TALON INTERNATIONAL ENERGY, LTD.
TSX VENTURE : TAR

July 23, 2009 12:22 ET

TALON International Energy, Ltd. Announces Letter Agreement and Private Placement

CALGARY, ALBERTA--(Marketwire - July 23, 2009) - TALON International Energy, Ltd. ("TALON") (TSX VENTURE:TAR) is pleased to announce that it has entered into a letter agreement (the "Agreement") with Fifth Avenue Diversified Inc. ("Fifth Avenue") on July 16, 2009, pursuant to which TALON and Fifth Avenue will continue into the Province of Alberta and amalgamate under the Business Corporations Act (Alberta) (the "Transaction"). The Transaction shall constitute a Reverse Takeover ("RTO") pursuant to the TSX Venture Exchange Policy 5.2 - Changes of Business and Reverse Takeovers.

Fifth Avenue is a private company, incorporated under the Business Corporations Act (British Columbia) and is based in Vancouver, British Columbia. Fifth Avenue is engaged in the acquisition, exploration and development of oil and gas assets in Western Canada. TALON intends to issue a further press release which will contain financial and oil and gas information regarding Fifth Avenue.

Prior to the completion of the Transaction, TALON was engaged in the production of small quantities of oil in Western Canada. Between its inception and the completion of the Transaction, TALON's principal plan was to acquire and/or develop midstream energy assets in emerging market countries.

The Agreement

Under the Agreement, TALON and Fifth Avenue have agreed to continue into the Province of Alberta and amalgamate to form a new company under the name "Canadian Energy Exploration Inc." ("Amalco"). Pursuant to the Transaction, all of the outstanding TALON securities and Fifth Avenue securities will be exchanged for corresponding securities of Amalco. In particular, Amalco will issue:

- One Amalco common share ("Amalco Share") for every ten TALON common shares ("TALON Shares") issued and outstanding on the effective date of the Transaction; and

- One Amalco Share for every two Fifth Avenue common shares ("Fifth Avenue Shares") issued and outstanding on the effective date of the Transaction.

Any fractional interest resulting from the foregoing transactions will be rounded up or down to the nearest Amalco security.

In connection with the Transaction, it is anticipated that prior to the completion of the Private Placement (as defined below), immediately prior to the effective date of the Transaction, there will be 19,350,000 TALON Shares and 11,426,201 Fifth Avenue Shares issued and outstanding.

Upon completion of the Transaction and prior to the completion of the Private Placement, it is anticipated that there will be 7,648,101 Amalco Shares outstanding. In addition, Amalco intends to complete a Private Placement of up to 10,000,000 Amalco Units at $0.50 per Amalco Unit (see "Private Placement" below). Further, a number of Amalco stock options will be issued in accordance with Amalco's stock option plan.

Steps of the Transaction and Related Transactions

Based on the terms of the Transaction, and assuming the Transaction and related transactions receive regulatory and securityholder approval and satisfaction or waiver of all conditions precedent, the remaining events listed below will occur and be deemed to occur in the following order:



1. TALON will apply for the partial or full revocation of the cease trade
orders issued by the Alberta Securities Commission ("ASC") and British
Columbia Securities Commission ("BCSC") (see "Cease Trade Orders"
below);

2. TALON will continue from the Yukon Territory into the Province of
Alberta;

3. Fifth Avenue will continue from the Province of British Columbia into
the Province of Alberta;

4. TALON and Fifth Avenue will amalgamate to become Amalco resulting in
the certificates representing the TALON and Fifth Avenue securities
being exchanged for certificates representing the corresponding Amalco
securities, in the following anticipated amounts:

(a) 1,935,000 Amalco Shares are exchanged for 19,350,000 TALON Shares;
and

(b) 5,713,101 Amalco Shares are exchanged for 11,426,201 Fifth Avenue
Shares;

5. up to 10,000,000 Amalco Shares, forming part of the Amalco Units, are
issued at $0.50 per Amalco Share pursuant to the Private Placement;

6. up to 5,000,000 Amalco Warrants, forming part of the Amalco Units, are
issued pursuant to the Private Placement;

7. up to 1,764,810 Amalco Options are issued to Amalco's directors and
officers; and

8. appropriate filings are made with the TSX Venture Exchange
(the "Exchange") and the Final Exchange Bulletin approving the
Transaction is issued.


Shareholder Approval

The Transaction must be approved by a special resolution of the TALON Shareholders and Fifth Avenue Shareholders. To be effective a special resolution must be passed by 66 2/3% of the shareholders who are entitled to vote on the resolution and are present in person or by proxy at the shareholder meeting.

The Transaction is not a "Non-Arm's Length Transaction" under Exchange Policy 1.1.

