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1 Demerger Scheme Booklet for a scheme of arrangement and reduction of capital in relation to the proposed demerger of Talon Petroleum Limited (ABN ) from Texon Petroleum Ltd (ABN ) A Notice of General Meeting and a Notice of Demerger Scheme Meeting are included as Appendix 6 and Appendix 7 to this Demerger Scheme Booklet. Proxy forms for the meetings accompany this Demerger Scheme Booklet. The Demerger Scheme Meeting will be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane on 25 February 2013 at 11.30am. The General Meeting will be held at the same venue at 1.30pm on 25 February 2013 (or as soon thereafter as the Acquisition Scheme Meeting has been concluded or adjourned). THE TEXON DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOUR OF THE DEMERGER SCHEME AND THE CAPITAL REDUCTION, IN THE ABSENCE OF A SUPERIOR PROPOSAL. THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR URGENT ATTENTION. If you are in any doubt as to how to deal with this Demerger Scheme Booklet, please consult your legal, financial, taxation or other professional adviser immediately. If, after reading this Demerger Scheme Booklet, you have any questions about the Demerger Scheme or the Capital Reduction, please call the Texon Shareholder Information Line on (within Australia) or (outside Australia) Monday to Friday between 8.30am and 5.00pm (Brisbane, Australia time). If you have recently sold all of your Texon Shares, please disregard all enclosed documents. Legal Adviser to Texon Financial Adviser to Texon

2 Important notices General You should read this Demerger Scheme Booklet in its entirety before making a decision on how to vote on the resolution to be considered at the Demerger Scheme Meeting and the General Meeting. The notice convening the General Meeting is contained in Appendix 6 to this Demerger Scheme Booklet. The notice convening the Demerger Scheme Meeting is contained in Appendix 7 to this Demerger Scheme Booklet. Proxy forms for the General Meeting and the Demerger Scheme Meeting are provided with this Demerger Scheme Booklet. Defined terms Capitalised terms in this Demerger Scheme Booklet are defined either in the Glossary in Section 10 or where the relevant term is first used. Purposes of this Demerger Scheme Booklet This explanatory statement has been prepared pursuant to section 412(1) of the Corporations Act to: (a) explain the terms and effect of the Demerger Scheme to Texon Shareholders; (b) explain the manner in which the Demerger Scheme will be considered and, if approved, implemented; (c) state any material interests of the Texon Directors, whether as directors, members or creditors of Texon or otherwise and the effect on those interests of the Demerger Scheme as far as that effect is different from the effect on similar interests of other persons; and (d) provide such information as is prescribed by the Corporations Act and the Corporations Regulations or as is otherwise material to the decision of Texon Shareholders whether to approve the Demerger Scheme. This Demerger Scheme Booklet is not a disclosure document lodged under Chapter 6D of the Corporations Act. ASIC and ASX A copy of this Demerger Scheme Booklet has been examined by ASIC for the purpose of section 411(2) of the Corporations Act and registered by ASIC for the purpose of section 412(6) of the Corporations Act. ASIC will be requested to provide a statement, in accordance with section 411(17)(b) of the Corporations Act, that ASIC has no objection to the Demerger Scheme. If ASIC provides that statement, it will be produced to the Court at the time of the Court hearing to approve the Demerger Scheme. Neither ASIC nor any of its officers take any responsibility for the contents of this Demerger Scheme Booklet. A copy of this Demerger Scheme Booklet has been lodged with the ASX. Neither the ASX nor any of its officers take any responsibility for the contents of this Demerger Scheme Booklet. Input from other parties The Independent Expert, BDO Corporate Finance (QLD) Ltd, has prepared the Independent Expert s Report in relation to the Demerger Scheme in Appendix 1 to this Demerger Scheme Booklet and takes responsibility for that report. Texon, its Related Bodies Corporate and their respective directors, officers, employees, advisers and agents do not assume any responsibility, and they are not responsible, for the accuracy or completeness of the Independent Expert s Report. Other than in respect of the information provided by the Independent Expert as identified above, the information contained in the remainder of this Demerger Scheme Booklet has been prepared by Texon and is the responsibility of Texon. Texon Shareholders outside of Australia This Demerger Scheme Booklet has been prepared having regard to Australian disclosure requirements. These requirements may be different from those in other jurisdictions. The financial information in this Demerger Scheme Booklet has also been prepared in accordance with Australian equivalents of International Financial Reporting Standards (AIFRS), which may differ from generally accepted accounting principles in other jurisdictions. This Demerger Scheme Booklet does not constitute an offer to Texon Shareholders or a solicitation in any jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer or solicitation. Restrictions in jurisdictions outside Australia and its external territories, New Zealand, the United Kingdom, the United States of America, Singapore and Hong Kong may make it impractical or unlawful for Talon Shares to be transferred under a scheme of arrangement to, or be received under a scheme of arrangement by, Texon Shareholders in those jurisdictions. New Zealand The offer of Talon Shares pursuant to the Demerger Scheme is being made to Texon Shareholders in New Zealand pursuant to the Securities Act (Overseas Companies) Exemption Notice 2002 (New Zealand). This Demerger Scheme Booklet is not a New Zealand prospectus or an investment statement and it has not been registered, filed with or approved by any New Zealand regulatory authority under or in accordance with the Securities Act 1978 (New Zealand) or any other relevant law in New Zealand. This Demerger Scheme Booklet may not contain all of the information that a prospectus or an investment statement under New Zealand law is required to contain. United Kingdom This Demerger Scheme Booklet is not a prospectus, and no such prospectus is required for the purposes of the European Union s Prospectus Directive as implemented by the Financial Services and Markets Act 2000 (United Kingdom) and the Prospectus Rules of the Financial Services Authority in the United Kingdom. Hong Kong WARNING The contents of this Demerger Scheme Booklet have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to any Talon Shares that may be transferred to you. If you are in doubt about any of the contents of this document, you should obtain independent professional advice. The Demerger Scheme and this Demerger Scheme Booklet do not constitute an offer or invitation to the public in Hong Kong within the meaning of the Hong Kong Companies Ordinance or the Hong Kong Securities and Futures Ordinance. Accordingly, unless permitted by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, this Demerger Scheme Booklet or any invitation or document relating to the Demerger Scheme, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong other than in circumstances which do not constitute an offer or an invitation to the public for the purposes of the Hong Kong Companies Ordinance or the Hong Kong Securities and Futures Ordinance. However, numbered copies of this Demerger Scheme Booklet may be issued to a limited number of shareholders in Hong Kong in a manner which does not constitute an issue, circulation or distribution of this Demerger Scheme Booklet, or any offer or invitation in respect of the Talon Shares, to the public in Hong Kong. Only the person to whom a numbered copy of this Demerger Scheme Booklet has been issued may take action in response to this Demerger Scheme Booklet. No person to whom a numbered copy of this Demerger Scheme Booklet is issued may issue, circulate or distribute this Demerger Scheme Booklet in Hong Kong or make or give a copy of this Demerger Scheme Booklet to any other person. Singapore The transfer of Talon Shares under the Demerger Scheme is being made to Texon Shareholders based in Singapore on the basis that no prospectus has been or will be registered in Singapore and under the applicable exemptions provided in the Singapore Securities and Futures Act (Cap 289). The Talon Shares will be transferred to Texon Shareholders based in Singapore solely as a consequence of their shareholding in Texon, and is not being made with a view to them subsequently offering the shares for sale to any other parties. United States The Talon Shares to be issued or transferred pursuant to the Demerger Scheme have not been, and will not be, registered under the United States Securities Act of 1933 (U.S. Securities Act), or the securities laws of any other jurisdiction, and may not be offered or sold in the U.S. or to U.S. Persons (as defined in Regulation S under the Securities Act) (U.S. Persons) unless they are registered under the U.S. Securities Act, or an exemption from the registration requirements of the U.S. Securities Act is available. Any Talon Shares issued or transferred to persons in the United States under the Demerger Scheme will be issued or transferred in reliance on the exemption from the registration

3 Demerger Scheme Booklet 1 requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof, based on the approval of the Demerger Scheme by the Court. Talon Shares received under the Demerger Scheme by any person who is deemed to be an affiliate of Talon under Rule 145 under the U.S. Securities Act, including, without limitation, directors and certain executive officers, may not be resold in the United States or to a U.S. Person except in accordance with the provisions of Rule 144 under the U.S. Securities Act, outside of the United States in reliance upon Regulation S under the U.S. Securities Act, or as otherwise permitted by the U.S. Securities Act. Texon Shareholders in the United States should note that this Demerger Scheme Booklet has been prepared in accordance with Australian disclosure requirements, which are different to those that would apply to a disclosure document prepared in accordance with the rules of the U.S. Securities Exchange Commission (SEC). The SEC has not reviewed or approved the contents of this Demerger Scheme Booklet. In particular, Texon Shareholders should note that the pro forma financial information included in this Demerger Scheme Booklet does not purport to comply with the requirements of Article 11 of Regulation S-X of the rules and regulations of the SEC. Texon Shareholders should note that the petroleum reserve and resource reporting systems of different jurisdictions employ different definitions and permit or require different assumptions, and that identical geological and engineering data can produce different results under different reporting systems. Texon provides no assurance that the reserves and resources stated in this Demerger Scheme Booklet would be equivalent to the reserves and resources it would be required or permitted to state under any other reporting system. In particular, Texon Shareholders in the United States are cautioned that the methodologies used to estimate the reserve and resource quantities reported in this Demerger Scheme Booklet vary in certain respects from those required to be used by SEC reporting companies, including the reporting requirements set out in SEC Industry Guide 2, Regulations S-K and S-X and related SEC disclosure requirements. Investment decisions This Demerger Scheme Booklet does not take into account the investment objectives, financial situation or particular needs of any Texon Shareholder or any other person. Texon is not licensed to provide financial product advice in relation to Texon Shares. This Demerger Scheme Booklet should not be relied on as the sole basis for any investment decision in relation to Texon Shares or the decision by Texon Shareholders to vote in relation to the Demerger Scheme. Independent financial and taxation advice should be sought before making any decision in relation to the Demerger Scheme. Forward looking statements Certain statements in this Demerger Scheme Booklet (including in the Independent Expert s Report) relate to the future. Forward looking statements can be identified by the use of forward looking words such as may, should, expect, anticipate, estimate, scheduled, believe or continue, their negative equivalent or comparable terminology. Similarly, statements that describe Texon s or Talon s objectives, plans, goals or expectations are or may be forward looking statements. The statements contained in this Demerger Scheme Booklet about the impact that the Demerger Scheme may have on the results of Texon s or Talon s operations and the advantages and disadvantages anticipated to result from the Demerger Scheme, are also forward looking statements. Such statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Texon or Talon to be materially different from expected future results, performance or achievements expressed, projected or implied by such statements. Such risks, uncertainties and other important factors include among other things, general economic conditions, specific market conditions, exchange rates, interest rates and regulatory changes. The risk factors described in Section 6 of this Demerger Scheme Booklet could affect future results, causing these results to differ materially from those expressed, projected or implied in any forward looking statements. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed, projected or implied in any forward looking statement. Other unknown or unpredictable factors could also have a material adverse effect on future results of Texon and Talon. Forward looking statements included in this Demerger Scheme Booklet reflect the expectations of relevant parties views only as of the date of this Demerger Scheme Booklet. Each of Texon and Talon has no obligation to disseminate, after the date of this Demerger Scheme Booklet, any updates or revisions to any such statements to reflect any change in expectations in relation to those statements or any change in events, conditions or circumstances on which any of those statements is based unless it is required to do so pursuant to its continuous disclosure obligations under the Corporations Act and the Listing Rules or by an order of the Court. Texon and Talon and their officers, and any persons named in this Demerger Scheme Booklet with their consent or any person involved in the preparation of this Demerger Scheme Booklet, make no representation or warranty and give no assurance or guarantee that the occurrence of the events or the accuracy of achievement of results expressed, projected or implied in any forward looking statements (except to the extent required by law) will actually occur. You are cautioned not to rely on any forward looking statement. Rounding of numerical information Any discrepancies between totals in tables and sums of components contained in this Demerger Scheme Booklet and between those figures and figures referred to in other parts of this Demerger Scheme Booklet are due to rounding. All rounded numbers have been rounded either to one decimal place or to the nearest whole number. Privacy statement Texon collects personal information about its shareholders holdings of Texon Shares in accordance with the Corporations Act. Texon will share that personal information with its advisers and service providers in connection with the Demerger Scheme. Shareholders can contact the Texon Registry, Computershare Investor Services Pty Limited, on (within Australia) or (outside Australia) if they have questions about their personal information. No internet site is part of this Demerger Scheme Booklet Texon maintains an internet site at com.au. Any references in this Demerger Scheme Booklet to an internet site are textual references for information only and no information in any internet site forms part of this Demerger Scheme Booklet. Important notice associated with Court order under section 411(1) of the Corporations Act The fact that under section 411(1) of the Corporations Act the Court ordered that a meeting of Texon Shareholders be convened by Texon to consider and vote on the Demerger Scheme and has approved this Demerger Scheme Booklet does not mean that the Court: (a) has formed any view as to the merits of the proposed Demerger Scheme or as to how Texon Shareholders should vote (on this matter, Texon Shareholders must reach their own decision); or (b) has prepared, or is responsible for, the content of this Demerger Scheme Booklet. References to time All references to time in this Demerger Scheme Booklet are references to Brisbane, Australia time unless otherwise stated. Currency All references in this Demerger Scheme Booklet to $, A$ and cents are references to Australian currency, unless otherwise specified. All references in this Demerger Scheme Booklet to US$ and US dollars are references to United States currency, unless otherwise specified. Date of this Demerger Scheme Booklet This Demerger Scheme Booklet is dated 22 January 2013.

4 2 Letter from the Chairman of Texon Dear Texon Shareholder On 13 November 2012, Texon announced two separate transactions under which Texon would create a new listed petroleum exploration company, Talon Petroleum Limited, through a demerger of certain assets by implementation of the Demerger Scheme and the acquisition by Sundance of all of your post Demerger Texon Shares, pursuant to the Acquisition Scheme. The acquisition of your Texon Shares by Sundance is conditional upon the implementation of the Demerger, but, subject to obtaining relevant approvals, the Demerger Scheme will proceed even if the Acquisition Scheme does not. I am pleased to provide this Demerger Scheme Booklet to you which sets out the detail of the Demerger Scheme and the formation of Talon. You will also receive a separate Acquisition Scheme Booklet which sets out the detail of the Acquisition Scheme. Talon will be an exploration and appraisal focussed oil and gas company, with a portfolio that includes a mix of production, development, appraisal and exploration assets. Talon will continue to seek to participate in low risk oil prospects, located in mature, well serviced areas, that can readily be commercialised. The Texon Directors unanimously recommend that, in the absence of a Superior Proposal, you vote in favour of the Demerger Scheme Resolution at the Demerger Scheme Meeting and the Capital Reduction Resolution at the General Meeting to be held on 25 February The Texon Directors who hold or control Texon Shares intend to vote in favour of the Demerger Scheme Resolution and the Capital Reduction Resolution in respect of all their Texon Shares, in the absence of a Superior Proposal. As at the date of this Demerger Scheme Booklet, the Texon Directors hold or control approximately 11.2 million Texon Shares, representing approximately 4.6% of Texon s share capital. Please read this Demerger Scheme Booklet carefully as it contains important information in relation to the Demerger Scheme, including the reasons for the Texon Directors recommendation and the Independent Expert s Report prepared by BDO Corporate Finance (QLD) Ltd. The Independent Expert has concluded that, on balance, the advantages of the Demerger Scheme outweigh the disadvantages of the Demerger Scheme and that, in the absence of any other information or a superior proposal, it is in the best interests of Texon Shareholders. The Independent Expert s Report is included in Appendix 1 of this Demerger Scheme Booklet and I encourage you to read it before voting on the Demerger Scheme. If you have any questions, please call the Texon Shareholder Information Line on (within Australia) or (outside Australia) Monday to Friday between 8.30am and 5.00pm (Brisbane, Australia time). Alternatively, contact your legal, financial, taxation or other professional adviser. Your vote is important regardless of how many Texon Shares you own. If you are unable to attend the Demerger Scheme Meeting in person, I encourage you to vote by completing your personalised proxy form which is enclosed with this Demerger Scheme Booklet and returning it in accordance with the directions on the form so it is received by 1.30pm (Brisbane time) on Saturday, 23 February On behalf of the Texon Directors, I would like to take this opportunity to thank you for your support of Texon. Yours sincerely, John Armstrong Chairman

5 Demerger Scheme Booklet 3 Overview of this Demerger Scheme Booklet What is this Demerger Scheme Booklet for? On 13 November 2012, Texon announced a series of transactions to deliver to all Texon Shareholders: (a) one share in a new entity to be listed on ASX, Talon Petroleum Limited, for every Texon Share held on the Demerger Record Date; 1 and (b) one New Sundance Share for every two Texon Shares pursuant to the Acquisition Scheme, 2 subject to and following the implementation of the Demerger Scheme. Since the announcement of the Demerger Scheme, Texon has determined that under the Demerger Scheme Eligible Scheme Shareholders will be entitled to receive two Talon Shares for every five Texon Shares held on the Demerger Record Date (giving the same percentage interest for the shareholder in Talon as the shareholder held in Texon prior to the Demerger). The Demerger Scheme and the Acquisition Scheme will be effected by two separate schemes of arrangement, both of which you will be entitled to vote on. The Acquisition Scheme is conditional on, and therefore will not proceed unless, the Demerger Scheme is approved and implemented. The Demerger Scheme is not conditional on whether the Acquisition Scheme is approved or implemented but is subject to a number of conditions, details of which are set out in Section 1.5. For the Demerger Scheme to be implemented, Texon Shareholders will need to approve the Demerger Scheme Resolution at the Demerger Scheme Meeting and Capital Reduction Resolution at a general meeting of Texon Shareholders, which is separate to the Demerger Scheme Meeting. If the Demerger Scheme is approved by Texon Shareholders, the Capital Reduction Amount will be applied by Texon as consideration for the acquisition of Talon Shares. Accordingly, Eligible Scheme Shareholders will not receive a cash payment for the Capital Reduction Amount, but will instead receive two Talon Shares for every five Texon Shares they hold on the Demerger Record Date. 3 Texon Shareholders will also be asked at the General Meeting to approve the issue of Talon Shares to Wandoo under the Wandoo Interest Acquisition Agreement (described in Section 4.8(b)(ii) of this Demerger Scheme Booklet). Sundance entered into the Scheme Implementation Agreement and agreed to proceed with the Acquisition Scheme on the basis that this transaction would take place. Further detailed discussion of matters relating to this resolution may be found in the Notice of General Meeting included as Appendix 6 and in the value analysis in relation to the Wandoo Interest Acquisition Agreement included as Appendix 8 to this Demerger Scheme Booklet. This Demerger Scheme Booklet contains information to assist you to decide how to vote on the Demerger Scheme at the Demerger Scheme Meeting to be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane on 25 February 2013 at 11.30am. Further information regarding the Capital Reduction Resolution and other resolutions to be considered at the General Meeting is set out in the Notice of General Meeting included as Appendix 6 to this Demerger Scheme Booklet. For more information on the Acquisition Scheme, you should refer to the Acquisition Scheme Booklet which you should receive from Texon at about the same time as you receive this Demerger Scheme Booklet. 1 Note that if you are an Ineligible Foreign Shareholder, the Talon Shares that you would otherwise have received under the Demerger Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive under the Demerger Scheme, please refer to Section 8.9(d). 2 Note that if you are an Ineligible Foreign Shareholder (as defined in the Acquisition Scheme Booklet), the New Sundance Shares that you would otherwise have received under the Acquisition Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive under the Acquisition Scheme, please refer to the Acquisition Scheme Booklet. 3 Note that if you are an Ineligible Foreign Shareholder, the Talon Shares that you would have otherwise received under the Demerger Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive, see Section 8.9(d).

6 4 Why should you vote? For the Demerger Scheme to be implemented, the Demerger Scheme Resolution must be approved by Texon Shareholders at the Demerger Scheme Meeting and the Capital Reduction Resolution must be approved by Texon Shareholders at the General Meeting. For the Demerger Scheme to proceed, the Demerger Scheme Resolution must be approved by: a majority in number (more than 50%) of Texon Shareholders present and voting on the Demerger Scheme Resolution (whether in person, by proxy or attorney or, in the case of a corporate Texon Shareholder or proxy, by corporate representative); 4 and at least 75% of the total number of votes cast on the Demerger Scheme Resolution by Texon Shareholders (whether in person or by proxy, attorney or, in the case of a corporate Texon Shareholder or proxy, by corporate representative). The Demerger Scheme Meeting will be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane on 25 February The Demerger Scheme Meeting will commence at 11.30am. The notice convening the Demerger Scheme Meeting is attached at Appendix 7 to this Demerger Scheme Booklet. For the Capital Reduction Resolution to be passed, votes in favour of that resolution must be received from a simple majority of Texon Shareholders. The General Meeting will be held at the same venue as the Demerger Scheme Meeting on 25 February The General Meeting will commence at 1.30pm or as soon thereafter as the Acquisition Scheme Meeting has been concluded or adjourned. The notice convening the General Meeting is in Appendix 6. The Texon Directors urge all Texon Shareholders to vote at the Demerger Scheme Meeting and the General Meeting. The matters to be decided at these meetings affects your shareholding and your vote at the meetings is important in determining whether the Demerger Scheme proceeds. What you should do next Read this Demerger Scheme Booklet and consider the Demerger Scheme You should read and carefully consider the information included in this Demerger Scheme Booklet to help you make an informed decision. Answers to some frequently asked questions are included in this booklet (commencing on page 17). If you have any doubts as to what action you should take, you should consult your legal, financial, taxation or other professional adviser before making any decision in relation to your Texon Shares and how to vote at the Demerger Scheme Meeting and the General Meeting. Consider your decision Texon Shareholders should refer to Section 3 for further information on the expected advantages and possible disadvantages of the Demerger Scheme. However, this Demerger Scheme Booklet does not take into account the investment objectives, financial situation and particular needs of any Texon Shareholder. You should read this Demerger Scheme Booklet in its entirety and contact your legal, financial, taxation, investment or other professional adviser if you require further advice in relation to the Demerger Scheme. 4 The Court has a discretion to approve the Acquisition Scheme where it is approved by at least 75% of all votes cast on the resolution to approve the Acquisition Scheme but not by a majority in number of Texon Shareholders voting on the resolution to approve the Acquisition Scheme: refer to section 411(4)(a)(ii)(A) of the Corporations Act.

