economic, regulatory and social risks of the countries where operations are located or intended to be located

Licensing, other regulatory requirements and decommissioning

The oil and gas industry is highly competitive

Activities and reputation could be affected by unsupportive stakeholders

Changes to economic or fiscal policy may result in higher tax burden

3. Risks relating to the Group

The Group may be unable to implement its growth strategy

There can be no guarantee that the Group will be successful in its future exploration and development efforts

Dependence on certain key employees

The Group’s retained shareholding in the Cairn India Group represents a significant proportion of its value

Liability for certain obligations of the Cairn India Group

Exposure to the political, legal, fiscal, economic, regulatory and social risks of the countries where the Group’s operations are located or intended to be located

4. Risks relating to the Group's investment in the Cairn India Group

Volatility of the Cairn India Group share price

Production rates from the Rajasthan fields may be lower than forecast

Uncertainty of estimates of recoverable reserves

Requirements for the development of incremental infrastructure

PART V

DETAILS OF THE RETURN OF CASH

CAPRICORN ENERGY PLC Proxy Solicitation & Information Statement 2012