Conditions of the Transaction

The Transaction contains a number of conditions precedent to the obligations of parties. Unless all of such conditions are satisfied or waived by the party for whose benefit such conditions exist, to the extent they may be capable of waiver, the Transaction will not proceed. There is no assurance that the conditions will be satisfied or waived on a timely basis, or at all. Such conditions include the TALON shareholders and Fifth Avenue shareholders approving the Transaction, revocation of the cease trade order, and that all other consents and approvals (including regulatory approvals) are obtained.

Certain shareholders, including all Fifth Avenue management and directors (including entities with which they are associated), representing approximately 70% of the outstanding Fifth Avenue Shares (on a fully-diluted basis), will be required to enter into lock-up agreements in which they have agreed to vote in favour of the Transaction, except in certain circumstances. Certain shareholders, including all TALON management and directors (including entities with which they are associated), representing approximately 50% of the outstanding TALON Shares (on a fully-diluted basis), will be required to enter into lock-up agreements in which they have agreed to vote in favour of the Transaction, except in certain circumstances.

Cease Trade Orders

Further to TALON's press release dated February 4, 2009, TALON announced that a cease trade order (the "Order") was issued on May 7, 2008 against TALON by the ASC for the failure of TALON to file its audited annual financial statements and management's discussion and analysis for the year ended December 31, 2007 ("Annual Filings"). As a result of the Order, the Exchange suspended trading in TALON's Shares on May 7, 2008. The Annual Filings were filed on SEDAR on May 8, 2008.

TALON announces that a cease trade order (the "B.C. Order") was issued on June 4, 2009 against TALON by the BCSC for the failure of TALON to file its audited annual financial statements and management's discussion and analysis for the year ended December 31, 2008 ("2008 Annual Filings") and its unaudited interim financial statements and management's discussion and analysis for the three months ended March 31, 2009 ("2009 Interim Filings").

TALON has made an application to the ASC for a full revocation of the Order, and is currently working with the ASC to this end. In conjunction with TALON's application for revocation of the Order, the ASC has reviewed TALON's financial statements and management's discussion and analysis for the period ended June 30, 2008 and the year ended December 31, 2007 (collectively, the "Financial Statements"), and provided TALON with certain comments in respect of the Financial Statements. TALON is currently working to revise its Financial Statements to address issues highlighted by the ASC in its review.

At the request of the ASC, TALON intends to refile amended and restated Financial Statements, 2008 Annual Filings and 2009 Interim Filings and related certifications on or before August 15, 2009. The refiling of the financial statements will not alter financial results previously contained within the statements. The changes are to include notes to the interim financial statements and to add certain disclosure necessary to address requirements of the CICA Handbook. With respect to the management discussion and analysis, the amendment and restatement of the interim and annual management discussion and analysis involves revisions necessary to more properly address the requirements of National Instrument 51-102 - Continuous Disclosure Obligations and Form 51-102F1.

The amended and restated Financial Statements, 2008 Annual Filings and 2009 Interim Filings and related certifications will be available under TALON's profile at www.sedar.com.

Benefits of the Transaction

The Transaction is expected to yield benefits to the securityholders of TALON and Fifth Avenue. The management and Board of Directors of TALON believe that the merger will result in a larger and stronger company with the financial capacity to more effectively explore and develop the opportunities on the Fifth Avenue properties. As at May 31, 2009, Fifth Avenue had approximately 50 boe/d of production that generated $49,249 of cash flow in May 2009, approximately 95% of which was natural gas with the remainder being natural gas liquids. The business combination will provide TALON with additional capital for its expanding exploration and development program, provide a land base that will fuel future growth, as well as provide an improved quality revenue stream.

The business combination will allow TALON Shareholders to participate in Fifth Avenue's exploration and development portfolio including its opportunity in the Karr Area, Northern Alberta. In addition, Amalco will have a team that will internally generate and actively pursue projects on Amalco's properties.

The principal purposes of the Transaction are to allow for the business of Fifth Avenue to be operated on a more expeditious and cost effective basis through a public company, to provide Fifth Avenue with access to capital through public markets and to provide liquidity to existing Fifth Avenue Shareholders. The Transaction will also constitute a liquidity event for Fifth Avenue Shareholders pursuant to which currently unlisted Fifth Avenue Shares will be exchanged for publicly listed Amalco Shares. The completion of the Transaction is also expected to enhance Amalco's ability to access the public capital markets in order to provide the financial resources necessary to facilitate the exploration and development of Amalco's oil and gas properties and relisting on the Exchange. Following completion of the Transaction, it is anticipated that Amalco will be involved in the exploration for and production of petroleum and natural gas in Western Canada.