7 Demerger Scheme Booklet 5 Vote on the Demerger Scheme and Capital Reduction As a Texon Shareholder, it is your right to vote on whether the Demerger Scheme should proceed. You are also entitled to vote on the resolutions to be considered at the General Meeting. If you wish to vote in person at the Demerger Scheme Meeting or the General Meting, then you must attend the relevant meeting. If you cannot attend the Demerger Scheme Meeting or the General Meeting, you may vote by proxy, attorney or if you are a body corporate, by appointing a corporate representative. Attorneys who plan to attend the Demerger Scheme Meeting or the General Meeting should bring with them the original or a certified copy of the power of attorney under which they have been authorised to attend and vote at the Demerger Scheme Meeting or the General Meeting. A body corporate which is a Texon Shareholder may appoint an individual to act as its corporate representative. The appointment must comply with the requirements of section 250D of the Corporations Act. The representative should bring to the Demerger Scheme Meeting or the General Meeting evidence of his or her appointment, including any authority under which it is signed. If you wish to vote by proxy, your proxy form must be received by the Texon Registry (whether through the InvestorVote website, by mail or by fax) before the relevant cut-off time on 23 February For further details, please refer to the Notice of Demerger Scheme Meeting and the Notice of General Meeting. Is the Demerger Scheme in the best interests of Texon Shareholders? The Independent Expert has concluded in the Independent Expert s Report that, on balance, the advantages of the Demerger Scheme outweigh the disadvantages of the Demerger Scheme and that the Demerger Scheme is, in the absence of any other information or a superior proposal, fair and reasonable and in the best interests of Texon Shareholders. What do the Texon Directors recommend? The Texon Directors UNANIMOUSLY RECOMMEND that you vote IN FAVOUR of the Demerger Scheme and the Capital Reduction Resolution, in the absence of a Superior Proposal. The Texon Directors intend to vote all Texon Shares they hold or control IN FAVOUR of the Demerger Scheme and the Capital Reduction Resolution, in the absence of a Superior Proposal.

8 6 Important dates and times Key events and the expected timing in relation to the approval and implementation of the Demerger Scheme are set out in the table below. Event Last time and date for proxy forms for the Demerger Scheme Meeting and General Meeting to be received by the Texon Registry (whether through the InvestorVote website, by mail or by fax) Time and date for determining eligibility to vote at the Demerger Scheme Meeting Demerger Scheme Meeting to be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane General Meeting to be held at the same venue as the Demerger Scheme Meeting Date (and time) 1.30pm on 23 February pm on 23 February am on 25 February pm on 25 February 2013, or as soon thereafter as the Acquisition Scheme Meeting has been concluded or adjourned If the Texon Shareholders approve the Demerger Scheme at the Demerger Scheme Meeting and the Capital Reduction Resolution at the General Meeting Second Court Hearing to obtain orders approving the Demerger Scheme Lodgement by Texon of the Court orders with ASIC (Effective Date) Last day of trading in Texon Shares on the ASX with an entitlement to participate in the Demerger Scheme Commencement of trading on the ASX of Texon Shares without an entitlement to participate in the Demerger Scheme 5 27 February February February February 2013 Commencement of trading on the ASX of Talon Shares transferred under the Demerger Scheme on a deferred settlement basis Time and date for determining entitlements to Talon Shares under the Demerger Scheme (Demerger Record Date) Capital Reduction and transfer of Talon Shares to Eligible Scheme Shareholders (Implementation Date) Expected date of dispatch of written advices confirming the issue of, and last day of deferred settlement trading in, Talon Shares transferred under the Demerger Scheme Commencement of normal trading in Talon Shares transferred under the Demerger Scheme 6.00pm on 6 March March March March This will only occur if the Acquisition Scheme is not approved. If the Acquisition Scheme is approved, Texon Shares will be suspended from close of trading on 27 February 2013

9 Demerger Scheme Booklet 7 These dates and times are indicative only. Texon has the right to vary any or all of these dates and times and will provide notice of any such variation. Certain dates and times are conditional on the approval of the Demerger Scheme by Texon Shareholders and by the Court. Any variations to the above dates and times will be announced to the ASX (and accordingly, details will be available on the ASX s website ( and will be published on Texon s website ( Questions About The Demerger Scheme If, after reading this Demerger Scheme Booklet, you have any questions about the Demerger Scheme, please call the Texon Shareholder Information Line on (within Australia) or (outside Australia) Monday to Friday between 8.30am and 5.00pm (Brisbane, Australia time). The Texon Directors recommend that you consult your legal, financial, taxation or other professional adviser concerning the impact your decision may have on your own circumstances.

10 8 Table of Contents Important notices IFC Letter from the Chairman of Texon 2 Overview of this Demerger Scheme Booklet 3 Important dates and times 6 Section 1 Summary of the Demerger Scheme 9 Section 2 Frequently asked questions 14 Section 3 Key reasons to vote in favour of or against the Demerger Scheme 23 Section 4 Information on Talon if the Demerger is implemented 30 Section 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) 44 Section 6 Risk factors 52 Section 7 What if the Demerger Scheme and/or Acquisition Scheme is not implemented? 60 Section 8 Implementation of the Demerger 63 Section 9 Additional information 69 Section 10 Glossary 80 Appendix 1 Independent Expert s Report 86 Appendix 2 Tax Implications for Texon Shareholders 163 Appendix 3 Demerger Scheme 167 Appendix 4 Demerger Scheme Deed Poll 177 Appendix 5 Summary of material agreements relating to the Demerger 183 Appendix 6 Notice of General Meeting 190 Appendix 7 Notice of Demerger Scheme Meeting 196 Appendix 8 Value analysis in relation to the Wandoo Interest Acquisition Agreement 201 Corporate directory 212

11 Demerger Scheme Booklet 9 1SECTION 1 Summary of the Demerger Scheme

12 10 SECTION 1 Summary of the Demerger Scheme Summary of the Demerger Scheme 1.1 Introduction On 13 November 2012, Texon announced a series of transactions to deliver to all Texon Shareholders: one share in a new listed entity, Talon, for every Texon Share held on the Demerger Record Date; 6 and one New Sundance Share for every two Texon Shares pursuant to the Acquisition Scheme, 7 subject to and following the implementation of the Demerger Scheme. Since the announcement of the Demerger Scheme, Texon has determined that under the Demerger Scheme Eligible Scheme Shareholders will be entitled to receive two Talon Shares for every five Texon Shares held on the Demerger Record Date (giving the same percentage interest for the shareholder in Talon as the shareholder held in Texon prior to the Demerger). The Acquisition Scheme is conditional upon the implementation of the Demerger Scheme, but, subject to obtaining the relevant approvals, the Demerger Scheme will proceed even if the Acquisition Scheme does not. A copy of the Demerger Scheme is set out in Appendix 3 to this Demerger Scheme Booklet. 1.2 What you will receive If the Demerger Scheme is approved and implemented, Eligible Scheme Shareholders will each receive on the Implementation Date two Talon Shares for every five Texon Shares held as at the Demerger Record Date. Ineligible Foreign Shareholders will not receive Talon Shares on the Implementation Date. Instead, the Talon Shares to which the Ineligible Foreign Shareholders would otherwise have been entitled will be sold and the proceeds (less costs) will be remitted to them. More information regarding the entitlements of Ineligible Foreign Shareholders can be found in Section Where the calculation of the number of Talon Shares to be transferred to a particular Eligible Scheme Shareholder (or to be sold in respect of a particular Ineligible Foreign Shareholder) would result in an entitlement that is not a whole number, the fractional entitlement will be rounded down to the nearest whole number of Talon Shares and the fractional entitlement will be disregarded. 1.3 Texon Directors recommendations and intentions The Texon Directors as at the date of this Demerger Scheme Booklet are John Armstrong, Bernard Rowley and David Mason. The Texon Directors unanimously recommend that you vote in favour of the Demerger Scheme Resolution and the Capital Reduction Resolution, in the absence of a Superior Proposal. The Texon Directors have carefully considered the potential advantages and disadvantages of the Demerger Scheme, as set out in Section 3, and believe that the Demerger Scheme is in the best interests of Texon Shareholders, in the absence of a Superior Proposal. If a Superior Proposal emerges, this will be announced to ASX and the Directors will carefully reconsider the Demerger Scheme and advise you of their recommendation. The Texon Directors who hold or control Texon Shares intend to vote in favour of the Demerger Scheme Resolution and the Capital Reduction Resolution in respect of all their Texon Shares, in the absence of a Superior Proposal. As at the date of this Demerger Scheme Booklet, the Texon Directors hold or control approximately 11.2 million Texon Shares, representing approximately 4.6% of Texon s share capital. For details on the Texon Directors interests in Texon Shares, refer to Section Note that if you are an Ineligible Foreign Shareholder, the Talon Shares that you would otherwise have received under the Demerger Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive under the Demerger Scheme, please refer to Section 8.9(d). 7 Note that if you are an Ineligible Foreign Shareholder (as defined in the Acquisition Scheme Booklet), the New Sundance Shares that you would otherwise have received under the Acquisition Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive under the Acquisition Scheme, please refer to the Acquisition Scheme Booklet.

13 Demerger Scheme Booklet Independent Expert s conclusions The Texon Directors commissioned BDO Corporate Finance (QLD) Ltd to provide an Independent Expert s Report including an opinion as to whether the Demerger Scheme is in the best interests of Texon Shareholders. The Independent Expert has concluded in the Independent Expert s Report that, on balance, the advantages of the Demerger Scheme outweigh the disadvantages and that, in the absence of any other information or a superior proposal, the Demerger Scheme is fair and reasonable and in the best interests of Texon Shareholders. The Independent Expert s Report is included in Appendix 1 to this Demerger Scheme Booklet and you are encouraged to read it. 1.5 Key conditions precedent Implementation of the Demerger Scheme is subject to a number of conditions precedent. The Demerger Scheme will become binding on Texon and Texon Shareholders only if the following conditions precedent in the Demerger Scheme and Demerger Deed are satisfied (or, in some cases, waived by Texon): before 7.00 am on the Second Court Date, ASIC and the ASX issue or provide such consents, approvals or waivers or do such other acts which Texon determines are necessary or desirable to implement the Demerger on the terms and conditions set out in this deed, including in the case of ASIC, providing the statement required under section 411(17)(b) of the Corporations Act; the Independent Expert issues its report which concludes that the Demerger Scheme is in the best interests of Scheme Shareholders before the date on which the Demerger Scheme Booklet is registered by ASIC under the Corporations Act and the Independent Expert does not change its conclusions or withdraw its report prior to 7.00 am on the Second Court Date; Texon Shareholders approve the Demerger Scheme by the necessary majorities under the Corporations Act; Texon Shareholders approve the Capital Reduction Resolution by the necessary majority under the Corporations Act and the constitution of Texon before the Second Court Date; the Court approves the Scheme under section 411(4)(b) of the Corporations Act and an office copy of the Scheme Order is lodged with ASIC by the Effective Date as contemplated by section 411(10) of the Corporations Act; as at 7.00 am on the Second Court Date, no temporary restraining order, preliminary or permanent injunction or other order or decision by a court of competent jurisdiction or other regulatory authority is in effect and there is no other legal restraint or prohibition in effect preventing the consummation of any aspect of the Demerger on the Implementation Date; before 7.00 am on the Second Court Date, Texon obtaining relief from any Australian capital gains tax that may arise from the transfer of shares in Talon to Eligible Scheme Shareholders and confirmation from the ATO that no amount deemed to be paid as part of the Capital Reduction will be an assessable dividend; and before 7.00 am on the Second Court Date, ASX agrees in principle to the admission of Talon to the official list on the ASX subject only to the Demerger Scheme becoming Effective and other customary pre-quotation conditions (including the provision of information required by ASX) or on any other conditions acceptable to Texon, acting reasonably. The Demerger Scheme is attached as Appendix 3. A summary of the Demerger Deed is contained in Section 1 of Appendix 5. The conditions under the Demerger Scheme are for the benefit of Texon and only Texon may waive any one or more of the conditions. Texon will provide a certificate to the Court at the Second Court Hearing confirming whether the conditions (other than the condition relating to approval by the Court) have been satisfied or waived. Application for the admission of Talon to the official list on the ASX is to be lodged with ASX before the Second Court Hearing. This application follows preliminary discussions that Texon had with ASX about Talon s proposed listing on the ASX. At the date of this Demerger Scheme Booklet Texon is not aware of any reason why the condition referred to above about ASX listing will not be satisfied before the Second Court Date. SECTION 1 Summary of the Demerger Scheme

14 12 SECTION 1 Summary of the Demerger Scheme If the Effective Date does not occur on or before the End Date (or such later date as Texon determines), the Demerger Scheme will lapse and the Demerger will not be implemented. 1.6 Demerger Scheme Meeting On 22 January 2013, the Court ordered that the Demerger Scheme Meeting be convened in accordance with the Notice of Demerger Scheme Meeting. The Demerger Scheme Meeting will be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane on 25 February 2013 at 11.30am. Each Texon Shareholder who is registered on the Texon Share Register as the holder of a Texon Share at 6.00pm on 23 February 2013 is entitled to attend and vote, in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative, at the Demerger Scheme Meeting. Further details on how to vote are provided in the Notice of Demerger Scheme Meeting attached as Appendix 7 to this Demerger Scheme Booklet. For the Demerger Scheme to proceed, the Demerger Scheme Resolution must be approved by: a majority in number (more than 50%) of Texon Shareholders present and voting on the Demerger Scheme Resolution (whether in person, by proxy or attorney or, in the case of corporate Texon Shareholders or proxies, by corporate representative); 8 and at least 75% of the votes cast on the Demerger Scheme Resolution by Texon Shareholders (in person or by proxy, attorney or, in the case of corporate Texon Shareholders or proxies, by corporate representative). The fact that the Court has ordered that the Demerger Scheme Meeting be convened is no indication that the Court has a view as to the merits of the Demerger Scheme or as to how Texon Shareholders should vote at the Demerger Scheme Meeting. On these matters, Texon Shareholders must reach their own decision. 1.7 General Meeting The General Meeting will be convened in accordance with the Notice of General Meeting and will be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane on 25 February 2013 at 1.30pm or as soon thereafter as the Acquisition Scheme Meeting has been concluded or adjourned. Each Texon Shareholder who is registered on the Texon Share Register as the holder of a Texon Share at 6.00pm on 23 February 2013 is entitled to attend and vote, in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative, at the General Meeting. The Capital Reduction Resolution and other resolutions to be considered at the General Meeting are set out in the Notice of General Meeting. These resolutions will be passed with the approval of a simple majority of Texon Shareholders. 1.8 Demerger Scheme Consideration If the Demerger Scheme is approved then, subject to the arrangements for Ineligible Foreign Shareholders described in Section 1.11, the Eligible Scheme Shareholders will be entitled to receive the Demerger Scheme Consideration. In this regard: Texon is required to transfer the relevant number of Talon Shares to you on the Implementation Date; and a written advice confirming the number of Talon Shares will be sent by prepaid post to your address on the Texon Share Register (as at the Demerger Record Date) and the Computershare Investor Centre website will carry details of the Talon Shares issued to your holding. 1.9 Tax consequences Australian tax considerations for Texon Shareholders are discussed in Appendix 2 (Tax Implications for Texon Shareholders). 8 The Court has a discretion to approve the Demerger Scheme where it is approved by at least 75% of all votes cast on the resolution to approve the Demerger Scheme but not by a majority in number of Texon Shareholders voting on the resolution to approve the Demerger Scheme: refer to section 411(4)(a)(ii)(A) of the Corporations Act.

15 Demerger Scheme Booklet Demerger Scheme Deed Poll Talon has executed the Demerger Scheme Deed Poll under which it agreed, subject to the Demerger Scheme becoming Effective, to comply with all of the obligations attributed to it under the Demerger Scheme. A copy of the Demerger Scheme Deed Poll is attached at Appendix 4 to this Demerger Scheme Booklet Ineligible Foreign Shareholders Any Texon Shareholder whose address as shown in the Texon Share Register as outside Australia and its external territories, New Zealand, the United States of America, the United Kingdom, Singapore and Hong Kong will be regarded as an Ineligible Foreign Shareholder for the purpose of the Demerger Scheme, unless Texon determines that it is lawful and not unduly onerous or impracticable to provide that Scheme Shareholder with Talon Shares when the Demerger Scheme becomes Effective Existing Options Texon has procured all of the holders of the Existing Options at the date of this Demerger Scheme Booklet to enter into deeds under which their Existing Options will be cancelled for no consideration as at 5.00pm on the Effective Date, if those Existing Options have not been exercised on or before that date. This will mean that at 5.00pm on the Effective Date, Texon will have no options on issue to acquire Texon Shares. The Demerger Scheme will extend to Texon Shares that are issued on the exercise of any of the Existing Options between the date of this Demerger Scheme Booklet and the Effective Date. SECTION 1 Summary of the Demerger Scheme Ineligible Foreign Shareholders may vote at the Demerger Scheme Meeting and participate in the Demerger Scheme as Scheme Shareholders. However, Ineligible Foreign Shareholders will not be entitled to receive the Talon Shares transferred under the Demerger Scheme. If the Demerger Scheme is approved and implemented, the Talon Shares that would otherwise have been transferred to an Ineligible Foreign Shareholder will be transferred to the Sale Agent (and/or to a nominee of the Sale Agent) on the Implementation Date and sold with the net sale proceeds to be remitted to the Ineligible Foreign Shareholder. For detailed information regarding Ineligible Foreign Shareholders and how the proceeds of the Demerger Scheme Consideration will be provided to them, refer to Section 8.9(d).

16 14 2SECTION 2 Frequently asked questions

17 Demerger Scheme Booklet 15 Frequently asked questions Set out below are summary answers to some questions that Texon Shareholders may have in relation to the Demerger Scheme. This information should be read in conjunction with the remainder of this Demerger Scheme Booklet. QUESTION Why have I received this Demerger Scheme Booklet? SECTION All SECTION 2 Frequently asked questions This Demerger Scheme Booklet has been sent to you because you are a Texon Shareholder and Texon Shareholders are being asked to vote on the Demerger Scheme. If approved and implemented, the Demerger Scheme will result in the demerger and separate ASX listing of a public company, Talon, which is currently a wholly owned subsidiary of Texon and which will hold Texon s non-efs assets. This Demerger Scheme Booklet is intended to help you to decide how to vote on: the Demerger Scheme Resolution which needs to be passed at the Demerger Scheme Meeting to allow the Demerger Scheme to proceed; the Capital Reduction Resolution to be considered at the General Meeting which also needs to be passed to allow the Demerger Scheme to proceed. The Texon Directors recommend that you read the Demerger Scheme Booklet and, if necessary, consult your financial, legal, taxation, investment or other professional adviser before voting on the Demerger Scheme Resolution and Capital Reduction Resolution. What is the Demerger Scheme? The Demerger Scheme involves the demerger and separate ASX listing of a public company, Talon, which is currently a wholly owned subsidiary of Texon. Talon will hold Texon s non-efs assets. The Demerger Scheme is not conditional on whether the Acquisition Scheme is approved or implemented but is subject to a number of conditions, details of which are set out in Section 1.5. Section 1 and Section 8 For the Demerger Scheme to be implemented, Texon Shareholders will also need to approve the Capital Reduction Resolution at a general meeting of Texon Shareholders, which is separate to the meeting of Texon Shareholders convened to approve the Demerger Scheme. If the Demerger Scheme is approved by Texon Shareholders, the Capital Reduction Amount will be applied by Texon as consideration for the acquisition of Talon Shares. Accordingly, Texon Shareholders will not receive a cash payment for the Capital Reduction Amount, but instead they will receive two Talon Shares for every five Texon Shares they hold on the Demerger Record Date. 9 9 Note that if you are an Ineligible Foreign Shareholder, the Talon Shares that you would have otherwise received under the Demerger Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive, see Section 8.9(d).

18 16 SECTION 2 Frequently asked questions QUESTION What is the Acquisition Scheme? On 13 November 2012, Texon and Sundance announced the Acquisition Scheme to ASX. The Acquisition Scheme involves an offer by Sundance to acquire all Texon Shares held by Texon Shareholders in return for: Eligible Scheme Shareholders receiving one New Sundance Share for every two Texon Shares held at the Record Date (as defined in the Acquisition Scheme Booklet); and Ineligible Foreign Shareholders receiving the net proceeds of the sale of the New Sundance Shares to which they would otherwise have been entitled under the Acquisition Scheme, conditional on, among other things, the prior implementation of the Demerger Scheme. SECTION Acquisition Scheme Booklet The Acquisition Scheme will not be implemented if the Demerger Scheme is not approved and implemented. For details of the Acquisition Scheme, Texon Shareholders should refer to the Acquisition Scheme Booklet, which was sent at the same time as this Demerger Scheme Booklet. What will I receive if the Demerger proceeds? If the Demerger proceeds, you will: receive two Talon Shares for every five Texon Shares you hold on the Demerger Record Date (unless you are an Ineligible Foreign Shareholder). You will not be required to pay any cash for the Talon Shares that you receive in connection with the Demerger Scheme. Instead, you will be credited with the Capital Reduction Amount for each Texon Share you hold on the Demerger Record Date and those amounts will be applied as consideration for the Talon Shares you receive under the Demerger Scheme; if you are an Ineligible Foreign Shareholder, the Talon Shares that you would have received under the Demerger Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale being remitted to you, as further described in Section 8.9(d); if you become entitled to a fractional entitlement in a Talon Share, then your entitlement to Talon Shares will be rounded down to the nearest whole number, and the fractional entitlement will be ignored; and unless and until the Acquisition Scheme is implemented or you dispose of them in some other way, continue to hold the Texon Shares you held on the Demerger Record Date. Why is Texon proposing the Demerger Scheme? The principal objective of the Texon Directors in proposing the Demerger is to create value for Texon Shareholders. Following the implementation of the Demerger, Texon Shareholders are expected to realise the benefits set out in Section 3.1(a), which the Texon Directors believe should provide a superior long term outcome than what would be achieved if Talon were to remain part of Texon. The other reasons for the Texon Directors recommendation of the Demerger are set out in Section 3. Section 1 Section 3

19 Demerger Scheme Booklet 17 QUESTION What is Talon? Talon which is wholly owned by Texon, holds and will continue to hold after the Demerger is implemented, Texon s non-efs assets including: oil production from a well in the Olmos reservoir in its Mosman-Rockingham Olmos oil project, and also from a well in the Wilcox reservoir, in McMullen County, Texas; 29 undeveloped Olmos reservoir well locations within its Mosman-Rockingham Olmos oil project in McMullen County, Texas; a 47.4% Working Interest in the Roundhouse oil project; oil and gas leases located in East Texas; and access to 180 3D seismic surveys covering an area of 82,000 square miles in Southeast Texas. SECTION Section 4 SECTION 2 Frequently asked questions If the Demerger is implemented, Talon will be primarily focussed on exploration and development of oil and gas leases in Texas. For more information on Talon, see Section 4. Who can vote at the General Meeting and Demerger Scheme Meeting? Each Texon Shareholder who is registered on the Texon Share Register at 6.00pm on 23 February 2013 is entitled, in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative, to attend and vote at the General Meeting and Demerger Scheme Meeting. How do I vote? Voting at the General Meeting and Demerger Scheme Meeting may be in person, by attorney, by proxy or, in the case of corporations, by corporate representative. If you wish to vote in person, you must attend the Demerger Scheme Meeting and General Meeting. If you cannot attend the Demerger Scheme Meeting or General Meeting, you may vote by proxy, attorney or, if you are a body corporate, by appointing a corporate representative. Please refer to the notices of meeting in Appendix 6 and Appendix 7 to this Demerger Scheme Booklet for further information on voting procedures and details of the resolutions to be voted on at the Meetings. Section 8 Appendix 6 and Appendix 7

20 18 SECTION 2 Frequently asked questions QUESTION Do the Texon Directors recommend the Demerger Scheme? The Texon Directors unanimously recommend that, in the absence of a Superior Proposal, you vote in favour of the Demerger Scheme Resolution at the Demerger Scheme Meeting and the Capital Reduction Resolution at the General Meeting to be held on 25 February SECTION Section 3 The Texon Directors make these recommendations for the following reasons: the separation of Texon s non-efs assets from its EFS assets has the potential to unlock value currently not being reflected in the Texon share price; whilst the Demerger Scheme is not conditional on the Acquisition Scheme and can proceed independently, if the Demerger Scheme is not approved, the Acquisition Scheme cannot proceed and so Texon Shareholders would not receive the Acquisition Scheme consideration of one New Sundance Share for every two Texon Shares under the Acquisition Scheme; Talon has potential to deliver value for Talon Shareholders; the Independent Expert has concluded that, in the absence of any other information or a superior proposal, that the Demerger Scheme is in the best interests of Texon Shareholders; and the Demerger Scheme provides investors with greater choice regarding the level of exposure they wish to have to the Texon and Talon businesses. The reasons for the Texon Directors unanimous recommendation are set out in more detail in Section 3. How are the Texon Directors intending to vote? The Texon Directors who hold or control Texon Shares intend to vote in favour of the Demerger Scheme Resolution and the Capital Reduction Resolution in respect of all their Texon Shares, in the absence of a Superior Proposal. What is the Independent Expert s opinion on the Demerger Scheme? The Texon Directors commissioned BDO Corporate Finance (QLD) Ltd to provide an Independent Expert s Report including an opinion as to whether the Demerger is in the best interests of Texon Shareholders. A complete copy of the Independent Expert s Report is contained in Appendix 1 of this Demerger Scheme Booklet. Texon Shareholders are encouraged to read the Independent Expert s Report in full. In summary, the Independent Expert has concluded that, on balance, the advantages of the Demerger Scheme outweigh the disadvantages of the Demerger Scheme and that, in the absence of any other information or a superior proposal, the Demerger Scheme is in the best interests of Texon Shareholders. Section 1.3 Appendix 1

21 Demerger Scheme Booklet 19 QUESTION Why might I vote against the Demerger Scheme? There are a number of reasons as to why you may vote against the Demerger including: Talon will, in comparison to Texon prior to the Demerger, be a much smaller company initially with production from only two wells and focused mostly on drilling new projects; Talon will no longer have the financial capacity of Texon; the size and diversification of both Texon and Talon will be reduced; Talon could in due course need to access new funding and raise new capital, including from its shareholders, after Talon is listed on the ASX; and the implementation of the Demerger will result in additional ongoing costs for Talon. SECTION Section 3 SECTION 2 Frequently asked questions For more information on the reasons why you may consider voting against the Demerger, see Section 3.1(b). What are the risks associated with the Demerger Scheme? The risks associated with the implementation of the Demerger Scheme include: the combined market value of Texon Shares and Talon Shares after the implementation of the Demerger Scheme may be less than the market value of Texon Shares prior to the implementation of the Demerger Scheme; there may be a volatile market for Talon Shares after the implementation of the Demerger Scheme; the Court may not approve the Demerger Scheme or that approval may be delayed; and any necessary third party consents may not be able to be obtained in a timely manner or at all. A discussion of these risks and other risks is set out in Section 6. When will I receive my Talon Shares? Provided the Demerger Scheme becomes Effective, Texon Shareholders on the Register at 6.00pm on the Demerger Record Date (other than Ineligible Foreign Shareholders) will receive on the Implementation Date two Talon Shares for every five Texon Shares held on the Demerger Record Date. 10 The expected date of dispatch of written advices confirming these holdings is 13 March The Computershare Investor Centre website will display the issue of Talon Shares from the Implementation Date. The sale of the Talon Shares that would have otherwise been issued to Ineligible Foreign Shareholders and the remittance of any proceeds of that sale to Ineligible Foreign Shareholders will occur within 30 Business Days after the Implementation Date. Section 6 Section 8 10 Note that if you are an Ineligible Foreign Shareholder, the Talon Shares that you would otherwise have received under the Demerger Scheme will be transferred to and sold by the Sale Agent with the net proceeds of sale remitted to you. For more information on what Ineligible Foreign Shareholders will receive, see Section 8.9(d). Fractional entitlements will be ignored.

22 20 SECTION 2 Frequently asked questions QUESTION When can I start trading my Talon Shares? You can start trading any Talon Shares issued to you as Demerger Scheme Consideration on a deferred settlement basis from 28 February It is the responsibility of Scheme Shareholders to confirm their entitlement to Talon Shares under the Demerger Scheme before trading those shares to avoid the risk of selling shares they do not own. SECTION Section 3.4(b) Scheme Shareholders who trade Talon Shares before receiving written confirmation of their entitlements do so at their own risk. Talon, Texon and the Talon Registry disclaim all liability (to the maximum extent permitted by law) to persons who trade Talon Shares before receiving this written confirmation, whether on the basis of confirmation of the allocation provided by Texon, Talon or the Talon Registry. How will the Demerger Scheme be implemented? The mechanics for implementing the Demerger are summarised in Section 8. However, in order for the Demerger to be implemented it is necessary for Texon Shareholders to approve the Demerger Resolution at the Demerger Scheme Meeting and the Capital Reduction Resolution at the General Meeting. The required voting majorities for these resolutions are summarised in Sections 8.4 and 8.5. In addition, the Court must approve the Demerger Scheme following the Texon Shareholders approving the resolutions referred to above, which it will be requested to do on the Second Court Date. Are there any conditions that must be satisfied in order for the Demerger Scheme to be implemented? Yes there are. Key conditions which remain outstanding at the date of this Demerger Scheme Booklet include: Texon Shareholders pass the Demerger Scheme Resolution at the Demerger Scheme Meeting by the required majority; Texon Shareholders pass the Capital Reduction Resolution at the General Meeting by the required majority; ASX approves the admission of Talon to the official list of ASX and grants permission for official quotation of the Talon Shares on ASX, subject only to the Demerger Scheme becoming Effective and other customary pre-quotation conditions (including the provision of information required by ASX); no temporary restraining order, preliminary or permanent injunction or other order is issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the Demerger is in effect at 7.00am on the Second Court Date; and the Court approves the Demerger Scheme in accordance with section 411(4)(b) of the Corporations Act and an office copy of the order of the Court is lodged with ASIC. Further information about these conditions is provided in Section 1.5. Section 8 Section 1.5

23 Demerger Scheme Booklet 21 QUESTION What happens if these conditions are not satisfied? If the conditions to the Demerger Scheme are not satisfied or (where applicable) waived, the Demerger Scheme will not proceed and Texon will continue to own Talon and the non-efs assets and you will not receive any shares in Talon. In these circumstances: Texon Shareholders will not be able to realise the expected benefits of the Demerger Scheme; the Acquisition Scheme will not proceed (which means, among other things, that Texon Shareholders will not receive the Acquisition Scheme consideration of one New Sundance Share for every two Texon Shares they hold on the Record Date (as defined in the Acquisition Scheme Booklet) under the Acquisition Scheme and Texon would remain responsible for repayment of the principle and interest relating to the Loan Notes); and the market price of Texon Shares may fall. SECTION Section 5.6, Section 6.4(c) and Section 7 SECTION 2 Frequently asked questions For more information on the Loan Notes and the risks associated with them, please see Sections 5.6 and 6.4(c). For more information on what happens if the Demerger is not implemented, please see Section 7. What happens if the Demerger Scheme is approved, all conditions are satisfied and it is implemented? For every five Texon Shares held as at the Demerger Record Date, each Scheme Shareholder will receive two Talon Shares (or, in the case of an Ineligible Foreign Shareholder, the net cash proceeds of the sale by the Sale Agent of Talon Shares as described in Section 8.9(d)). If you become entitled to a fractional entitlement in a Talon Share, then your entitlement to Talon Shares will be rounded down to the nearest whole number, and the fractional entitlement will be ignored. Section 8 also provides information about the timing for transfer of Talon Shares to Texon Shareholders under the Demerger Scheme and trading of Talon Shares on the ASX. What are the tax consequences of receiving the Scheme Consideration? The taxation consequences of the Demerger being approved and implemented for Texon Shareholders will depend on the specific taxation circumstances of each Texon Shareholder. However, general information about the likely Australian taxation consequences of the Demerger is set out in Appendix 2 (Taxation Implications for Texon Shareholders). Texon Shareholders should consult their own taxation adviser about the taxation consequences for them if the Demerger Scheme is implemented. Section 8 Appendix 2

24 22 SECTION 2 Frequently asked questions QUESTION What is the Wandoo Interest Acquisition Agreement? The Wandoo Interest Acquisition Agreement is an agreement whereby the Texon Group will acquire certain carried working and royalty interests in the EFS assets from Wandoo, a company associated with Texon Director David Mason. The acquisition is subject to the implementation of the Demerger Scheme and Acquisition Scheme. The consideration is US$1.2 million cash payable in four equal quarterly instalments by Texoz E & P II, Inc (which will become a subsidiary of Sundance upon the implementation of the Acquisition Scheme), the first payable three months after completion of the demerger and 4,480,000 Talon Shares. The consideration is subject to adjustment downwards to US$1 million and 4,000,000 Talon Shares if binding agreements with certain landowners are not entered into within 12 months. SECTION Appendix 8 Appendix 8 contains a value analysis by the Independent Expert of the value of both the interests being acquired (as being in the range of $4 million to $4.7 million) and the consideration payable under the Wandoo Interest Acquisition Agreement (as being in the range of $1.9 million to $2.1 million). Because the value of the interests to be acquired exceeds the consideration payable, the Texon Directors (other than David Mason) have determined that it is not inappropriate that David Mason provides a recommendation in relation to the Demerger Scheme and the Acquisition Scheme. What if I want further information? If you have any questions about the Demerger Scheme or you would like additional copies of this Demerger Scheme Booklet, please call the Texon Shareholder Information Line on (within Australia) or (outside Australia) Monday to Friday between 8.30am and 5.00pm (Brisbane, Australia time). For information about your individual financial or taxation circumstances please consult your financial, legal, taxation or other professional adviser.

25 Demerger Scheme Booklet 23 3SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme

26 24 SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme Key reasons to vote in favour of or against the Demerger Scheme 3.1 Summary (a) Advantages of the Demerger Scheme (i) The separation of Texon s non-efs assets from its EFS assets has the potential to unlock value currently not being reflected in the Texon share price; (ii) Whilst the Demerger Scheme is not conditional on the Acquisition Scheme and can proceed independently, if the Demerger Scheme is not approved, the Acquisition Scheme cannot proceed and so Texon Shareholders would not receive the Acquisition Scheme consideration of one New Sundance Share for every two Texon Shares under the Acquisition Scheme; (iii) Talon has potential to deliver value for Talon Shareholders; (iv) The Independent Expert has concluded that the Demerger Scheme is in the best interests of Texon Shareholders; and (v) The Demerger Scheme provides investors with greater choice regarding the level of exposure they wish to have to the Texon and Talon businesses. (b) Disadvantages of the Demerger Scheme (i) Talon will, in comparison to Texon prior to the Demerger, be a much smaller company initially with production from only two wells and focused mostly on drilling new projects; (ii) Talon will no longer have the financial capacity of Texon; (iii) The size and diversification of both Texon and Talon will be reduced; (iv) Talon could in due course need to access new funding and raise new capital, including from its shareholders, after Talon is listed on the ASX; and (v) The implementation of the Demerger will result in additional ongoing costs for Talon. 3.2 Advantages of the Demerger Scheme (a) The separation of Texon s non-efs assets from its EFS assets has the potential to unlock value currently not being reflected in the Texon share price The Texon Directors believe that the potential value of Talon s assets is not being reflected in the Texon share price and that the Demerger Scheme represents an opportunity for the potential value in Talon s assets to be realised. Some of the key factors in forming this view included the following: (1) Talon s assets have significant exploration potential The Demerger Scheme provides a mechanism for Texon shareholders to retain their interest in Texon s non-efs assets via a shareholding in Talon. The Texon Directors believe the non-efs assets have significant exploration potential. (2) Development of Talon s assets has been impeded by the financing requirements of Texon s EFS assets The development of Texon s EFS assets has required significant capital and this has meant that the development of Talon s assets has been, to a large extent, delayed. After the conclusion of the restructure to be undertaken under the Demerger Deed and any adjustments made under the Scheme Implementation Agreement, Talon is expected to have cash reserves of approximately $8.8 million if the Acquisition Scheme is not implemented or $7.8 million 11 if the Acquisition Scheme is implemented. If the Demerger Scheme is implemented, this capital will fund the committed portion of Talon s exploration and development plan (as described in Sections 3.2(c) and 4.5 below) for the following 12 months. Talon intends to obtain additional funds to fulfil an expanded plan by pursuing sell down and joint venture arrangements in respect of its Olmos, Roundhouse and other East Texas 11 This figure includes an amount of $1.5 million, which is required to be held in escrow for at least six months after the date on which the Acquisition Scheme is implemented.

27 Demerger Scheme Booklet 25 prospects. The Texon Directors believe that the exploration and development of Talon s assets will be significantly improved by way of the Demerger Scheme. (b) Whilst the Demerger Scheme is not conditional on the Acquisition Scheme and can proceed independently, if the Demerger Scheme is not approved, the Acquisition Scheme cannot proceed and so Texon Shareholders would not receive the Acquisition Scheme consideration The Acquisition Scheme provides Texon Shareholders with what the Texon Directors believe is an attractive opportunity to receive the Acquisition Scheme consideration of one New Sundance Share for every two Texon Shares held. The implied value of the Acquisition Scheme consideration per Texon Share is $ Texon Shareholders should note that the implied value of the Acquisition Scheme consideration will change from time to time based on movements in the Sundance Share price. Based on the closing Sundance Share price on the ASX of $0.88 on Monday, 21 January 2013, being the last practicable date prior to the finalisation of this Demerger Scheme Booklet, the implied value of the Acquisition Scheme consideration was $0.44 per Texon Share. As this consideration does not include a value for the Talon business, the Acquisition Scheme is conditional upon implementation of the Demerger Scheme. If the Demerger Scheme does not proceed, Texon Shareholders will not have the opportunity to receive New Sundance Shares for their Texon Shares under the Acquisition Scheme. The Texon Directors have recommended that Texon Shareholders vote in favour of the Acquisition Scheme. The reasons why the Texon Directors recommend Texon Shareholders vote in favour of the Acquisition Scheme are set out in detail in the Acquisition Scheme Booklet. (c) Talon has an attractive portfolio of exploration and appraisal projects that have the potential to deliver value for Talon Shareholders Talon has potential to deliver value for Talon Shareholders from its portfolio of projects which includes the following: South Texas Projects: Olmos Talon s Mosman-Rockingham Olmos oil project in McMullen County, Texas currently has Proved, Probable and Possible reserves of 1.3 MMBOE with a resource potential for 3 MMBOE. This prospect is defined by 3D seismic data and, based on 40 acre spacing, holds up to 29 well locations for the Olmos reservoir. Additional upside may be developed utilising horizontal drilling and fracturing technologies. East Texas Projects: Roundhouse Talon s Roundhouse oil project is located in East Texas and is a north-eastern extension of Cheneyboro oil field in Navarro County, Texas. It is a moderate to low risk prospect with potential for MMBOE. Talon holds 3,510 net Working Interest acres (which equates to a 47.4% Working Interest) in the Roundhouse (Cotton Valley Lime Reservoir) prospect and a test well is planned for drilling in mid Red Fish, Catfish Creek and East Banks Talon has leased 2,917 net Working Interest acres 13 targeting shallow oil reservoirs previously produced in old vertical wells with little or no reservoir stimulation defined by 2D seismic data and historical production data. Based on 80 acre spacing and Talon s current 2,917 net Working Interest acres, there are 36 locations that between them have gross potential of 4.8 MMBOE. Talon has set a target of leasing 20,000 net Working Interest acres in these prospects and, if successful, there may be up to 250 locations with a gross potential of 33 MMBOE. SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme 12 The Acquisition Scheme Consideration comprises one New Sundance Share for every two Texon Shares. For illustrative purposes, the implied value of the Acquisition Scheme Consideration is $0.41 per Texon Share, based on the closing share prices of Sundance Shares on 12 November 2012, being the day immediately preceding announcement of the Acquisition Scheme. The value of the Acquisition Scheme Consideration will fluctuate and will be determined by the price at which New Sundance Shares trade. New Sundance Shares are likely to trade at prices that are different to the prices used in calculating the implied value of the Acquisition Scheme Consideration. 13 Under the Prospect Generation Agreement, Wandoo has the right to acquire up to 3% of this Working Interest. For more information on the Prospect Generation Agreement, please see Section 4.4(f).