Assets

Upon the completion of the Transaction, Amalco is anticipated to have the following interest in oil and gas properties:



(a) working interests ranging from 2.675% to 8.328% in seven (7) gross
(0.38 net) producing oil wells and thirteen (13) gross (0.57 net)
non-producing natural gas wells located in Redwater-Bruderheim area
located 40 miles northeast of Edmonton, Alberta at sections 8, 9 and
16, township 56, Range 20, West of the 4th Meridian (collectively
referred to as the "Redwater Assets"). Husky Energy Inc. acts as the
operator of the wells. During the 5 month period ended June 30, 2009
net production from the Redwater Assets was approximately 2.48 boe/d;

(b) 25% working interest in two (2) producing natural gas wells located in
the Berry Creek / Provost Lake area located approximately 100 miles
southeast of Edmonton, Alberta and one (1) non-producing oil well
located in the Provost area (collectively referred to as the "Berry
Creek/Provost Assets"). Fifth Avenue does not act as the operator of
the wells. During the 4 month period ended May 31, 2009 net production
from the Berry Creek/Provost Assets was approximately 50 boe/d and net
revenue of approximately $35,126/month; and

(c) Farmout and Area of Mutual Interest Agreement (the "Farmout Agreement")
dated June 16, 2009 which requires Fifth Avenue to pay certain land
costs and drill two (2) test wells in the Karr Area of Alberta. Subject
to completing the test wells, Fifth Avenue will earn a 100% working
interest in the test wells and 9 sections of land, subject to the
farmor's convertible gross overriding royalty. The Farmout Agreement
also provides for an area of mutual interest covering 93 sections in
the Karr Area of Alberta.


Private Placement

Immediately after the Transaction, Amalco intends to complete a non-brokered private placement (the "Private Placement") to raise up to CDN.$5,000,000 or such other amount as determined by the parties and as may be acceptable to the Exchange. The Private Placement shall consist of the issuance of any combination of the following securities: (a) Amalco units ("Amalco Units"), at a price of CDN.$0.50 per Amalco Unit. Each Amalco Unit consists of one (1) Amalco Share and one-half (0.5) warrant ("Amalco Warrant"). Each whole Amalco Warrant entitles the holder to purchase one (1) additional Amalco Share at a purchase price of CDN.$0.75 per Amalco Share exercisable on or before twelve (12) months from the closing date; and (b) Amalco Shares, issued on a "flow-through tax basis", at a price of CDN.$0.60 per share. Insiders of TALON, Fifth Avenue and Amalco may participate in the Private Placement.

Prior to the Transaction, TALON and Fifth Avenue may complete part of the Private Placement, as determined by the parties which will consist of the issuance of any combination of the following securities: (a) Fifth Avenue units ("Fifth Avenue Units"), at a price of CDN.$0.25 per Fifth Avenue Unit. Each Fifth Avenue Unit consists of one (1) Fifth Avenue Share and one-half (0.5) warrant ("Fifth Avenue Warrant"). Each whole Fifth Avenue Warrant entitles the holder to purchase one (1) additional Fifth Avenue Share at a purchase price of CDN.$0.375 per Fifth Avenue Share exercisable on or before twelve (12) months from the closing date; (b) Fifth Avenue Shares, issued on a "flow-through tax basis", at a price of CDN.$0.30 per share; (c) TALON units ("TALON Units"), at a price of CDN.$0.05 per TALON Unit. Each TALON Unit consists of one (1) TALON Share and one-half (0.5) warrant ("TALON Warrant") (each whole TALON Warrant entitles the holder to purchase one (1) additional TALON Share at a purchase price of CDN.$0.075 per TALON Share exercisable on or before twelve (12) months from the closing date); and (d) TALON Shares, issued on a "flow-through tax basis", at a price of CDN.$0.06 per share. Any Fifth Avenue and TALON securities issued pursuant to the Private Placement will be exchanged upon the Transaction for Amalco Units and Amalco Warrants based on the Fifth Avenue exchange ratio or TALON exchange ratio, as applicable.

The proceeds of the Private Placement will be used for financing Amalco's obligations under the Farmout Agreement and the Agreement, for exploring other oil and gas opportunities and Amalco's exploration program. Additional amounts have been allocated for costs required to complete the Transaction and for unallocated working capital. There may be circumstances where for sound business reasons, a reallocation of funds may be necessary in order for Amalco to achieve its stated business objectives.

Amalco's Proposed Board of Directors and Officers

If all of the matters placed before the TALON shareholders and Fifth Avenue shareholders meeting are approved, and the Transaction is completed, the following individuals are anticipated to be the management and key personnel of Amalco:

William S. Sudhaus - President, Chief Executive Officer and Director of Amalco

Mr. William Sudhaus, is the proposed President, Chief Executive Officer and a director of Amalco. Mr. Sudhaus is the President, Chief Executive Officer and Chief Financial Officer of TALON. Mr. Sudhaus is also President of Castor Energy Ltd. (a crude oil trading and marketing company).