28 26 SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme Other Oil Projects Talon is currently examining a number of oil based resource projects, with a focus on east Texas. Consistent with Texon s strategy, these prospects are to be located in mature projects that are well serviced by infrastructure, and where the advancement of horizontal drilling and fracture stimulation technology open up the potential for further resource extraction. (d) The Independent Expert has concluded that, in the absence of any other information or a superior proposal, the Demerger Scheme is in the best interests of Texon Shareholders The Independent Expert has concluded that, on balance, the advantages of the Demerger Scheme outweigh the disadvantages of the Demerger Scheme and that, in the absence of any other information or a superior proposal, the Demerger Scheme is in the best interests of Texon Shareholders. The Independent Expert has valued Talon on a minority interest basis assuming the Acquisition Scheme is implemented in a range between $17.7 million and $21.8 million. This values Talon Shares in a range between $0.072 to $0.089 per Texon Share (adjusted for the two for five share consideration being proposed under the Demerger Scheme). The Independent Expert s Report is included in Appendix 1 to this Scheme Booklet and you are encouraged to read it in full. (e) The Demerger Scheme provides investors with greater choice regarding the level of exposure they wish to have to the Texon and Talon businesses The exploration profiles and stage of development of Texon and Talon differ. Some investors look for different growth paths in earnings and different levels of distributions from an exploration and appraisal business, on the one hand, and a development and production business, on the other. The combination of Texon and Talon within a single group does not provide choice for those investors who prefer an exposure to an investment in one of these businesses but not the other. The Demerger Scheme provides current Texon Shareholders and future investors with a clear investment choice and the flexibility to choose the level of exposure that they would like in each business. Following the Demerger, Texon Shareholders will be able to retain, increase or decrease their investments in each business having regard to their own financial profiles and risk preferences. The Texon Directors therefore unanimously recommend that, in the absence of a Superior Proposal, you vote in favour of the Demerger Scheme Resolution and the Capital Reduction Resolution. The Texon Directors who hold or control Texon Shares intend to vote in favour of the Demerger Scheme Resolution and the Capital Reduction Resolution in respect of all their Texon Shares, in the absence of a Superior Proposal. As at the date of this Demerger Scheme Booklet, the Texon Directors hold or control 11.2 million Texon Shares, representing approximately 4.6% of Texon s share capital. 3.3 Disadvantages of the Demerger Scheme (a) Talon will, in comparison to Texon prior to the Demerger, be a much smaller company initially with production from only two wells and focused mostly on drilling new projects Following the implementation of the Demerger Scheme, Talon will initially be a smaller company than Texon with less mature assets. Accordingly, it may be some time before Talon generates material revenue and positive cashflows. You may consider the risks of the early stage nature of Talon s assets outweigh the benefits of the Demerger Scheme. (b) Talon will no longer have the financial capacity of Texon Following the Demerger, Talon will no longer have the financial capacity of Texon. This is likely to mean Talon will have a reduced ability to access debt and equity capital, at least in the near term. You may believe that the disadvantages associated with a lesser access to capital outweigh the benefits of the Demerger Scheme. (c) The size and diversification of both Texon and Talon will be reduced Following the Demerger, Talon will be a less diversified company than Texon is currently. Accordingly, the proportionate impact of an adverse development on the value of Talon Shares following the Demerger may be more significant than the impact of the same

29 Demerger Scheme Booklet 27 adverse development on the current value of a Texon Share. Further, Talon will have a value and business which is smaller than Texon has currently, so there is potential for an adverse event which affects Talon to a greater proportionate degree. You may consider the disadvantages associated with a reduced size and diversification of assets outweigh the benefits of the Demerger Scheme. (d) Talon could in due course need to access new funding and raise new capital, including from its shareholders, after Talon is listed on the ASX After the conclusion of the restructure to be undertaken under the Demerger Deed, and any adjustments made under the Scheme Implementation Agreement, Talon is expected to have cash reserves of approximately $8.8 million if the Acquisition Scheme is not implemented or $7.8 million 14 if the Acquisition Scheme is implemented. If the Demerger Scheme is implemented, this capital will fund the committed portion of Talon s exploration and development plan (as described in Section 3.2(c) above and Section 4.5 below) for the following 12 months. In addition to this internal funding, Talon plans to sell down and joint venture with industry partners to provide the additional capital to fund the remainder of its exploration and development plan for the first 12 months after the implementation of the Demerger Scheme. After this period, it is possible that Talon will need to raise new capital to continue to develop its portfolio. Texon Shareholders may consider that the level of uncertainty associated with Talon s ability to access future funding and raise new capital is a factor relevant to their decision to vote against the Demerger Scheme. (e) The implementation of the Demerger Scheme will result in additional ongoing costs for Talon Following the Demerger, Talon will be an independent entity listed on the ASX which will necessarily involve additional corporate costs including maintaining a separate board of directors and management, share registry, information technology, reporting systems and other corporate functions. You may believe that the additional ongoing costs for Talon created by the Demerger Scheme outweigh the benefits of the Demerger Scheme. 3.4 Other considerations (a) Break Fee Texon must pay a break fee of $1 million to Sundance in the event that certain limited circumstances occur in which the Scheme Implementation Agreement is terminated or the Texon Directors cease to support the Acquisition Scheme. These circumstances are mainly concerned with termination of the Scheme Implementation Agreement by Sundance where there has been a material breach of that agreement by Texon or where a Texon Director has withdrawn their recommendation of the Acquisition Scheme or publicly announced an intention to support a Competing Proposal. Except in the circumstances described above, no break fee is payable where Texon Shareholders do not approve the Acquisition Scheme. The Break Fee was calculated to reimburse Sundance for its reasonable external and internal costs, as well as opportunity costs, in connection with the Acquisition Scheme. The Break Fee equates to approximately 1% of the implied equity value of Texon as at 12 November 2012 (being the day immediately before announcement of the Acquisition Scheme), based on the closing market value of the total consideration being offered by Sundance under the Acquisition Scheme as at 12 November Sundance may also be liable to pay a break fee of $1 million to Texon where Sundance has committed a material breach of the Scheme Implementation Agreement, Texon has terminated the Scheme Implementation Agreement as a result of that breach and the Acquisition Scheme is not implemented. Please refer to the summary of the Scheme Implementation Agreement in the Acquisition Scheme Booklet for further details on the arrangements concerning the payment of the Break Fee. (b) Transfer and trading of Talon Shares On the Implementation Date, Eligible Scheme Shareholders will receive Talon Shares SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme 14 This figure includes an amount of $1.5 million, which is required to be held in escrow for at least six months after the date on which the Acquisition Scheme is implemented.

30 28 SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme and have their names entered on the Talon Share Register. It is expected that Talon Shares transferred pursuant to the Demerger Scheme will be able to be traded on a deferred settlement basis from the start of trading on Thursday, 28 February It is the responsibility of Scheme Shareholders to confirm their entitlement to Talon Shares under the Demerger Scheme before trading those shares to avoid the risk of selling shares they do not own. Scheme Shareholders who trade Talon Shares before receiving written confirmation of their entitlements do so at their own risk. Talon, Texon and the Talon Registry disclaim all liability (to the maximum extent permitted by law) to persons who trade Talon Shares before receiving this written confirmation, whether on the basis of confirmation of the allocation provided by Texon, Talon or the Talon Registry. (c) Transaction costs Prior to the Demerger Scheme Meeting, transaction costs of approximately $2.2 million will have been incurred, or will be committed, by Texon in relation to the Demerger Scheme and the Acquisition Scheme. Those transaction costs will be payable by Texon regardless of whether or not the Demerger Scheme becomes Effective and implementation of the Demerger Scheme occurs. (d) Retained cash amount The Scheme Implementation Agreement includes a mechanism to ensure that the cash, current assets and current liabilities of the Texon Group at the Implementation Date will reflect results of business operations of the Texon Group from 1 October 2012 assuming zero balances for those items at 1 October 2012, and having regard to the Merged Group s responsibility to bear the cost of agreed capital expenditure from 1 October 2012, and an agreed basis of allocation of certain administrative expenditures and certain other expenditures not in the ordinary course, including transaction costs associated with the Demerger Scheme and the Acquisition Scheme and financing costs associated with the Loan Notes.

31 Demerger Scheme Booklet What are your options and what should you do? The following principal alternatives are available to Texon Shareholders in relation to their Texon Shares in respect of the Demerger Scheme and the Capital Reduction. Texon encourages you to consider your personal risk profile, portfolio strategy, tax position and financial circumstances and seek professional advice before making any decision in relation to your Texon Shares. Vote in favour of the Demerger Scheme and Capital Reduction Vote against the Demerger Scheme and Capital Reduction This is the course of action unanimously recommended by the Texon Directors, in the absence of a Superior Proposal. To follow the unanimous recommendation by the Texon Directors in respect of the Demerger Scheme and the Capital Reduction, you should vote in favour of the Demerger Scheme Resolution at the Demerger Scheme Meeting and the Capital Reduction Resolution at the General Meeting. If, despite the unanimous recommendation by the Texon Directors in respect of the Demerger Scheme and the Capital Reduction and the conclusion of the Independent Expert, you do not support the Demerger Scheme, you may vote against the Demerger Scheme Resolution at the Demerger Scheme Meeting and the Capital Reduction Resolution at the General Meeting. SECTION 3 Key reasons to vote in favour of or against the Demerger Scheme However, if all of the conditions and approvals for the Demerger Scheme are satisfied or (where applicable) waived, the Demerger Scheme will bind all Texon Shareholders, including those who vote against the Demerger Scheme Resolution or the Capital Reduction Resolution and those who do not vote at all. Sell your Texon Shares The existence of the Demerger Scheme does not preclude you from selling your Texon Shares on-market or off-market for cash, if you wish. Texon Shareholders who sell their Texon Shares on the ASX prior to the Demerger Record Date: will receive the consideration for the sale of their Shares sooner than they would receive the Demerger Scheme Consideration under the Demerger Scheme; may incur a brokerage charge; and will not be eligible to participate in the Demerger Scheme, the Acquisition Scheme or a Superior Proposal, if one emerges. Do nothing Texon Shareholders who do not elect to vote at the Demerger Scheme Meeting nor sell their Texon Shares will, if the Demerger Scheme is implemented, still receive two Talon Shares for every five Texon Shares held by them. Further information The information in this Section is a summary only. Full details of the Demerger Scheme are set out in the remainder of this Demerger Scheme Booklet. Please read it carefully. The Texon Directors recommend that you consult your legal, financial, taxation or other professional adviser concerning the impact your decision may have on your own circumstances.

32 30 4SECTION 4 Information on Talon if the Demerger is implemented

33 Demerger Scheme Booklet 31 Section 4 Information on Talon if the Demerger is implemented 4.1 Introduction Talon was incorporated on 14 September 2011 as a public company limited by shares. It is currently a wholly-owned subsidiary of Texon. Talon was established to explore for, and develop, petroleum resources in the USA. This differs from the core component of Texon s current business which is based on the development of its EFS assets. Subject to the Demerger Scheme becoming Effective, Texon s business in relation to the exploration and appraisal of its US oil and gas leases (together with all of the assets owned by Texon which are used solely or predominantly in connection with exploration and appraisal activities of its US oil and gas leases) other than Texon s EFS assets will be transferred to Talon in accordance with the Demerger Deed. A detailed description of the Demerger Deed is set out in Section 8.1. SECTION 4 Information on Talon if the Demerger is implemented On completion of the Demerger, Talon will have the assets and operations summarised in Section 4.4. Application has been made for admission of Talon to the official list of ASX and quotation of the Talon Shares on ASX. An investment in Talon should be considered speculative due to the significant risks inherent in the oil and gas exploration business. 4.2 Talon corporate structure Talon Rubox Pty Ltd Texoz E&P Holdings III, Inc. Texon 1 Pty Ltd Texoz E&P Holdings I, Inc. A U S T R A L I A U S A Texoz E&P III, Inc. (TEP III) Texoz E&P I, Inc. (TEP I)

34 32 SECTION 4 Information on Talon if the Demerger is implemented 4.3 Talon Strategy Talon is focused on low risk oil prospects, in mature, well serviced areas. Given advancements in horizontal drilling technology and also fracture stimulation technology, Talon believes there exist a number of existing and known fields that were previously uneconomic under traditional hydrocarbon development methods. Given the aforementioned advancements, Talon believes that a number of these fields are now economic, and recoveries can be increased significantly over and above previous expectations. 4.4 Talon assets and operations On implementation of the Demerger Scheme, Talon will have a portfolio of non-efs exploration and development assets, including production from the Olmos and Wilcox reservoirs, and a growing exploration portfolio in East Texas including projects at Roundhouse, Redfish, Catfish Creek and East Banks. To the extent they are not already held by the Talon Group, these assets and operations will be transferred to the Talon Group in accordance with Demerger Deed before the Demerger Scheme is implemented and so are presented on the basis that they are held by the Talon Group. (a) Olmos (i) The Talon Group has leases covering 3,823 net Working Interest acres in the Olmos formation located in McMullen County in Southern Texas. The location of these leases are shown in the map below: MCMULLEN CO L IVE OAK CO MCMULLEN CO DALLAS LAS HOUSTON ON SAN ANTONIO O McMullen Co Onshore Texas

35 Demerger Scheme Booklet 33 Reserves (MMBOE) (ii) This project currently has one producing well (Wheeler #1). Talon holds total Olmos reserves of 1.3 MMBOE. As shown in the graph below, of these total reserves 379 MBOE are Proved reserves, 335 MBOE are Probable reserves, and 613 MBOE are Possible reserves Hoskins #2 producing from Wilcox Talon Leases Wheeler #1 producing Hoskins #1 shutin pending refrac SECTION 4 Information on Talon if the Demerger is implemented 0.0 Proved reserves Probable reserves Possible reserves Total reserves (iii) Talon anticipates that approximately 29 wells, each draining a 40 acre area, have the potential to be economically developed in the Olmos reservoir. This prospect is very similar in potential to the Leighton- Olmos field previously discovered and monetised by Texon. Talon is currently examining a partial sale and farm out of its high Olmos Working Interest which, if successful, will result in an expanded work program in its Olmos project. Should it be implemented, this work program will continue to prove up the total resource potential of 3.0 MMBOE. (iv) Talon has two wells in the Olmos reservoir, one is producing and one is shut-in awaiting a refrac. The producing well (Wheeler #1) had an initial test rate of 220 BOEPD. The well has now stabilised on pump at a rate of 48 BOEPD net to Talon s revenue interest with no gas for the quarter ended 30 September The other Olmos well (Hoskins #1) is completed in the Olmos and is shut-in pending a refrac. The locations of Talon s wells are shown in the diagram below: (v) The acres leased by Talon are also prospective for horizontal drilling and fracture stimulation technologies which are currently being utilised by other operators in the Olmos reservoir around Talon s acreage. 15 (b) Wilcox Talon has one producing well in the Wilcox sands, located vertically above the Olmos. The Hoskins #2 Wilcox well is completed in the Wilcox sands and was producing on pump at an average of 4 BOEPD net to Talon s revenue interest for the quarter ended 30 September The location of this well is shown in the diagram above. (c) East Texas prospects (i) Roundhouse Talon has 3,510 net Working Interest acres (which equates to a 47.4% Working Interest) in the Roundhouse (Cotton Valley Lime reservoir) prospect located in Navarro County, Texas. The prospect is operated by private US gas and oil company Tanos Energy Holdings, LLC. The location of the Roundhouse prospect is shown in the map of Texas below: 15 Swift Energy Company Third Quarter 2012 Update 1 November 2012.

36 34 SECTION 4 Information on Talon if the Demerger is implemented Roundhouse Prospect Navarro County, Texas The East Texas, Cotton Valley Lime play is a naturally fractured oil reservoir in the early stages of development as a new horizontal drilling and completion technology play. The Cotton Valley Lime reservoir has previously been drilled and produced through natural fractures in the adjacent Cheneyboro field through non stimulated vertical wells. To date, this directly offsetting field has yielded in excess of 3.0 MMBO. The prospect will be tested by applying modern horizontal drilling and completion technology to intersect multiple naturally occurring fractures within the Cotton Valley Lime reservoir. It is estimated these wells could recover MBO per well, with overall gross potential within the prospect of MMBO. An initial test well is planned for A depth structure map of the Cotton Valley Lime reservoir is set out below: Roundhouse Prospect Cheneyboro field (ii) Rodessa prospects Redfish, Catfish Creek and East Banks These prospects have been defined with well data, 2D seismic data and historical production data. Extensive land research has been performed and has identified that much of these prospects are currently available for leasing. Talon has already leased 2,917 net Working Interest acres 16 and Talon intends to continue to lease additional acreage towards a goal of 20,000 acres as funding becomes available. These prospects are targeting a shallow oil reservoir which was previously produced in old vertical wells with little or no reservoir stimulation. Based on 80 acre spacing and Talon s current 2,917 net Working Interest acres, there are 36 locations that between them have gross potential of 4.7 MMBOE and, if targeted programs to obtain leases to the 20,000 acre target are successful, there may be up to 250 locations with a gross potential of 33 MMBOE. 16 Under the Prospect Generation Agreement, Wandoo has the right to acquire up to 3% of this Working Interest. For more information on the Prospect Generation Agreement, please see Section 4.4(f).

37 Demerger Scheme Booklet 35 (d) Current Production Talon has oil production from two wells located at its Olmos and Wilcox projects in south Texas, being the Wheeler #1 and Hoskins #2 wells. Talon s production from these wells for the quarter ended 30 September 2012 was approximately 52 BOEPD net to Talon s revenue interest which generated revenue of $420,000 for the quarter. This included 48 BOEPD produced by the Wheeler #1 well from the Olmos sands, and 4 BOEPD produced by the Hoskins #2 well from the Wilcox sands. (e) Other prospects Talon will also have leases over other non core prospects including: Sunshine is currently being drilled by a farminee. Talon will have a reversionary 10% working interest after the well pays out. Angourie is a small and low risk amplitude gas prospect with associated liquids. Although relatively small, this prospect can be farmed out to reduce Talon s capital expenditure. The prospect is ready to drill when partners are secured. Coolangatta is a moderate risk Wilcox gas prospect that is being offered to industry partners on a farmout basis. Scarborough is a large high risk/cost Wilcox gas prospect that continues to be offered to the industry on a farmout basis. (f) Prospect Generation Agreement Texoz E&P III, Inc. (TEP III) (which is a wholly owned subsidiary of Talon) is a party to the Prospect Generation Agreement with Wandoo, and Texon Director, John Armstrong. Texon Director David Mason is the majority shareholder in Wandoo. Wandoo has access to 180 3D seismic surveys in on-shore oil and gas producing trends in the Texas Gulf Coast under the terms of a licence agreement with Seitel Inc, a company which owns and produces 3D seismic surveys. Wandoo identifies and maps certain prospects exclusively for TEP III from within an area of Texas comprising 82,000 square miles from these surveys that it reasonably believes could be suitable for drilling by TEP III. The Prospect Generation Agreement sets out the procedure whereby Wandoo provides a first right of refusal in respect of prospects and the rights to new data to TEP III from the data licensed to it by Seitel. If TEP III accepts a prospect brought to it by Wandoo, it will then seek to lease the land where the prospect is located so that drilling of the prospect can take place. TEP III s first right of refusal on all prospects generated by Wandoo will be available until Under the Prospect Generation Agreement, Wandoo is entitled to be paid US$50,000 per month (increasing by 5% each calendar year from 2013) by Texon for the term of the agreement. In addition, Wandoo and John Armstrong are entitled to receive an overriding royalty interest (ORRI) which is a percentage share of production free from all costs of drilling and producing. In addition, Wandoo is entitled to receive a carried working interest (CWI), which is a percentage share of production after payment of all operational costs up to the sale point (being the oil in the tanks or the gas in the gas meter). The size of the ORRI received by Wandoo or John Armstrong under the Prospect Generation Agreement depends on a combination of the Net Revenue Interest that TEP III acquires in the prospect, whether the prospect is sourced for TEP III by Wandoo and, if so, where the prospect is located, and whether the prospect is sourced by TEP III from a third party in the area covered by the Wandoo seismic surveys. The size of the CWI received by Wandoo depends on similar factors. The maximum ORRI that can be received in relation to any one prospect by John Armstrong is 0.5%. The maximum ORRI that can be received by Wandoo in relation to any one prospect is 4.5%. The maximum CWI that can be received by Wandoo in relation to any one prospect is 5%. The current arrangements established under the Prospect Generation Agreement were approved by Texon Shareholders at an extraordinary general meeting held on 31 August Talon 12 month work plan After the conclusion of the restructure to be undertaken under the Demerger Deed, and any adjustments made under the Scheme Implementation Agreement, Talon is expected to have cash reserves of approximately $8.8 million if the Acquisition Scheme is not SECTION 4 Information on Talon if the Demerger is implemented

38 36 SECTION 4 Information on Talon if the Demerger is implemented implemented or $7.8 million 17 if the Acquisition Scheme is implemented. Based on current estimates, Talon has sufficient cash to fund its committed expenditure over the 12 months following the Implementation Date. This committed expenditure is set out in the table below and comprises one firm well commitment in the Roundhouse prospect (see Section 4.4(c)) and funding to progress its remaining portfolio. Talon 12 month work plan and budget Committed Work Program A$million Roundhouse Drilling 3.3 Prospect generation 0.6 Working Capital 1.9 Total 12 months estimate 5.8 Talon has a portfolio of prospects with large equity positions with material value upside should exploration prove successful. Where Talon does hold large equity positions, the potential exists to farmout these prospects, and still retain material equity positions. Talon is currently examining partial sale and farm out options, which if successful will result in an expanded work program on its Olmos and other projects. The funding options available to Talon are described in further detail in Section 4.6. Based on current estimates, Talon has sufficient cash to complete its current committed 12 month expenditure as set out in Section 4.5. Talon will look to expand beyond its current committed work plan to drive shareholder value through a range of funding options other than capital raisings. Funding options likely to be available include asset sales and farmout arrangements whereby the costs, risks and returns of developing the assets may be shared with other parties. Talon holds high working interests in a number of projects including the Olmos that has production and approximately 1.3 MMBOE in reserves, and also the Redfish, Catfish and East Bank prospects in East Texas. Among other options, Talon would be in a position to participate in one commonly used farmout structure that involves parties farming in for a 25% share in the well in return for the payment of 33% of the costs. Through this methodology, 100% owned prospects can be fully funded by a farminee with Talon retaining a 25% free carried Working Interest. 4.6 Funding strategy In the event the Demerger is implemented, Talon will retain its existing cash resources and operating cashflows from the Olmos and Wilcox assets. 4.7 Talon s board and executive management (a) Talon Directors The board of Talon consists of the following directors: Talon Director John Dennis Armstrong Bernard Charles Ernest Rowley David James Melville Mason Position Chairman Non Executive Director Non Executive Director 17 This figure includes an amount of $1.5 million, which is required to be held in escrow for at least six months after the date on which Acquisition Scheme is implemented.

39 Demerger Scheme Booklet 37 Biographical details on each of the Talon Directors are set out below: John Dennis Armstrong Chairman, PhD, BSc (1st Hons) Geo. Dr Armstrong was appointed a Director and Chairman of Texon on 17 May He has had a 40 year career in the upstream oil and gas industry including 9 years with UNOCAL in South East Asia and over 20 years in senior management roles at Santos. Dr Armstrong was executive Chairman of Global Petroleum Limited an ASX and AIM listed company from 2002 to early 2007, and he formed and was foundation Chairman, and then a Director, of Falkland Oil and Gas Limited, an AIM listed company, from October 2004 to May Dr Armstrong joined the Board of Mosaic Oil NL from September 2009 until February 2010 when he resigned. Prior to becoming Chairman of Global Petroleum Limited, Dr Armstrong was a General Manager at Santos and played an important role in growing Santos from a small local gas company to a company which in 2001 had a market capitalisation of some A$3.5 billion and annual oil and gas revenue of over A$1 billion a year from its South Australia, Queensland, Western Australia, Northern Territory, Victoria, Papua New Guinea and United States of America areas of operation. He retired from Santos at the end of Throughout his career, Dr Armstrong has worked closely with host country governments, government petroleum companies, the Federal Government and various State Governments in Australia, various regulators, customers, contractors, consultants and joint venture companies as operator and non-operator. surveys to Wandoo which, under an agreement with the Group, then provides it with certain oil and gas prospects from which the Group may ultimately drill for oil and gas. Before his involvement with Wandoo and Texon, Mr Mason worked for 25 years in the oil and gas industry with three multinational companies namely, BHP Petroleum ( ), Petrofina ( ) and Woodside Energy ( ). During this time, he gained experience in petroleum ventures in Australia, South East Asia, North Africa and the USA. He has held positions in exploration management and as acting General Manager both in Petrofina and Woodside Energy. Throughout his career he has been directly involved in large commercially successful discoveries including Jabiru, Skua, Legendre, Mutineer/Bounty in Australia, three Vietnam fields and the Neptune and Midway fields in the Gulf of Mexico. Mr Mason opened Woodside s first international exploration office in the USA. As business development team leader he was instrumental in building Woodside s acreage position in the Gulf of Mexico (GOM) to over 250 leases through lease rounds, participation in three joint ventures, and acquiring a 20% ownership of the deepwater GOM Neptune field prior to the drilling of the delineation wells that proved commercial volumes. He has built and managed exploration teams in three countries, worked closely with consultants, service companies, joint ventures as operator and non-operator, and governments and government petroleum companies under production sharing contracts. SECTION 4 Information on Talon if the Demerger is implemented David James Melville Mason Non-Executive Director, B App Sc David Mason was appointed a Director of Texon on 17 May Mr Mason retired as President and Chief Executive Officer of Texon and its USA subsidiaries on 30 November 2011 and remains on the Board as a non-executive Director. He holds a Bachelor of Applied Science Degree (Geophysics) from the Western Australian Institute of Technology. Mr Mason founded, and is the principal shareholder of, Wandoo in the USA in July Wandoo has contracted with a data company in the USA to provide seismic Bernard Charles Ernest Rowley Independent non-executive Director Bernard Rowley was appointed a Director of Texon on 31 January Bernard Rowley was formerly Chairman of Enertrade. The gas assets of Enertrade were sold by the Queensland Government in 2007 and the remaining assets were merged into other Queensland Government owned corporations. Enertrade was a wholesale energy provider owned by the Queensland Government which built, owned and operated the North Queensland Gas Pipeline and its gas compression facility near Moranbah.

40 38 SECTION 4 Information on Talon if the Demerger is implemented Mr Rowley was Chief Executive Officer of Suncorp for 10 years. Prior to that appointment he was general manager for the insurance operations and had previously served in various actuarial and information technology roles. Mr Rowley is a Director of Australia & International Holdings Limited and was a Director of River City Motorway Limited until 25 February 2011 when an Administrator was appointed. (b) Board renewal In the short to medium term after the implementation of the Demerger Scheme, it is anticipated that the board of Talon will undergo a process of renewal. (c) Executive management All of Texon s employees will be transferred to Talon upon implementation of the Demerger Scheme. Talon s executive management team will be led by Chief Executive Officer & President, Mr Clifford S. Foss, Jr. A short biography of Mr Foss is set out below: Clifford S. Foss, Jr. Chief Executive Officer & President Mr Clifford S. Foss, Jr. was appointed as President and Chief Executive Officer of Texon effective on 1 December 2011 after previously working for Texon as a contractor since early Mr. Foss has had extensive technical and management experience with six different companies over almost 40 years exploring for oil and natural gas with primary emphasis in the Gulf Coast region of Texas. During Mr. Foss s career he has enjoyed exposure to both public and private organisational structures with emphasis on technical evaluation, acquisitions, expansions, reductions and their associated administrative activities. Mr. Foss experience also means that he has a broad knowledge of companies and key personnel active in the Gulf Coast region. Mr Foss began his career in 1970 as an exploration geologist with Cities Service Company working in its Gulf of Mexico operations. In 1973, Mr. Foss joined Cockrell Oil Corporation, a private oil company with operations in Texas, where he was part of the team that monetised Cockrell s producing properties and became Vice-President of Exploration and Exploitation, a position Mr Foss held until From 1996 to 1998, Mr Foss was Senior Vice President and General Manager Gulf Division for Barrett Resources Corporation and was responsible for the opening of Barrett s regional office in Houston, Texas. KCS Energy, Inc. recruited Mr. Foss in 1998 to become the Senior Vice-President and General Manager of the Gulf Coast region. While working for KCS Energy, Inc. Mr. Foss was a key member of the Corporate Strategic Planning and Budgeting Committee as well as leader of the Sale Team for the Gulf Coast Division, where he was responsible for administering the merger of KCS Energy, Inc and Petrohawk Energy Corporation, which completed in 2006 in a deal worth approximately US2 billion. Mr. Foss joined the merged entity, still called Petrohawk Energy Corporation, in 2006 as Senior Vice-President (Exploration) charged with growing and monetising the Petrohawk s Gulf Coast assets, a process which was completed with the sale of those assets to Milagro Exploration, LLC in late 2007 for US$825 million. Mr. Foss left Petrohawk in 2008 to form Force 5 Energy, LLC, which acquired a significant position in the early phase of the Eaglebine play in East Texas. After Force 5 Energy monetised this interest in 2010, Mr. Foss joined Texon in early Talon s pro forma financial information This section contains Talon s pro forma statement of financial position, reflecting the business of Talon post the demerger. The pro forma statement of financial position is presented to provide Talon Shareholders with an indication of Talon s assets and liabilities at 30 September 2012 adjusted to reflect the impact of the Demerger Scheme, as if it had been implemented on 30 September As the Demerger Scheme is subject to shareholder approval and court approvals and will take place in the future it is likely that this information will differ from the actual financial information of Talon as at the Implementation Date, which is currently expected to be on or about 7 March 2013.

41 Demerger Scheme Booklet 39 Current assets Cash and cash equivalents Texon Petroleum Ltd Group 30 Sep 2012 Demerger & Distribution Talon Pro forma adjustments Pro forma Talon Petroleum Ltd Group 30 Sep 2012 $ 000 Notes $ 000 Notes $ 000 $ ,860 (iii), (iv), (v) (4,821) 12,039 Trade and other receivables 2,015 2,015 Other Total current assets 19,202 (4,821) 14,381 Non-current assets SECTION 4 Information on Talon if the Demerger is implemented Property, plant and equipment Oil and gas properties 48,008 (i) (41,121) 6,887 Exploration and evaluation expenditure 14,660 (i) (7,959) 6,701 Total non-current assets 62,767 (49,080) 13,687 Total assets 81,969 (49,080) (4,821) 28,068 Current liabilities Trade and other payables 1,113 1,113 Provisions Total current liabilities 1,200 1,200 Non-current liabilities Provisions 447 (i) (365) 82 Deferred tax liabilities 1,093 (i) (1,093) Total non-current liabilities 1,540 (1,458) 82 Total liabilities 2,740 (1,458) 1,282 Net assets 79,229 (47,622) (4,821) 26,786 Equity Total equity 79,229 (i) (47,622) (ii), (iii) (4,821) 26,786 Notes in relation to Talon s pro forma statement of financial position (a) Basis of preparation of pro forma historical statement of financial position The pro forma historical condensed statement of financial position and notes have been prepared in accordance with the measurement requirements of AIFRS and the accounting policies of Texon. Texon s accounting policies are contained in their annual report for the year ended 31 December 2011, which is available on the ASX website. Following the Demerger, Talon intends to adopt the same accounting policies as Texon. The pro forma historical statement of financial position is presented in a condensed form and does not contain all the disclosures that are usually provided in accordance with the Corporations Act. Talon has a financial year ending 31 December. The historical financial information has been extracted from the unaudited special purpose interim financial report of Texon for the nine months ended 30 September The pro forma statement of financial position is presented in Australian dollars.

42 40 SECTION 4 Information on Talon if the Demerger is implemented From an Australian perspective, the Demerger will result in Talon exiting the Texon Australian consolidated tax group. The tax bases of Australian assets do not change under Australian tax consolidation legislation on the exit of a member from the group. From a US perspective, the Demerger will only result in a change in the ownership structure of the US subsidiaries, with no change in the US subsidiaries immediate shareholder or ultimate shareholders. The tax bases of US assets do not change when this occurs. Therefore, the pro forma statement of financial position has been prepared on the basis that the quantum of deferred tax assets and liabilities do not change as a result of the Demerger. Talon s pro forma statement of financial position is compiled from the aggregation of the: (i) Texon s statement of financial position as at 30 September 2012; and (ii) pro forma adjustments to reflect the demerger of Talon by the transfer of shares to Texon Shareholders; and (iii) pro forma adjustments to reflect the impact of the Demerger. The Talon pro forma statement of financial position is prepared on the basis that the transaction was implemented on 30 September The transaction is unlikely to occur until 7 March 2013 and only if approved by the shareholders of Texon, and all conditions precedent as detailed in Section 1.5 have been satisfied. (b) Pro forma adjustments and notes Pro forma adjustments (i) Demerger of Talon and distribution of 100% of Talon Shares The assets and liabilities of Talon are removed from Texon s statement of financial position as a result of the Demerger Scheme based on book values as at 30 September In preparing the pro forma statement of financial position it has been assumed that capital gains tax demerger relief will be granted by the Australian Taxation Office. In the event that capital gains tax demerger relief is not obtained, a capital gains tax liability may need to be recorded in Texon to the extent that the fair value of Talon at the date of the demerger exceeds Texon s capital gains tax cost base in Talon and Texon does not have sufficient available tax losses to offset the gain. 100% of Texon s investment in Talon is distributed to Texon Shareholders at fair value through the application of amounts received under a capital reduction (representing the historical book value of those Talon Shares). The distribution of Talon Shares to Texon Shareholders has no financial impact on Texon s pro forma historical net asset position. (ii) Acquisition of Wandoo Working Interest The acquisition of Wandoo s Working Interest in the EFS assets under the Wandoo Interest Acquisition Agreement by Texon will be recognised if the Acquisition Scheme is implemented. The acquisition is subject to the implementation of the Demerger Scheme and Acquisition Scheme. The consideration is US$1.2 million cash payable in four equal quarterly instalments by Texoz E & P II, Inc (which will become a subsidiary of Sundance upon the implementation of the Acquisition Scheme), the first payable three months after completion of the demerger and 4,480,000 Talon Shares. The share component has been recorded as a pro forma adjustment in the Talon pro forma statement of financial position. The consideration is subject to adjustment downwards to US$1 million and 4,000,000 Talon Shares if binding agreements with certain landowners are not entered into within 12 months. (iii) Talon transaction and other costs Notes The cash balance as at 30 September 2012 has been adjusted to reflect Talon s share of the transaction costs and minimum note facility interest payment as documented in the retained cash mechanism in the Scheme Implementation Agreement. The pro forma adjustments do not contemplate prospective cash flow items that may impact the Talon cash balance at demerger, such as revenues, expenses and capital expenditures post 30 September (iv) Reconciliation of cash at Implementation Date The pro forma statement of financial position as at 30 September 2012 shows cash of $12,039,000. The pro forma adjustments do not contemplate prospective cash flow items (apart from Talon s share of the transaction costs and minimum note facility interest payment

43 Demerger Scheme Booklet 41 noted in paragraph (iii) above) that may impact the Talon cash balance at demerger, such as revenues, expenses and capital expenditures post 30 September At the Implementation Date, Talon is expected to have cash reserves of approximately $8.8 million if the Acquisition Scheme is not approved or $7.8 million if the Acquisition Scheme is approved. The reduction in cash is as a result of capital and operating expenditures in the period between 1 October 2012 and the Implementation Date. (v) Escrow Amount under Scheme Implementation Agreement $1.5 million will be held in escrow by Talon under the Scheme Implementation Agreement for a period of six months after the Implementation Date. The financial information should be read in conjunction with the latest annual and interim financial reports. Details of Texon s accounting policies are contained in the financial report and are available on request in accordance with Section Talon s capital structure (a) Talon s capital structure assuming that the Acquisition Scheme is not approved At the Implementation Date, Talon will have on issue: 98,255,939 Talon Shares, quoted on the ASX; 18 and No Talon Options. (b) Substantial Shareholders At the Implementation Date, no persons will have a Relevant Interest in 5% or more of Talon Shares Corporate governance In respect of its corporate governance practices, Talon will comply with the recommendations set out in the ASX Corporate Governance Council s 2nd Edition of Corporate Governance Principles and Recommendations with 2010 Amendments (ASX Principles and Recommendations) except as noted below. (a) Composition of the board The board of Talon as at the time of the Demerger will be comprised of the Talon Directors listed in Section 4.7. Biographical details on each of the Talon Directors are provided in that same section. The ASX Principles and Recommendations recommend that a majority of the board, and the Chairman, be independent directors. Given the anticipated size of both Talon and its board, the Talon Directors do not consider it appropriate to have a majority of independent directors and considers that this would not be an efficient use of resourcesrelevant expertise available to Talon. Further, the Talon Directors also believe, that the size of Talon and that the experience and background of the current Chairman mean that it is of more value to Talon to have the current Chairman, rather than an independent director who may not possess the same experience and background. (b) Roles and responsibilities of the board The board of Talon will be responsible to shareholders for the guiding and monitoring of the business affairs of Talon. Generally, the role of the board of Talon after the Demerger will include: effectively representing the interests of all Talon shareholders; SECTION 4 Information on Talon if the Demerger is implemented 4.10 Rights and liabilities attached to Talon Shares A summary of the key rules in the Talon Constitution in relation to the rights and liabilities attached to Talon Shares, including in relation to voting, forms part of the overview of the Texon and Talon Constitutions provided in Section 9.9. ensuring that Talon is properly managed; and monitoring Talon s performance and ensuring that Talon shareholders are kept informed of Talon s performance and of major developments affecting its state of affairs. It will fulfil this role by: ensuring that Talon s strategic objectives are met; 18 Under the Wandoo Interest Acquisition Agreement, Talon will have an obligation to issue up to 4,480,000 Talon Shares to Wandoo within three months of the day on which the Acquisition Scheme and Demerger Scheme are implemented.

44 42 SECTION 4 Information on Talon if the Demerger is implemented delegating responsibility for the day to day management of Talon to Talon s chief executive officer; because of Talon s size, assisting the chief executive officer in certain operational and management decisions; approving and monitoring capital expenditure, capital management, acquisitions and disposals; approving and monitoring financial and other reporting; overall corporate governance of Talon, including conducting regular reviews of the balance of responsibilities within Talon to ensure the division of functions remain appropriate to the needs of Talon; monitoring the cash resources of Talon on a regular basis; monitoring, and ensuring compliance with, Talon s legal obligations; and reviewing the performance of the chief executive officer and management on a regular basis. (c) Board committees and processes The Talon Directors intend to establish an audit committee which will assist them in carrying out their responsibilities but do not intend to establish a nomination or remuneration committee as recommended by the ASX Principles and Recommendations. The Talon Directors consider that, because of the size of Talon and the number of Talon Directors, the establishment of nomination, remuneration or other committees aside from the audit committee would not be cost nor time effective. The role of these committees will instead be carried out by Talon Directors. Recommendations from the Talon Directors will be carried out by management through Talon s chief executive officer. With Talon s assets and business operations located in Texas, USA, and the head office in Brisbane, a system of internal control will be established. This system will provide a level of assurance to the Talon Directors that business transactions undertaken within Talon are subject to appropriate checks and balances. The Talon Directors do not propose to conduct formal reviews of Talon s corporate governance procedures and performance. The small number of Talon Directors and Talon s size would make such formal reviews an inappropriate use of the Talon Directors time and Talon s money. However, the Talon Directors will review the performance of the chief executive officer on a regular basis. The Talon Directors will review this position as Talon continues to grow and may make adjustments to this position in future years. The Talon Directors will review the performance of Talon s senior management against Talon s financial and operational performance on a quarterly, half-yearly and annual basis and by presentations to the Talon Directors by the chief executive officer at various other times throughout the year. A more formal process for performance reviews of key members of senior management may be considered appropriate in the future. Talon intends to develop a remuneration structure for its employees and key contractors that includes appropriate incentives to encourage high performance and retain their services. This may include cash or equity based incentives. Formal meetings of the Talon Directors will be held on a regular basis during the year and the Talon Directors also hold informal discussions with each other between those meetings as required. The agenda for these meetings will be prepared by the chief executive officer and the company secretary, and Talon Directors may also request items be placed on the agenda. Standing items will include reports on corporate matters, cash resources and projections, actual performance compared with budgets and a review of the operational status of each prospect. Should a new Talon Director be appointed, Talon will ensure that a process of induction is implemented which includes information on the nature of Talon s business, current industry issues, Talon s strategy and expectations concerning the performance of Talon Directors. Talon Directors will also be given access to continuing education programs to enhance their skills and knowledge. Newly appointed members of senior management will also be provided with an induction process similar to new Talon Directors.

45 Demerger Scheme Booklet 43 (d) Resources available to the board In executing its role and responsibilities, the Talon Directors have unlimited access to senior management. Acting as a board, they also have the authority to seek information they require from employees and external parties, to obtain outside legal or other professional advice at the expense of Talon and to ensure members of Talon management attend meetings of the Talon Directors as appropriate. The chairperson of the Talon Directors will be responsible for leadership of the Talon Directors, for the efficient organisation and conduct of their functions as a board and for the briefing of all Talon Directors in relation to issues arising at board meetings. The chairperson of the Talon Directors is also responsible for communications with Talon shareholders and arranging performance evaluations of individual Talon Directors. SECTION 4 Information on Talon if the Demerger is implemented 4.12 Dividend policy Talon does not currently have a dividend policy. Having regard to the stage of Talon s development, there can be no assurance that Talon will pay a dividend in the short-term or at all Risks associated with Talon For risks associated with an investment in Talon, please refer to Section 6.

46 44 5SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented)

47 Demerger Scheme Booklet 45 Section 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) 5.1 Introduction This Section 5 provides information on Texon if the Demerger Scheme is implemented but the Acquisition Scheme is not implemented. In this event, Texon will continue to be listed on ASX and will continue to hold and operate all of its current businesses other than the businesses of Talon described in Section 4. If the Demerger is implemented and the Acquisition Scheme is also implemented, then Texon will be acquired by Sundance and you will cease to be a shareholder in Texon but become a shareholder in Sundance and Talon. In this event, the information in this Section 5 need not be considered. 5.2 Background Texon is a publicly listed Australian based oil and gas explorer and producer with its operations currently located in South Texas, USA. As of the date of this Scheme Booklet, Texon had approximately 3,500 shareholders and a market capitalisation of approximately $100 million. 5.3 History Texon was registered as an Australian public company in 2006, and listed on the ASX in May Post this listing, Texon was largely focused on the exploration and appraisal of gas prospects. Given the relative strength in oil prices since 2007, Texon has focused more on liquids rich prospects, such as Texon s EFS and Olmos assets, with a continuing focus on resource like projects that have become economic with advancements in horizontal drilling and fracture stimulation technology. 5.4 Assets to be held by Texon after the Demerger Scheme is implemented If the Demerger Scheme is implemented then the assets held by Texon will consist solely of its EFS assets as all of Texon s non-efs assets will be held by Talon. (a) Assets (i) EFS Texon s primary asset is an acreage position of approximately 7,182 net Working Interest acres of EFS leases. 19 Texon has five producing EFS wells. Texon is operator of all of its EFS projects, and is expected to have completed another three EFS wells by the time the Demerger Scheme is voted on by Texon Shareholders. Texon has approximately 90 Proved, Probable and Possible well locations available (excluding additional well locations arising from the Welhausen joint venture) that have been de-risked by Texon s five producing wells, its three wells in progress and other operators recent producing wells. These undrilled well locations contain a resource potential of 41 MMBOE net to Texon s revenue interest. The locations of Texon s EFS leases are shown in the map below: SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) Texon successfully developed and then monetised its Leighton Olmos project between 2008 and Since 2010, Texon has largely focused on the development of its EFS assets. 19 This acreage position includes interests acquired by Texon in the Welhausen joint venture but does not include the acreage to be acquired from Wandoo under the Wandoo Interest Acquisition Agreement. If that acreage was included, Texon would have approximately 7,457 net Working Interest acres of EFS leases.