John D. Wright - Director of Amalco

Mr. John Wright, has been President and Chief Executive Officer of Petrobank Energy and Resources Ltd. since March 2000. Mr. Wright is also the President and Chief Executive Officer of Petrominerales Ltd. Mr. Wright is a director of TALON.

David Stadnyk - Director of Amalco

Mr. David Stadnyk is a proposed director of Amalco and is currently the President and a director of Fifth Avenue. From 1998 to 2006, Mr. Stadnyk was the President of Patch International Inc., an international junior oil and gas exploration and production company. From 2006 -2007 Mr. Stadnyk was President of Park Place Energy Corp., an international junior oil and gas exploration and production company. Mr. Stadnyk was co-founder and a director of Arsenal Energy Inc., President and founder of Starlight Sports and Entertainment Inc., founder of the TEAM 1040 AM Sports Radio Station, owned the Vancouver 86ers/Whitecaps Inc., founder of the Vancouver Angels/Breakers, Vancouver's first Women's professional soccer team, and founder of the Vancouver Ravens Lacrosse team. Mr. Stadnyk was co-founder of Praxis Pharmaceuticals Inc. now Pharmaxis Pharmaceuticals Inc. Mr. Stadnyk is the Chairman of Stadnyk Foundation Inc., a sport philanthropic organization.

George Tsafalas - Chief Operating Officer, Chief Financial Officer and Director of Amalco

Mr. George Tsafalas is the proposed Chief Operating Officer, Chief Financial Officer and a director of Amalco. Mr. Tsafalas is a director of Fifth Avenue. Mr. Tsafalas is the President and CEO of Bedstone Energy Inc., a private oil and gas exploration company. Mr. Tsafalas was formerly President and CEO of AXQP Inc., listed on the TSX Venture Exchange. From 2002 to 2006, Mr. Tsafalas provided consulting roles and administrative contributions to Patch International Inc. and from 2006 to 2008, to Park Place Energy Corp.

Chris J. Bloomer - Director of Amalco

Mr. Bloomer has been the Senior Vice President and Chief Operating Officer, Heavy Oil and a director of Petrobank Energy and Resources Ltd since May 2007. Prior thereto, Mr. Bloomer was Vice President, Heavy Oil and Chief Financial Officer of Petrobank Energy and Resources Ltd. Mr. Chris Bloomer is a director of TALON.

Donald B. Edwards - Corporate Secretary of Amalco

Donald B. Edwards, is a partner with the law firm of Borden Ladner Gervais LLP in Calgary, Alberta and practices in the areas of securities, corporate finance, commercial transactions, natural resources and mergers and acquisitions. Mr. Edwards has practiced in the area of securities, corporate finance and venture capital matters since 1990 and has acted for a broad range of domestic and foreign issuers, investment banks and securities dealers, with a particular emphasis in venture capital and mergers and acquisitions, both domestic and cross border transactions. Mr. Edwards is a member of the Law Society of Alberta and the Canadian Bar Association.

TSX Venture Exchange

Trading of the TALON Shares remains suspended pending receipt and review by the Exchange of acceptable documentation regarding the proposed Transaction. The proposed Transaction has not been approved by the Exchange and remains subject to Exchange approval.

It should not be assumed that the estimated future net cash flow shown above is representative of the fair market value of Fifth Avenue's oil and gas assets. There is no assurance that such price and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of crude oil, NGLs and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, NGLs and natural gas reserves may be greater than or less than the estimates provided herein.

Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and revocation of the cease trade orders. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

TALON must apply for a full revocation of the cease trade orders and the Transaction cannot occur until the required revocations are received from the ASC and BCSC. There can be no assurance that the ASC and BCSC revocation orders will be received as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular to be prepared in connection with the transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of TALON should be considered highly speculative.

Certain statements in this material may be "forward-looking statements" including outlook on oil and gas prices, estimates of future production, estimated completion dates of acquisitions and construction and development projects, business plans for drilling and exploration, estimated amount and timing of capital expenditures and anticipated future debt levels and royalty rates. Information concerning reserves contained in this material may also be deemed forward-looking statements as such estimates involve the implied assessment that the resources described can be profitably produced in the future. These statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated by TALON.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as such term is defined in the policies of the TSX Venture Exchange) has in any way passed upon the merits of the proposed transaction and neither accepts responsibility for the adequacy or accuracy of the release.

Contact Information

  • TALON International Energy, Ltd.
    William S. Sudhaus
    President, Chief Executive Officer, Chief Financial Officer
    (610) 205-0060
    Email: talonenergy@verizon.net