48 46 SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) MCMULLEN CO MCMULLEN CO L IVE OAK CO DALLAS LAS HOUSTONH ON SAN ANTONIO O McMullen Co Onshore Texas (ii) Pearsall Shale Texon has an acreage position of approximately 6,684 net Working Interest acres of Pearsall Shale leases. 20 The Pearsall Shale is a large gas condensate resource in its early stage of evaluation. The Pearsall Shale would be anticipated at depths of 12,500 feet in the Leighton area and 13,500 feet in Mosman-Rockingham area. The Pearsall resource is being tested at locations approximately 25 miles west of Texon s acreage by other operators, Cheyenne and Chesapeake. (b) Reserves Reserves (MMBOE) Texon has total EFS reserves of 11.3 MMBOE of EFS oil and gas, comprising 1.7 MMBOE of Proved reserves, 3.5 MMBOE of Probable reserves and 6.1 MMBOE of Possible reserves Proved reserves Probable reserves Possible reserves Total reserves 20 This acreage position does not include the acreage to be acquired from Wandoo under the Wandoo Interest Acquisition Agreement. If that acreage was included, Texon would have approximately 6,947 net Working Interest acres of Pearsall Shale leases.

49 Demerger Scheme Booklet 47 (c) Current Production For the quarter ended 30 September 2012, Texon produced 47,000 BOE, or 511 BOEPD, net to its revenue interest. 5.5 Texon strategy Texon s strategy is to discover and produce commercial quantities of oil and natural gas condensate from large scale projects. To achieve this goal, Texon targets multi-well drilling programs in large lease blocks using horizontal drilling technologies, hydraulic fracturing and 3D seismic data to aid in structural and stratigraphical control. Following the demerger of Talon, Texon s sole focus will be on its EFS assets. Texon s strategy will be to focus on the successful long term development and exploitation of its EFS assets. the Loan Notes are secured by security interests over all of the assets of Texon (Eagle Ford) Pty Ltd and the pledge of all ownership interests owned directly or indirectly by those entities guaranteeing Texon (Eagle Ford) Pty Ltd s obligations with respect to the Loan Notes. 5.7 Funding In the event the Demerger is implemented but the Acquisition Scheme is not implemented, Texon will retain its existing cash resources and operating cashflows from the EFS assets. After the conclusion of the restructure to be undertaken under the Demerger Deed, and any adjustments made under the Scheme Implementation Agreement, Texon is expected to have cash reserves of approximately $8.7 million if the Acquisition Scheme is not implemented. SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) 5.6 Loan notes In order to assist with ongoing capital expenditure in the period leading up to the implementation of the Acquisition Scheme, Texon (Eagle Ford) Pty Ltd (a wholly owned subsidiary of Texon) has issued a number of senior secured short term loan notes (Loan Notes) to a consortium of lenders in order to raise $25 million. In summary, key terms of the Loan Notes include the following: the term of the Loan Notes is 12 months from the date of issue and the interest rate is 20 percent per annum but must be repaid on implementation of the Acquisition Scheme (at which time they would effectively become a liability of the Merged Group and would be simultaneously repaid by Sundance under the Scheme Implementation Agreement); interest is payable every six months during the term with the principal to be repaid on maturity but if the Loan Notes are repaid within six months, a full six months of interest payments must be made, along with repayment of the principal; the Loan Notes are unsubordinated and rank ahead of all other obligations of Texon (Eagle Ford) Pty Ltd; Texon (Eagle Ford) Pty Ltd s obligations in respect of the Loan Notes are guaranteed by Texon, Texoz Eagle Ford Holdings, Inc. and Texoz E&P II, Inc.; and The Texon Directors believe that in excess of $90 million would be required over the next 12 months for Texon to deliver on its current business plans in respect of its EFS project. In addition, if the Acquisition Scheme does not proceed then Texon would still be responsible for repayment of the interest and principal relating to the $25 million owing on the Loan Notes which will mature, if not repaid earlier, in December Apart from capital raisings, funding options likely to be available include asset sales and farmout arrangements whereby the costs, risks and returns of developing the assets may be shared with other parties. Texon believe that asset level deals, in the form of an asset sale and farmout could be implemented before material funding commitments come due in the second half of calendar Among other options, Texon would be in a position to participate in one commonly used farmout structure that involves parties farming in for a 25% share in the well in return for the payment of 33% of the costs. Through this methodology, 100% owned prospects can be fully funded by a farminee with Talon retaining a 25% free carried Working Interest. Texon has a high average Working Interest (80.6%) in its EFS project and is typically the operator, which would facilitate a farmout arrangement along these lines.

50 48 SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) 5.8 Texon corporate structure Texon Texon (Eagle Ford) Pty Ltd Texoz Eagle Ford Holdings, Inc. Texoz E&P II, Inc. (TEP II) A U S T R A L I A U S A 5.9 Texon historical and pro forma financial information This section contains Texon s pro forma statement of financial position, reflecting the business of Texon prior to being acquired by Sundance under the Acquisition Scheme but after the assets and liabilities of Talon have been removed under the Demerger Scheme. The pro forma statement of financial position is presented to provide Texon Shareholders with an indication of Texon s assets and liabilities at 30 September 2012, after accounting for the demerger of Talon and other pro forma adjustments associated with the transaction. As the Demerger Scheme is subject to shareholder approval and court approvals and will take place in the future it is likely that this information will differ from the actual financial information of Texon as at the Implementation Date, which is currently expected to be 7 March 2013.

51 Demerger Scheme Booklet 49 Current assets Texon Petroleum Ltd 30 Sep 2012 Demerger & Distribution Talon Pro forma adjustments Pro forma Texon Petroleum Ltd Group 30 Sep 2012 $ 000 Notes $ 000 Notes $ 000 $ 000 Cash and cash equivalents 16,860 (A) (16,860) (B) 25,000 25,000 Trade and other receivables 2,015 (A) (2,015) Other 327 (A) (327) Total current assets 19,202 (19,202) 25,000 25,000 Non-current assets Property, plant and equipment 99 (A) (99) SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) Oil and gas properties 48,008 (A) (6,887) 41,121 Exploration and evaluation expenditure 14,660 (A) (6,701) 7,959 Total non-current assets 62,767 (13,687) 49,080 Total assets 81,969 (32,889) 25,000 74,080 Current liabilities Trade and other payables 1,113 (A) (1,113) Loan note facility (B) 25,000 25,000 Provisions 87 (A) (87) Total current liabilities 1,200 (1,200) 25,000 25,000 Non-current liabilities Provisions 447 (A) (82) 365 Deferred tax liabilities 1,093 1,093 Total non-current liabilities 1,540 (82) 1,458 Total liabilities 2,740 (1,282) 25,000 26,458 Net assets 79,229 (31,607) 47,622 Equity Total equity 79,229 (A) (31,607) 47,622 (a) Notes in relation to Texon s pro forma statement of financial position (i) Basis of preparation of pro forma statement of financial position The pro forma statement of financial position and notes have been prepared in accordance with the measurement requirements of AIFRS and the accounting policies of Texon. The pro forma statement of financial position is presented in a condensed form and does not contain all the disclosures that are usually provided in accordance with the Corporations Act. Texon has a financial year ending 31 December. The financial information has been extracted from the unaudited special purpose interim financial report of Texon Petroleum Ltd for the nine months ended 30 September The pro forma statement of financial position is presented in Australian dollars. Texon s pro forma statement of financial position is compiled from the aggregation of: Texon s statement of financial position as at 30 September 2012; a pro forma adjustment to reflect the demerger of Talon by the transfer of shares to Texon Shareholders; and

52 50 SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) pro forma adjustments to reflect the impact of the transaction. The Texon pro forma statement of financial position is prepared on the basis that the transaction was implemented on 30 September The transaction is unlikely to occur until 7 March 2013 and only if approved by the shareholders of Texon, and all conditions precedent as detailed in Section 1.5 have been satisfied. (ii) Pro forma adjustments (A) Demerger of Talon and distribution of 100% of the Talon Shares The assets and liabilities of Talon are removed from Texon s statement of financial position as a result of the Demerger Scheme based on book values as at 30 September In preparing the pro forma statement of financial position it has been assumed that capital gains tax demerger relief will be granted by the Australian Taxation Office. In the event that capital gains tax demerger relief is not obtained, a capital gains tax liability may need to be recorded in Texon to the extent that the fair value of Talon at the date of the demerger exceeds Texon s capital gains tax cost base in Talon and Texon does not have sufficient available tax losses to offset the gain. 100% of Texon s investment in Talon is distributed to Texon Shareholders at fair value through the application of amounts received under a capital reduction (representing the historical book value of those Talon Shares). The distribution of Talon Shares to Texon Shareholders has no financial impact on Texon s pro forma historical net asset position. (B) Loan Notes facility The adjustments reflect the shortterm loan note funding facility entered into by Texon for $25 million, which is assumed to be fully drawn as at the implementation of the Demerger Scheme. The Loan Notes are intended as a bridging facility to assist with the ongoing capital expenditure requirements of the business. (iii) Accounting policies The financial information should be read in conjunction with the latest annual and interim financial reports. Details of Texon s accounting policies are contained in the financial report and are available on request as outlined in Section Texon board and executive management (a) Texon Directors The board of Texon consists of the following directors: Texon Director John Dennis Armstrong Bernard Charles Ernest Rowley David James Melville Mason Position Chairman Non Executive Director Non Executive Director Biographical details on each of the Texon Directors is set out in Section 4.7. (b) Board renewal If the Acquisition Scheme is not implemented, then the present Texon Directors will continue in office. However, it is anticipated that in the short to medium term after the implementation of the Demerger Scheme, the board of Texon will undergo a process of renewal. (c) Directors fees For so long as John Armstrong, David Mason and Bernard Rowley are both Texon and Talon Directors during the board renewal process referred to in Section 5.10(b) above, they will only receive directors fees for an amount which does not exceed what they receive now as a Texon Director.

53 Demerger Scheme Booklet 51 (d) Executive Management Collectively, the Texon Group and the Talon Group only have four employees, with the majority of services relating to their businesses being provided by contractors. In the event that the Acquisition Scheme is not implemented but the Demerger Scheme is implemented, it is expected that contractors presently providing services to Texon would be engaged to continue to provide relevant services to Texon and Talon. All of Texon s employees will be transferred to Talon upon implementation of the Demerger Scheme, but these employees will continue to provide services to Texon as required on an agreed basis for a period of at least three months until such time as Texon makes alternative arrangements to replace them Dividend policy The Texon Directors do not consider that the payment of a dividend is appropriate at this period in Texon s development. Accordingly, there can be no assurance that Texon will pay a dividend in the short-term or at all Risks associated with Texon For risks associated with an investment in Texon, please refer to Section Further information in relation to Texon Further information in relation to Texon is contained in Section 4 of the Acquisition Scheme Booklet. SECTION 5 Information on Texon if the Demerger is implemented (but the Acquisition Scheme is not implemented) 5.11 Corporate governance The corporate governance arrangements for Texon are the same as the corporate governance arrangements for Talon described in Section 4.11.

54 52 6SECTION 6 Risk factors

55 Demerger Scheme Booklet 53 Risk factors 6.1 Introduction to risks If the Demerger Scheme proceeds, Texon Shareholders (other than Ineligible Foreign Shareholders) will receive Talon Shares as the Demerger Scheme Consideration. There are many factors that may influence the price of Talon Shares and future dividends payable on Talon Shares. Many of these factors will remain beyond the control of Talon. Once listed, the market price of Talon Shares will be affected by factors that impact on the market price of all ASX listed shares (such as economic policy or international market, economic or political conditions). In addition, the market price of Talon Shares will be affected by factors specifically relevant to the energy and resources sector of the market, such as fluctuations in oil and gas commodity prices and geopolitical developments worldwide. Accordingly, the market price of Talon Shares may rise or fall over any given period due to these factors. This Section describes key, but not all, risks associated with an investment in Texon and Talon if the Demerger Scheme is approved and implemented. This Section does not take into account the investment objectives, financial situation, taxation position or particular needs of Texon Shareholders and is not exhaustive. Prior to deciding how to vote on the Demerger Scheme Resolution and the Capital Reduction Resolution, Texon Shareholders should carefully consider the risk factors discussed in this Section, as well as other information contained in this Demerger Scheme Booklet and seek independent professional advice. business conditions and on their ability to fund their operations and capital expenditures in the future. The economic situation could have an impact on Talon s or Texon s lenders or customers, causing them to fail to meet their obligations to Talon or Texon, and on the liquidity of Talon s or Texon s operating partners, resulting in delays in operations or their failure to make required payments. Also, market conditions could have an impact on Talon s or Texon s oil and gas derivative instruments if their counterparties are unable to perform their obligations or seek bankruptcy protection. Additionally, the current economic situation could lead to further reductions in the demand for oil and gas, or further reductions in the prices of oil and gas, or both, which could have a negative impact on Talon s and Texon s financial position, results of operations and cash flows. While the ultimate outcome and impact of the current financial situation cannot be predicted, it may have a material adverse effect on Talon s and Texon s future liquidity, results of operations and financial position. (b) Exploration and appraisal risk Texon and Talon are involved in exploration activities. There is a risk this exploration will not result in the discovery of commercially viable hydrocarbon accumulations. No assurances can be given that if commercially viable hydrocarbon accumulations will be discovered by either company, they will be able to commercialise any such reserves as intended, or at all. (c) Development production risk SECTION 6 Risk factors 6.2 Risks common to Texon and Talon (a) General economic conditions Instability in the global financial system may have a material impact on Talon s and Texon s liquidity and their financial condition, and they may ultimately face major challenges if conditions in the financial markets do not continue to improve from their lows in early Talon s and Texon s ability to access the capital markets or borrow money may be restricted or made more expensive at a time when they would like, or need, to raise capital, which could have an adverse impact on their flexibility to react to changing economic and Development, construction and operation of oil and gas production facilities is dependent upon a number of factors including reservoir performance and management, oil and gas production and processing facility capacity performance and reliability, and regulatory requirements. Development, construction and operation of oil and gas production facilities may also be impacted by mechanical difficulties, human error, labour disputes, shortages or delays in the delivery of equipment, weather conditions, civil unrest, wars and natural disasters, blowouts, cratering, explosions, pollution, seepage or leaks, fire and earthquake. These factors are substantially beyond the control of Texon and Talon and, as a result, there is no assurance

56 54 SECTION 6 Risk factors that current rates of production can or will be sustained in the future. Disruption to expected production may result in variations to expected revenue and could have an adverse effect on the financial performance and ongoing operations of both companies. (d) Commodity price risk The price of oil and gas is determined by international supply and demand which is highly dependent on a variety of factors, including weather conditions, the price and availability of alternative fuels, actions taken by governments and international cartels, trading in international oil markets and global economic and political developments. Oil and gas prices have fluctuated widely in recent years and may continue to fluctuate significantly in the future. Any substantial decline in the prices of oil or gas could have a material adverse effect on the financial performance and ongoing operations of Texon and Talon. (e) Capital cost risk Both Texon and Talon have significant forecast capital costs to develop various assets within their portfolios. Estimates of capital costs are prospective and there is a risk that actual capital costs may vary significantly from the estimates. This could be caused by any number of factors which are beyond the control of either Texon or Talon including increases in the cost of equipment, materials, labour, exchange rate fluctuations, project delays and technical and geological conditions encountered at each project. (f) Currency risk All of Texon s and Talon s operating assets are located in the USA. The majority of revenues, operating and other business expenditure is determined in US dollars however financial results are reported in Australian Dollars. Fluctuations in the exchange rate between the US dollar and the Australian Dollar will result in foreign exchange gains and losses which may impact on financial performance. (g) Funding risk There can be no assurance that either Texon or Talon will not seek to exploit business opportunities of a kind which will require it to raise additional capital from equity or debt sources. There can be no assurance that Texon or Talon will be able to raise such capital on favourable terms or at all. If either Texon or Talon is unable to obtain such additional capital, then Texon or Talon (as the case may be) may be required to reduce the scope of its anticipated expansion or drilling program, which could adversely affect its business, financial condition and results of operation. (h) Drilling risk The oil and gas business involves operating hazards such as: well blowouts; mechanical failures; explosions; pipe or cement failures and casing collapses, which could release natural gas, oil, drilling fluids or hydraulic fracturing fluids; uncontrollable flows of oil, natural gas or well fluids; fires; geologic formations with abnormal pressures; handling and disposing of materials, including drilling fluids and hydraulic fracturing fluids; pipeline ruptures or spills; releases of toxic gases; and other environmental hazards and risks. Any of these hazards and risks can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to Talon s or Texon s properties and the property of others. Talon s and Texon s success will be largely dependent upon the success of their drilling program. Drilling for oil and gas involves numerous risks, including the risk that no commercially productive oil or gas reservoirs will be discovered. The cost of drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond our control, including: unexpected or adverse drilling conditions; elevated pressure or irregularities in geologic formations; equipment failures or accidents; adverse weather conditions; compliance with governmental requirements; and shortages or delays in the availability of drilling rigs, crews and equipment.

57 Demerger Scheme Booklet 55 Even if drilled, Talon s and Texon s completed wells may not produce reserves of oil or gas that are economically viable or that meet their earlier estimates of economically recoverable reserves. Talon s and Texon s overall drilling success rate or their drilling success rate for activity within a particular project area may decline. Unsuccessful drilling activities could result in a significant decline in Talon s and Texon s production and revenues and materially harm their operations and financial position by reducing their available cash and resources. The potential for production decline rates for Talon s and Texon s wells could be greater than they expect. Because of the risks and uncertainties of their businesses, Talon s and Texon s future performance in exploration and drilling may not be comparable to their historical performance described in this Acquisition Scheme Booklet. Talon and Texon use a substantial amount of water in their drilling operations. Talon s and Texon s inability to locate sufficient amounts of water, or treat and dispose of water after drilling, could adversely impact their operations. Moreover, the imposition of new environmental initiatives and regulations could include restrictions on Talon s and Texon s ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of natural gas. Furthermore, future environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing of wells could increase operating costs and cause delays, interruptions or termination of operations, the extent of which cannot be predicted, all of which could have an adverse effect on Talon s and Texon s operations and financial performance. (i) Reserve and resources risk There are numerous uncertainties inherent in estimating quantities of oil and gas reserves and resources and production levels, including factors beyond Texon and Talon s control. The accuracy of an estimate of quantities of reserves and resources, or of production levels, is a function of available data, assumptions regarding future oil and gas prices, expenditures for future development and exploitation activities, and technical interpretation and judgment. (j) Regulatory risk Oil and gas operations in the United States are subject to various U.S. federal, state, and local laws and regulations that may change over time, including but not limited to laws and regulations related to: environmental, health and safety; conservation and development of the mineral resources; and operating and production practices, including price controls and flow rate limitations. Compliance with existing, new or modified laws and regulations could result in substantial costs, delay Talon s and Texon s operations, or otherwise have a material adverse effect on their business, financial position and results of operations. (k) Environmental risk Oil U.S. federal, state, and local laws and regulations relating primarily to the protection of human health and the environment apply to the development, production, handling, storage, transportation and disposal of oil and gas, by-products and other substances and materials produced or used in connection with oil and gas operations, including drilling fluids and wastewater. Environmental laws and regulations change frequently and the implementation of new, or the modification of existing, laws or regulations could negatively impact the operations of Talon and Texon. The discharge of natural gas, crude oil, or other pollutants into the air, soil or water may give rise to substantial liabilities on the part of Talon or Texon to government agencies and third parties and may require them to incur substantial costs of remediation. U.S. federal and state laws and regulations impose numerous operational and worksite safety requirements. Talon and Texon may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance. Moreover, changes in environmental laws and regulations occur frequently and such laws and regulations tend to become more stringent over time. Stricter laws, regulations or enforcement policies could significantly increase Talon s and Texon s compliance costs and negatively impact their production and operations. As a recent example, on 16 August, 2012, the U.S. Environmental Protection Agency (EPA) published New Source Performance Standards (NSPS) SECTION 6 Risk factors

58 56 SECTION 6 Risk factors and National Emission Standards for Hazardous Air Pollutants (NESHAPS) for the oil and natural gas sector under the Clean Air Act. Compliance with these regulations could increase Talon s and Texon s costs or reduce their production, which could have a material adverse effect on their results of operations and cash flows. Hydraulic fracturing is an important and commonly used process in the completion of unconventional oil and gas wells. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into deep rock formations to stimulate gas or oil production. Currently, hydraulic fracturing is regulated in the U.S. at the state level, which generally focuses on regulation of well design, pressure testing and other operating practices. However, some states and local jurisdictions across the U.S., including states in which Talon and Texon operate, have begun adopting more restrictive regulation, including measures such as (1) required disclosure of chemicals used during the hydraulic fracturing process; (2) required baseline and postdrilling sampling of water supplies in close proximity to hydraulic fracturing operations; and (3) local moratoria or even bans on oil and gas development utilising hydraulic fracturing in some communities. At the U.S. federal level, hydraulic fracturing that does not involve the use of diesel fuels is exempt from regulation under the Safe Drinking Water Act (SDWA); however, the United States Congress has considered and likely will continue to consider eliminating this regulatory exemption, which could subject hydraulic fracturing activities to regulation and permitting by EPA under the SDWA. Congressional action will be informed by a study commenced in 2011 by EPA on the impacts of hydraulic fracturing on drinking water resources, with final results anticipated in 2014 and a progress report with preliminary data anticipated at the end of Despite the existing exemption, EPA has begun utilising other legal authorities in various ways to regulate portions of the hydraulic fracturing process, exemplified by its issuance noted above of regulations under the Clean Air Act limiting emission of pollutants during the hydraulic fracturing process. Additionally, the U.S. Department of the Interior is considering the adoption of restrictive regulations governing the use of hydraulic fracturing on federally managed lands. Altogether, or individually, these efforts by Congress, federal regulators, states and local governments could result in additional costs, delay, and operational uncertainty that could limit, preclude or add costs to Talon s and Texon s use of hydraulic fracturing in their drilling operations. (l) Changes to law, government policy or regulatory conditions Governmental action, including delay, inaction, policy change or the introduction of new, or amendment of or changes in interpretation of existing, legislation or regulations, particularly in relation to foreign ownership, access to infrastructure, environmental regulation (including in respect of carbon emissions and management), royalties and production and exploration licensing may adversely affect Talon s and Texon s operations and financial performance. Similarly, changes to tax and royalty legislation imposed by Federal, State, Territorial and foreign governments, and the interpretation of those laws (including any introduction of new or changes to existing taxes on carbon or hydrocarbons) may affect the future earnings or asset values of, or increase the amount of tax paid by, Talon and Texon or affect the treatment of tax losses that may have been, or may be, accumulated. These changes may influence both profit and loss for accounting purposes and the total tax that Talon and Texon has to pay. Talon and Texon are subject to relevant environmental laws and regulations in connection with their operations. There is a risk that such laws and regulations may change in a manner that may require stricter or additional standards than those now in effect, a heightened degree of responsibility for Talon and Texon and their directors and employees and more stringent enforcement of existing laws and regulations. Talon and Texon are also subject to changing and extensive tax laws, the effects of which cannot be predicted. President Obama s 2012 Fiscal Year Budget proposals, and certain legislation introduced in the United States Congress, if enacted into law, would make significant changes to United States tax laws, including the elimination of certain key federal income tax incentives currently available to oil and gas exploration and production companies. These or any other similar changes in federal income tax laws

59 Demerger Scheme Booklet 57 could defer or eliminate certain tax deductions that are currently available with respect to oil and gas exploration and development, and any such change could negatively affect Talon s and Texon s financial position and results of operations. (m) Litigation risk Exposure to litigation brought by third parties such as customers, regulators, employees or business associates could negatively impact on Texon s and Talon s financial performance through increased costs payments for damages and damage to reputation. (n) Key person risk Texon and Talon will be reliant on a number of key senior management staff. Loss of such personnel may have an adverse impact on performance. However, this risk is mitigated by the fact that the oil and gas industry is international in nature and has a significant depth of suitable qualified alternative personnel. Notwithstanding this, there may be periods of time where a particular position remains vacant while a suitable replacement is identified and appointed. (o) Insurance risk Talon and Texon maintain insurance against losses and liabilities in accordance with customary industry practices and in amounts that management of Talon and Texon (respectively) believes to be prudent. However, insurance against all operational risks is not available to either Talon or Texon. Talon and Texon do not carry business interruption insurance. Talon and Texon may elect not to carry insurance if management of Talon and Texon (respectively) believes that the cost of available insurance is excessive relative to the risks presented. In addition, losses could occur for uninsured risks or in amounts in excess of existing insurance coverage. Talon and Texon cannot insure fully against pollution and environmental risks. Neither Talon nor Texon can assure Texon Shareholders that Talon and Texon will be able to maintain adequate insurance in the future at rates they consider reasonable or that any particular types of coverage will be available. The occurrence of an event not fully covered by insurance could have a material adverse effect on Talon s and Texon s financial position and results of operations. (p) Title risk Talon and Texon may lose title to, or interests in, their tenements if the conditions to which those tenements are subject are not satisfied or if insufficient funds are available to meet the commitments. As is customary in the industry in which Talon and Texon operate, Talon and Texon generally rely upon the judgment of oil and gas lease brokers or independent landmen who perform the field work in examining records in the appropriate governmental offices and abstract facilities before attempting to acquire or place under lease a specific mineral interest and before drilling a well on a leased tract. Talon and Texon, in some cases, perform curative work to correct deficiencies in the marketability or adequacy of the title to Talon and Texon (respectively). In cases involving more serious title problems, the amount paid for affected oil and gas leases can be generally lost, and the target area can become undrillable. The failure of title may not be discovered until after a well is drilled, in which case Talon or Texon may lose the lease and the right to produce all or a portion of the minerals under the property. (q) Terrorism risk Terrorist activities, anti-terrorist efforts or other armed conflict involving the United States may materially adversely affect the United States and global economies. If events of this nature occur and persist, the associated political instability and societal disruption could reduce overall demand for oil and gas potentially putting downward pressure on prevailing oil and gas prices and causing a reduction in Texon s and Talon s revenues. Oil and gas production facilities, transportation systems and storage facilities could be direct targets of terrorist attacks, and Texon s and Talon s operations could be materially adversely impacted if infrastructure integral to its operations is destroyed or damaged by such an attack. Costs for insurance coverage may become more difficult to obtain, if available if at all. (r) Occupational health and safety risk The conduct of exploration for, and production of, hydrocarbons may expose Texon and Talon s staff to potentially dangerous working environments. Occupational health and safety legislation and regulations differ in each jurisdiction. If any of Texon s or Talon s employees suffered injury SECTION 6 Risk factors

60 58 SECTION 6 Risk factors or death, compensation payments or fines may have to be paid, and such circumstances could result in the loss of a license or permit required to carry on the business, or other legislative sanction, all of which have the potential to impact Texon s or Talon s cash flow, operations and ability to make future distributions (should they decide to do so). (s) Share market risk The value of Texon and Talon Shares will be determined by the share market and will be influenced by a range of factors outside the control of Texon and Talon including fluctuations in the Australian and international share markets, domestic and international economic activity, changes in interest rates and movements in exchange rates. There may be relatively few or many potential buyers and sellers of Texon and Talon Shares at any time which may adversely impact its price. (t) Industry competition The availability of a market for oil and gas in the future will depend in part on cost and availability of alternate fuels, the level of consumer demand, the extent of domestic production of oil and gas, the extent of important foreign oil and gas, the cost of and proximity to pipelines and other transportation facilities, regulations by state and federal authorities and the cost of complying with applicable environmental regulations. There is a risk that increased industry competition could impact on oil and gas supply and demand that could negatively impact on prices and therefore on Texon and Talon s businesses. 6.3 Risks specific to Talon (a) Exploration focus Talon will primarily be focused on oil exploration and early stage development. Accordingly, the exploration risk associated with Talon may be greater than the exploration risk associated with Texon. (b) Funding risk Talon is an oil exploration and appraisal investment that will initially have limited cash generating business units or assets. As is typical for exploration and development companies with limited cash generating businesses, Talon s ability to meet its on-going operating costs and capital expenditure requirements will involve expenditure which may exceed the estimated cash resources which Talon is expected to have on the implementation of the Demerger. Accordingly, Talon s ability to meet these expenditures will depend on its ability to raise new equity capital or access debt funding for that purpose. There is a risk that the future capital raisings or borrowings which Talon may require for these purposes may not be available on terms favourable to Talon or at all. (c) Joint venture assets Talon has a joint venture arrangement with a 47.4% Working Interest in the Roundhouse Oil Project. Under such agreements, Talon may be required to adopt programs and budgets which it does not necessarily agree with or have the cash resources to fund. It may also be required to contribute to any increases in capital expenditure requirements and/or operating costs. Furthermore, the situation could arise where any or all of the other joint venture parties are unable to fund their pro rata contributions to expenditure, in which case Talon may have to make increased contributions to ensure that the program succeeds. Talon will be required under joint operating agreements to pay its percentage interest share of all costs and liabilities incurred by the joint venture in connection with joint venture activities. In common with other joint venture parties, if Talon fails to pay its share of any costs and liabilities it may be deemed to have withdrawn from the joint venture and may have to transfer its interest in the exploration permits and the joint operation agreements to the other joint venture participants. (d) Non-diversified portfolio Talon s assets are all non-efs assets that are predominately oil projects. Such limited diversification means that Talon is highly susceptible to anything that could impact the geographic area that Talon operates in or the oil price. This could include natural disasters, bad weather conditions, changes to regulation in that area, terrorist attacks. Due to the lack of diversification of assets, any such impact could have a material affect on Talon s operations as it may impact multiple or all assets owned.

61 Demerger Scheme Booklet 59 (e) Peeler #4 In January 2012, an accident at the Peeler #4 well site in McMullen County, Texas (in which Texoz E&P II, Inc. (TEP II) has a Working Interest) resulted in the death of an employee of an independent third party contractor engaged by the contract operator of record. The family of the deceased subsequently filed legal proceedings in a Texas court claiming damages against TEP II, the contract operator and a number of other parties connected with the accident which are unrelated to the Texon Group. The Texon Group denies any liability in connection with the accident, and TEP II, currently a named-party in the referenced legal proceedings, intends to defend its interests vigorously. Talon has indemnified the Texon Group for any liability in respect of the accident. It is not currently practicable to estimate the potential financial effect of the claim, if any. (f) Share market risks There is currently no public market for Talon Shares and there can be no assurance that an active market will develop or continue after the implementation of the Demerger Scheme. There may be relatively few or many potential buyers and sellers of Talon Shares at any time which may adversely impact the market value of Talon Shares. 6.5 Risks relating to the Demerger (a) Combined value of Texon and Talon Due to a number of factors, including the other risk factors described in this Section 6, there is a risk that the combined market value of Texon Shares and Talon Shares will be less than the market value of Texon Shares prior to the implementation of the Demerger Scheme. Further, Texon Shareholders should note that there can be no assurance that Texon Shares will trade in line with recent levels if Texon Shareholders do not approve the Demerger. (b) Liquid trading market There has not previously been a separate public market for Talon Shares and there can be no assurances that both Texon Shares and Talon Shares will trade at a particular level in the public market following the implementation of the Demerger Scheme. It is possible that a number of shareholders will seek to vary their holding in Texon and Talon and accordingly, if the Demerger Scheme is approved and becomes Effective, there may be a volatile market for Talon Shares and (if the Acquisition Scheme is not approved and does not become Effective) Texon Shares. (c) Court delays SECTION 6 Risk factors 6.4 Risks specific to Texon (a) General risks After implementation of the Demerger, Texon will continue to be subject to various general risk factors as described in Section 6.2. (b) Acquisition Scheme risks If the Acquisition Scheme is approved and implemented, Texon will be subject to a number of additional specific risks associated with the acquisition by Sundance. These risks are set out in Section 7.2 of the Acquisition Scheme Booklet. (c) Loan Notes Texon has recently issued the Loan Notes. These notes have a maturity of 12 months. It is intended that the Merged Group will take responsibility for the repayment of these Loan Notes on the implementation of the Acquisition Scheme. If the Acquisition Scheme is not implemented, Texon will remain responsible for repayment of any amount outstanding in respect of the Loan Notes. There is a risk in these circumstances that Texon may have difficulty making these repayments. There is a risk that the Court may not approve the Demerger Scheme or that the approval of the Court is delayed. This may also result in the delay of the implementation of the Acquisition Scheme or mean that the Acquisition Scheme, which is conditional on the implementation of the Demerger Scheme, will not be implemented at all. (d) Third party consents There is a risk that the Demerger will require the consent of one or more third parties and that such a consent cannot be obtained, or, if it can be obtained, it will not be obtained on reasonable terms and conditions and within a reasonable timeframe. The operation of provisions requiring consent may have negative consequences for Texon and Talon such as the loss of contracts or assets, increased costs, and the need to renegotiate such arrangements.

62 60 7SECTION 7 What if the Demerger Scheme and/or Acquisition Scheme is not implemented?

63 Demerger Scheme Booklet 61 Section 7 What if the Demerger Scheme and/or Acquisition Scheme is not implemented? 7.1 What if both the Demerger Scheme and the Acquisition Scheme are not implemented? If neither the Acquisition Scheme nor the Demerger Scheme proceeds, there will be no change in Texon and it will remain listed on ASX in its current form. Accordingly you will retain your Texon Shares and they will not be acquired by Sundance, and you will not receive Talon Shares under the Demerger Scheme or New Sundance Shares under the Acquisition Scheme. If the Demerger Scheme is not implemented, the Acquisition Scheme, which is conditional upon the Demerger Scheme becoming Effective, will not proceed and Sundance will not acquire Texon. In this circumstance: Texon will continue to: own its existing EFS assets; own Talon and its associated non-efs assets; and Texon will continue to be listed on ASX. Texon Shareholders will not receive Talon Shares and there will be no reduction of capital in Texon. The advantages of the Demerger Scheme outlined in Section 3.1(a) will not be realised and the disadvantages described in Section 3.1(b) need not be considered. The Texon Directors and senior management of Texon will comprise the persons listed in Section 7.3. Decisions in relation to the future of Texon will continue to be taken by the Texon Directors. Texon anticipates that it will retain all of its current employees and continue to operate Texon in its current form. Texon, which will also continue to own the assets of Talon, intends to pursue the strategies referred to in Section 4.3 and Section 7.4. Texon will continue to own the assets of Talon and will continue to explore options to maximise the value of the Talon assets. Therefore, Texon will continue to be exposed to the risks and funding issues associated with Talon s business strategy. These risks are outlined in Section 6.3. A key advantage of the Demerger Scheme is to provide Talon with financial independence from Texon, unlock value in Texon s EFS assets and allow greater management focus on Texon s EFS operations. Given the above, the trading price of Texon Shares on ASX may fall from current levels in the absence of an alternative proposal emerging which is similar or superior to the Demerger Scheme. Prior to the Demerger Scheme Meeting, transaction costs of approximately $2.2 million relating to the Demerger Scheme and the Acquisition Scheme will have been incurred, or will be committed, by Texon in relation to the Demerger Scheme and the Acquisition Scheme. Those transaction costs will be payable by Texon regardless of whether or not the Demerger Scheme or Acquisition Scheme are implemented. Depending on the reasons for the Acquisition Scheme not proceeding, a break fee of approximately $1 million may be payable by Texon if the Acquisition Scheme is not implemented. Texon will remain liable for principal and interest payments in respect of the Loan Notes. As noted in Section 6.4(c), there is a risk in these circumstances that Texon may have difficulty in making these repayments. 7.2 What if the Demerger Scheme is implemented but the Acquisition Scheme is not implemented? If the Demerger Scheme is approved by Texon Shareholders and the Court but the Acquisition Scheme is not approved by Texon Shareholders at the Acquisition Scheme Meeting (or the Acquisition Scheme is approved by Texon Shareholders but not approved by the Court), the Acquisition Scheme will not be implemented. If the Acquisition Scheme is not implemented but the Demerger Scheme is implemented: Texon Shareholders will: continue to hold their Texon Shares; and also hold Talon Shares, which will be separately listed and traded on ASX. SECTION 7 What if the Demerger Scheme and/or Acquisition Scheme if not implemented?

64 62 SECTION 7 What if the Demerger Scheme and/or Acquisition Scheme if not implemented? The advantages of the Acquisition Scheme outlined in the Acquisition Scheme Booklet will not be realised and the disadvantages and risks of the Acquisition Scheme described in the Acquisition Scheme Booklet need not be considered. The Board and senior management of Talon and Texon will comprise the persons listed in Section Texon intends to pursue the strategies in relation to Texon outlined in Section 5.5. Talon will be subject to the risk factors outlined in Sections 6.2, 6.3 and 6.5. Texon will be subject to the risk factors outlined in Sections 6.2, 6.4 and 6.5. The financial position of Talon and Texon will be as described in Sections 4.8 and 5.9 respectively. Texon and Talon will still be a party to, and bound by, the Demerger Deed which sets out the internal steps required to give effect to the principles underlying the demerger of Talon. 7.3 Texon s Board and employees if the Acquisition Scheme does not proceed (a) Texon Directors If neither the Acquisition Scheme nor the Demerger Scheme is implemented, the Texon Directors will not change. In the event that the Acquisition Scheme is not implemented but the Demerger Scheme is implemented, the Texon Directors will be as set out in Section 5.10(a). (b) Employees If neither the Acquisition Scheme nor the Demerger Scheme is implemented, the current arrangements for Texon employees will not change. In the event that the Acquisition Scheme is not implemented but the Demerger Scheme is implemented, then the arrangements for Texon employees will be as set out in Section 5.10(d). Although it is not possible to predict the future Texon Share price, the trading price of Texon Shares on ASX may fall from current levels as the trading price of Texon Shares will no longer reflect the value associated with assets owned by Talon or the benefits of the Acquisition Scheme. Talon will be financially independent from Texon and will no longer be able to rely on Texon operating cash flows and access to capital for its funding in relation to exploration and development activities. Prior to the Demerger Scheme Meeting, transaction costs of approximately $2.2 million relating to the Demerger Scheme and the Acquisition Scheme will have been incurred, or will be committed, by Texon in relation to the Demerger Scheme and the Acquisition Scheme. Those transaction costs will be payable by Texon regardless of whether or not the Demerger Scheme or Acquisition Scheme are implemented. Depending on the reasons for the Acquisition Scheme not proceeding, a break fee of approximately $1 million may be payable by Texon if the Acquisition Scheme is not implemented. 7.4 Strategies and intentions for Texon if the Acquisition Scheme does not proceed Should the Acquisition Scheme not proceed, decisions in relation to the future of Texon will continue to be taken by the Texon Directors. In this event, Texon will adopt the strategies outlined in Section 5.5 in respect of its EFS assets. 7.5 Risks associated with Texon following the Demerger Scheme if the Acquisition Scheme is not implemented After implementation of the Demerger, Texon will continue to be subject to various general risk factors referred to in Section 6.2 and the specific risks set out in Section 6.4. These include general factors affecting the oil and gas industries and other risks associated with an investment in Texon. Texon will remain liable for principal and interest payments in respect of the Loan Notes. As noted in Section 6.4(c), there is a risk in these circumstances that Texon may have difficulty in making these repayments.

65 Demerger Scheme Booklet 63 8SECTION 8 Implementation of the Demerger

66 64 SECTION 8 Implementation of the Demerger Implementation of the Demerger 8.1 Preparations for implementation Texon and Talon have entered into the Demerger Deed, which (amongst other things): sets out the steps required to be taken by each of Texon and Talon to implement the Demerger Scheme; sets out the steps required to be taken by each of Texon and Talon to effect an internal restructure of Texon before the Demerger Scheme is implemented. The purpose of the internal restructure is to ensure that Texon and Talon own the companies and assets described in Section 4 and Section 5, respectively, including related liabilities after the Demerger; and deals with commercial, legal and transitional issues arising in connection with the legal and economic separation of the assets (and related liabilities) described in Section 4 from those assets (and related liabilities) described in Section 5. These matters are described more fully in the summary of the Demerger Deed set out in Section 1 of Appendix 5. In relation to the internal restructure, it is intended that it will be completed by the Implementation Date. The main step to complete in the internal restructure is the restructure of all intercompany debts between members of the Talon Group and members of the Texon Group into a single debt owed by Talon to Texon. This debt restructure will be completed prior to the Implementation Date. Once completed, Texon will subscribe for such number of Talon Shares as are necessary for Texon, after the issue, to hold sufficient number of Talon Shares to satisfy its obligation to transfer the Scheme Consideration to Scheme Shareholders under the Scheme. Texon will direct Talon to apply the debt owed by Talon to Texon in consideration for the issue of the Talon Shares to Texon. After the capitalisation of this intercompany debt has occurred, there will be no intercompany debts between the Talon Group and the Texon Group. A number of other conditions must also either be satisfied or waived by Texon before the Demerger can proceed. The conditions are described in Section 1.5 of this Demerger Scheme Booklet. 8.2 Elements of the Demerger The two principal elements of the Demerger are the Capital Reduction and the Demerger Scheme. (a) Capital Reduction Texon has proposed the Capital Reduction Resolution to permit Texon to reduce its capital on the Implementation Date by $19,220,000. If the Capital Reduction and the Demerger Scheme are approved by Texon Shareholders and the Demerger Scheme is approved by the Court, then on the Implementation Date the share capital of Texon will be reduced by that amount. The Capital Reduction is conditional on Texon Shareholders approving the Demerger Scheme and on implementation of the Demerger. This means that Texon will not undertake the Capital Reduction unless the Demerger Scheme becomes Effective. (b) Demerger Scheme Under the Demerger Scheme, Talon will be separated from Texon. If the Demerger Scheme becomes effective, then: on the Implementation Date, Texon will undertake the Capital Reduction and will provide the Demerger Scheme Consideration to each Scheme Shareholder who is not an Ineligible Foreign Shareholder; in the case of each Ineligible Foreign Shareholder, the Talon Shares to which the shareholder would otherwise have been entitled will be transferred to the Sale Agent to be sold as soon as reasonably practicable after the Implementation Date, with the average proceeds of sale, after deduction of any applicable brokerage, taxes and charges, being remitted to the shareholder; unless and until the Acquisition Scheme is implemented, Texon will continue to be listed on the Official List of the ASX (which will be on an ex-capital Reduction Entitlement basis from the day after the Effective Date); and Application will also be made to the ASX for the listing of Talon. Section 8.9(d) of this Demerger Scheme Booklet outlines the criteria for identifying Ineligible Foreign Shareholders. The Demerger Scheme is contained in Appendix 3 of this Booklet.

67 Demerger Scheme Booklet Deed Poll Talon has entered into the Deed Poll in favour of Texon Shareholders under which Talon has undertaken for the benefit of Scheme Shareholders to take the steps to be performed by it under the Demerger Scheme, including registering the transfer of Talon Shares to Eligible Scheme Shareholders as contemplated by the Demerger Scheme. The Deed Poll is contained in Appendix General Meeting The Texon Directors have convened the General Meeting to consider and, if thought fit, approve the Capital Reduction Resolution. The terms of the Capital Reduction Resolution are set out in the notice convening the General Meeting in Appendix 6. Each Texon Shareholder who is registered on the Texon Share Register at 6.00pm on 23 February 2013 is entitled, in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative, to attend the General Meeting and vote on the Capital Reduction Resolution. The Capital Reduction Resolution must be approved by a simple majority of votes cast on the resolution (whether in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representatives). The Capital Reduction Resolution is conditional on the Demerger Scheme becoming Effective. Voting at the General Meeting will be by poll. 8.5 Demerger Scheme Meeting On 22 January 2013 the Court ordered a meeting of all Texon Shareholders to be convened to consider and, if thought fit, approve the Demerger Scheme Resolution, with or without amendment or modification. The notice convening the Demerger Scheme Meeting is contained in Appendix 7 while the terms of the Demerger Scheme are contained in Appendix 3. The order of the Court convening the Demerger Scheme Meeting is not, and should not be treated as, an expression of opinion by the Court on the Demerger Scheme or any other element of the Demerger. Each Texon Shareholder who is registered on the Texon Share Register as the holder of a Texon Share at 6.00pm on 23 February 2013 is entitled to attend and vote, in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative, at the Demerger Scheme Meeting. For the Demerger to proceed, the Demerger Scheme Resolution must be approved by: a majority in number of Texon Shareholders present and voting on the Demerger Scheme Resolution (whether in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative); 21 and at least 75% of the total number of votes cast on the Demerger Scheme Resolution by Texon Shareholders (whether in person, by attorney, by proxy or, in the case of corporate Texon Shareholders or proxies, by corporate representative). Voting at the Demerger Scheme Meeting will be by poll. 8.6 Court approval of the Demerger Scheme Assuming that the Demerger Scheme Resolution and Capital Reduction Resolution are approved and all other conditions to the Demerger Scheme (other than Court approval) have been satisfied or (where applicable) waived, Texon will apply to the Court for orders approving the Demerger Scheme at the Second Court Hearing. It is expected that the Second Court Hearing will be held on or about 27 February Any change to this date will be announced through the ASX. The Court has a discretion whether or not to approve the Demerger Scheme under section 411(4)(b) of the Corporations Act. If you wish to oppose the approval of the Demerger Scheme at the Second Court Hearing, you must file with the Court and serve on Texon a notice of appearance in the form prescribed, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Texon at its address for service at least one day before the Second Court Hearing. The address for service is: SECTION 8 Implementation of the Demerger 21 The Court has a discretion to approve the Acquisition Scheme where it is approved by at least 75% of all votes cast on the resolution to approve the Acquisition Scheme but not by a majority in number of Texon Shareholders voting on the resolution to approve the Acquisition Scheme: refer to section 411(4)(a)(ii)(A) of the Corporations Act.

68 66 SECTION 8 Implementation of the Demerger Texon Petroleum Ltd c/- Minter Ellison Lawyers Level 22, Waterfront Place 1 Eagle Street Brisbane QLD 4000 Australia 8.7 Receipt of Court orders If the Court makes orders approving the Demerger Scheme, Texon will lodge a copy of those orders with ASIC under section 411(10) of the Corporations Act. As soon as the copies of the Court orders approving the Demerger Scheme are lodged with ASIC, the Demerger Scheme will become Effective. This is expected to occur on or about 27 February If the Demerger Scheme becomes Effective, Texon and Talon will become bound to implement the Demerger Scheme in accordance with the terms of the Demerger Scheme and the Deed Poll. Only Texon Shareholders who qualify as Scheme Shareholders will be bound by and have the benefit of the Demerger Scheme. Section 8.8 describes the principles in the Demerger Scheme for determining the identity of Scheme Shareholders. If the Demerger Scheme does not become Effective by the End Date (or such later date as Texon determines), the Demerger Scheme will lapse. 8.8 Determination of Scheme Shareholders To establish the identity of the Scheme Shareholders, dealings in Texon Shares will only be recognised if: in the case of dealings of the type to be effected using CHESS, the transferee is registered in the Texon Share Register as the holder of the relevant Texon Shares by the Demerger Record Date; and in all other cases, transmission applications or registrable transfer forms in respect of those dealings are received by the Demerger Record Date at the place where the Texon Share Register is kept. Texon must register any non-chess transmission applications or registrable transfers of Texon Shares by the Demerger Record Date. Texon will not accept for registration or recognise for the purpose of determining entitlements under the Demerger Scheme any transmission application or transfer in respect of Texon Shares received after the Demerger Record Date. For the purpose of determining entitlements under the Demerger Scheme, Texon must maintain (or procure the maintenance of) the Texon Share Register in the manner set out above. The Texon Share Register in this form will solely determine entitlements under the Demerger Scheme. 8.9 Implementation (a) Transfer of Talon Shares If the Demerger is implemented, Texon Shareholders will be credited with a Capital Reduction Amount for each Texon Share they are registered in the Texon Share Register as holding on the Demerger Record Date. Under the Demerger Scheme, these entitlements will be applied by Texon as consideration for the transfer of Talon Shares in accordance with the Demerger Scheme. Texon s obligation to transfer the Talon Shares under the Demerger Scheme will be discharged by Texon: transferring the Talon Shares as described above to all Eligible Scheme Shareholders or, in the case of Ineligible Foreign Shareholders, to the Sale Agent (as further described in Section 8.9(d) in accordance with the Demerger Scheme); and procuring the entry in the Talon Share Register of the names of the Eligible Scheme Shareholders in respect of the Talon Shares transferred to them by Texon in accordance with the Demerger Scheme or, in the case of Ineligible Foreign Shareholders, the name of the Sale Agent in respect of the Talon Shares that would otherwise have been transferred to the Ineligible Foreign Shareholders. Talon must send or procure the dispatch of written confirmation to each Eligible Scheme Shareholder by prepaid post to the person s address as shown in the Texon Share Register on the Demerger Record Date for the Talon Shares transferred to them under the Demerger Scheme. Written confirmation will be despatched by 12.00pm on the Business Day prior to the commencement of ordinary trading in Talon Shares on ASX. In the case of Eligible Scheme Shareholders that are joint holders of Texon Shares, written confirmation for Talon Shares will be sent to the address of the Scheme Shareholder whose name appears first in the Texon Share Register. The Computershare Investor Centre website will display the issue of Talon Shares from the Implementation Date.

69 Demerger Scheme Booklet 67 For more information on the operation of the Demerger Scheme in relation to Ineligible Foreign Shareholders, see Section 8.9(d). (b) Creditors The Texon Directors consider that the Capital Reduction will not materially prejudice Texon s ability to pay its creditors. (c) Talon Shares listed on ASX Talon Shares will initially trade on ASX on a deferred settlement basis. This is expected to commence no later than the third Business Day after the Effective Date. Normal trading of Talon Shares on ASX is expected to commence by no later than 10 Business Days after the Demerger Record Date. (d) Ineligible Foreign Shareholders Texon Shareholders whose address as shown in the Texon Share Register on the Demerger Record Date is in Australia and its external territories, New Zealand, the United Kingdom, the United States of America, Singapore or Hong Kong (and any other Texon Shareholder that Texon determines that it is lawful and not unduly onerous or impracticable to transfer Talon Shares to when the Demerger Scheme becomes Effective) will be Eligible Scheme Shareholders who will be eligible to receive the Demerger Scheme Consideration. Texon Shareholders whose address as shown in the Texon Share Register on the Demerger Record Date is in a place outside the places referred to above will be Ineligible Foreign Shareholders because the transfer of Talon Shares to them may be prohibited by the laws of the jurisdictions in which they have their registered address or may require compliance with conditions or legal requirements which Texon regards as onerous. Ineligible Foreign Shareholders will be entitled to participate in the Capital Reduction on the same basis as all Texon Shareholders. However, Ineligible Foreign Shareholders will not receive Talon Shares nor will they receive any cash payments in respect of the Capital Reduction. Instead, Texon will transfer to the Sale Agent the Talon Shares to which each Ineligible Foreign Shareholder would otherwise have been entitled. The Sale Agent will sell those Talon Shares on behalf of all the Ineligible Foreign Shareholders as soon as reasonably practical (and in any event by no later than 20 Business Days after the Implementation Date). The Sale Agent will then pay to each Ineligible Foreign Shareholder the average net proceeds of sale of the Talon Shares to which the Ineligible Foreign Shareholder would otherwise have been entitled (after deduction of any applicable brokerage, duties or other charges). The net proceeds of sale after deduction of any withholding tax will be paid to the Ineligible Foreign Shareholders within 30 Business Days after the Implementation Date in Australian currency by cheque drawn on an Australian bank or by electronic transfer to an account nominated for the payment of dividends. Full details of this process are contained in clause 4.3 of the Demerger Scheme (which is set out in Appendix 3). (e) Application of Texon Shareholder s compatible standing instructions to the Talon Share Register On the Implementation Date, Talon will receive from Texon details of the Texon Shareholders compatible standing instructions and Talon will apply those standing instructions to the relevant Talon Shares. (f) Fractional entitlements to Talon Shares Any fractional entitlement to Talon Shares will be rounded down to the nearest whole Talon Share Relationship between Demerger Scheme and Acquisition Scheme (a) Conditionality The Demerger Scheme is not conditional on the Acquisition Scheme being approved or becoming Effective. This means that the Demerger Scheme, if it is approved by Texon Shareholders and the Court, will proceed even if the Acquisition Scheme does not proceed. The Acquisition Scheme is conditional on the Demerger Scheme becoming Effective. This means that the Acquisition Scheme will not proceed if the Demerger Scheme is not approved by Texon Shareholders and the Court. SECTION 8 Implementation of the Demerger

70 68 SECTION 8 Implementation of the Demerger (b) Acquisition Scheme approved The Acquisition Scheme Booklet which you received with this Demerger Scheme Booklet, contains detailed information about the consequences for Texon Shareholders of the Acquisition Scheme being approved and becoming Effective. That information is not repeated in this Demerger Scheme Booklet. You should refer to the Acquisition Scheme Booklet for that information. (c) Acquisition Scheme not approved If the Demerger Scheme proceeds and the Acquisition Scheme is not approved then, unless you are an Ineligible Foreign Shareholder (in which case your entitlements will be dealt with in the manner set out in Section 8.9(d)), you will receive two Talon Shares for every five Texon Shares you hold on the Demerger Record Date (subject to fractional entitlement being dealt with in the manner set out in Section 8.9(e)) and you will retain your existing Texon Shares. You will, in this event, have separate investments in each of Texon and Talon. Texon will continue to be listed on ASX and Talon will become listed on ASX. The financial position of Talon after the Demerger is discussed in Section 4. The financial position of Texon and the consequences for Texon of the Demerger Scheme proceeding and the Acquisition Scheme not being approved are contained in Section 5 of this Demerger Scheme Booklet. (d) Neither the Acquisition Scheme nor the Demerger Scheme is approved If neither the Demerger Scheme nor the Acquisition Scheme is approved then there will be no change to Texon and Talon will remain a wholly owned subsidiary of Texon. Texon Shareholders will retain their Texon Shares and will not receive Talon Shares nor will they receive the Capital Reduction Amount or any consideration from Sundance for the acquisition of their Texon Shares.

71 Demerger Scheme Booklet 69 9SECTION 9 Additional information

72 70 SECTION 9 Additional information Section 9 Additional information 9.1 Introduction This Section 9 sets out the statutory information required by section 412(1)(a) of the Corporations Act and Part 3 of Schedule 8 to the Corporations Regulations to be included in this Demerger Scheme Booklet, but only to the extent that this information is not otherwise disclosed in other Sections. This Section also includes additional information that the Texon Directors consider material to a decision on how to vote on the resolutions to be considered at the Demerger Scheme Meeting. 9.2 Texon s issued securities As at the date of this Demerger Scheme Booklet: (a) there are 245,339,848 Texon Shares on issue and quoted on ASX; and (b) there are the Existing Options. 9.3 Texon Shares held by or on behalf of Texon Directors As at the date of this Demerger Scheme Booklet, the number of Texon Shares held by or on behalf of each of the Texon Directors is as follows: Texon Director Direct Shareholding Indirect Shareholding Total Shareholding John Dennis Armstrong 2,102, ,023 * 2,564,046 Bernard Charles Ernest Rowley 400, ,000 David James Melville Mason 8,170,000 39,228 * 8,209,228 * Held by direct family members As at the date of this Demerger Scheme Booklet, the number of Existing Options held by, or on behalf of, the Texon Directors are set out in the table below: Texon Director Existing Options John Dennis Armstrong 6,000,000 Bernard Charles Ernest Rowley 600,000 David James Melville Mason 2,250, Other interests Except as set out or referred to in Sections 1.12, 4.4(f), 4.8(b)(ii), 9.3 and 9.5 of this Demerger Scheme Booklet, no Texon Director has any other interest, whether as a director, member or creditor of Texon or otherwise, material to the Demerger. 9.5 Agreements or arrangements with Texon Directors Except as set out in Sections 1.12 and 4.8(b)(ii) of this Demerger Scheme Booklet, there is no agreement or arrangement made between any Texon Director and any other person except Sundance, in connection with or conditional upon the outcome of the Demerger. The Scheme Implementation Agreement, the option cancellation deeds referred to in Section 1.12, the Wandoo Interest Acquisition Agreement and the implementation of the Acquisition Scheme are conditional on, among other things, the Demerger being approved.

73 Demerger Scheme Booklet Retirement benefits No payment or other benefit is proposed to be made or given in connection with the Demerger Scheme to any Texon Director, secretary or executive officer of Texon, or of any Related Body Corporate of Texon, as compensation for loss of, or as consideration for, or in connection with, his retirement from office in Texon or in a Related Body Corporate. 9.7 Material changes in the financial position of Texon The financial position of Texon as at 30 September 2012 is set out in clause 5.9 of this Demerger Scheme Booklet. So far as is known to any Texon Director, except for the matters below which are disclosed in this Demerger Scheme Booklet, the financial position of Texon has not materially changed since the date of its final report for the year ended 31 December 2011, as lodged with the ASX on 26 April Material events relevant to the financial position of Texon that have occurred since Texon s final report for the year ended 31 December 2011 and which are disclosed in this Demerger Scheme are: (a) drilling of, and production from, new wells (see Sections 4.4(a) and 5.4(a)); (b) increase in reserves (see Sections 4.4(a) and 5.4(b)); (c) entry into the Roundhouse project (see Section 4.4(c)); (d) acquisition of new acreage under Welhausen joint venture (included in acreage figures noted in Section 5.4(a)); (e) arrangements relating to the Loan Notes (see Sections 5.6 and 6.4(c)); and (f) litigation relating to an accident at the Peeler #4 well site in January 2012 (see Section 6.3(e)). 9.9 Overview of Texon and Talon constitutions The following is a summary of the key provisions in the Texon Constitution and the principal rights of Texon Shareholders as set out in the Texon Constitution. With effect on or before the Effective Date, Talon will adopt a constitution which is materially in the same form as the current Texon Constitution. The only material difference between the two Constitutions is noted below. This summary is not exhaustive nor does it constitute a definitive statement of the rights and liabilities of Texon Shareholders or Talon Shareholders (as the case may be). Such rights and liabilities involve complex questions of law arising from the interaction of the Constitution, the Corporations Act, the Listing Rules, the ASX Settlement Operating Rules and general law. Texon and Talon shareholders should seek their own independent advice when trying to establish their rights and liabilities in specific circumstances. In this Section 9.9: the term Company is used to refer to Texon or Talon as appropriate; the term Constitution is used to refer to the Texon Constitution or Talon Constitution as appropriate; the term Director is used to refer to a Texon Director or Talon Director as appropriate; the term Executive Director means a Director appointed by the Directors to any other full-time or substantially full-time executive position with the Company; the term Managing Director means a Director appointed to the office of Managing Director; the term Non-Executive Director means a Director who is not an Executive Director; SECTION 9 Additional information 9.8 Texon s substantial shareholders As at 21 January 2013, Texon is not aware of any person having a substantial holding of Texon Shares. the term Share is used to refer to a Texon Share or Talon Share as appropriate; and the term Shareholder is used to refer to a Texon Shareholder or Talon Shareholder as appropriate.

74 72 SECTION 9 Additional information Voting Subject to the Constitution and to any rights or restrictions attaching to any class of Shares, at meetings of Shareholders: each Shareholder may vote; generally, on a show of hands each Shareholder has one vote, and on a poll, each Shareholder has one vote for each fully paid Share held; if two or more joint Shareholders purport to vote, the vote of the joint Shareholder whose name appears first in the Company s register of Shareholders will be accepted; a Shareholder who is entitled to vote at a general meeting may appoint not more than two proxies to attend and vote at the general meeting on that Shareholder s behalf; if a Shareholder appoints one proxy, that proxy may, subject to the Corporations Act, vote on a show of hands. A poll can be demanded by the chairperson of the relevant meeting, or by at least 5 Shareholders entitled to vote on the resolution, or by Shareholders with at least 5% of the vote that may be cast on the resolution on a poll. General meetings and notices Dividends Dividend re-investment plans Issue of further shares A Director may call a general meeting at any time. The Directors must call annual general meetings in accordance with the Corporations Act. Shareholders may also request or call and arrange to hold general meetings in accordance with the Corporations Act. Notice of general meetings must be given to every Shareholder, Director and Alternate Director, the ASX, and the Company s auditor. At least 28 days written notice is required for any general meeting. A notice convening a general meeting must state (among other things) the place, date and time of the meeting and the general nature of the business to be transacted at the meeting. No business may be transacted at a general meeting unless a quorum of two Shareholders is present (in person or by proxy, attorney or representative). The Directors may either declare a dividend, or determine a dividend is payable, and in either case, fix the amount, the time for, and method of, payment. Unless otherwise determined by the Directors, Shares rank for dividends from their date of allotment. The Directors may deduct from a dividend payable to a Shareholder all sums presently payable by the Shareholder to the Company on account of calls or otherwise in relation to Shares in the Company. The Directors may establish (and once established vary, suspend or terminate) a plan under which Shareholders may elect to re-invest cash dividends paid by the Company by subscribing for Shares. Subject to the Corporations Act, the ASX Listing Rules and the Constitution, the Directors may issue shares as the Directors determine. The Directors may issue shares with any preferential, deferred or special rights, privileges or conditions and with any restrictions in regard to dividend, voting return of capital or otherwise, including shares which are liable to be redeemed.

75 Demerger Scheme Booklet 73 Transfer of Shares Subject to the Constitution, Shares may be transferred: in the case of a transfer regulated by the ASX Settlement Pty Limited, in accordance with the ASX Listing Rules and the ASX Settlement Operating Rules; in other cases, by a written transfer instrument in any usual or common form or any other form approved by the Directors. Where the Directors refuse to register a transfer of Shares, the Company must, within five business days after the date of lodgement of the transfer, give to the lodging person written notice of refusal and the reasons for it. SECTION 9 Additional information Winding up Alteration of capital Variation of rights Chairperson Directors If the Company is wound up, the liquidator may, with the sanction of a special resolution of the Company: divide among the Shareholders in kind all or any of the Company s assets; and for that purpose, determine how he or she will carry out the division between the different classes of Shareholders, but may not require a Shareholder to accept any Shares or other securities in respect of which there is any liability. The liquidator may, with the sanction of a special resolution of the Company, vest all or any of the Company s assets in a trustee on trusts determined by the liquidator for the benefit of the contributories. The Company may reduce or otherwise alter its capital including buying back its shares in any manner authorised or permitted by the Corporations Act and the Listing Rules. Under the Corporations Act, if at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class may (unless otherwise provided by the terms of issue of the shares of that class), whether or not the Company is being wound up, be varied or abrogated in any way with the consent in writing of the holders of at least 75% of the issued shares of that class, or with the sanction of a special resolution of the holders of the shares in that class. The chairperson, or in his or her absence, the deputy chairperson, is the chairperson at every general meeting. The general conduct and procedures adopted at each general meeting will be determined by the chairperson. The Directors must manage and control the business and affairs of the Company. Generally, the number of Directors must be not less than three or more than five. Nominations for the position of Director (other than Directors standing for re-election) must be received at the Company s registered office not less than 35 business days before the general meeting. Any Director may call a meeting of the Directors. A Directors meeting must be called by not less than 48 hours notice of a meeting to each Director, unless the Directors unanimously agree otherwise. The quorum for a Directors meeting may be fixed by the Directors and unless so fixed, is two Directors present at all times during the meeting.

76 74 SECTION 9 Additional information Remuneration of Directors Subject to the Listing Rules, the Directors as a whole (other than Executive Directors) may be paid or provided remuneration for their services, the total amount or value determined from time to time by the Company in general meeting. Non-Executive Directors may not be paid a commission on or a percentage of profits or operating revenue. Retirement and Removal of Directors Indemnity Amendments to the Constitution Replaceable rules The remuneration of an Executive Director may from time to time be fixed by the Directors. The remuneration may be by way of salary or commission or participation in profits or by all or any of these modes, but may not be by commission on, or a percentage of, operating revenue. At the close of each annual general meeting, one third (or the nearest to, but not more than one-third) of the Directors, other than the Managing Director, must retire. The Directors to retire by rotation are those who have been longest in office. Each Director other than the Managing Director must retire from office at the close of the third annual general meeting after the Director was last elected and that Director is eligible for re-election at that meeting. To the extent permitted by law and subject to the restrictions in the Corporations Act, the Company indemnifies every person who is or has been an officer of the Company against: any liability (other than for legal costs) incurred by that person as an officer of the Company (including, in some circumstances, liabilities incurred as an officer of a subsidiary of the Company); and reasonable legal costs incurred in defending an action for a liability incurred or allegedly incurred by that person as an officer of the Company (including, in some circumstances, such legal costs incurred as an officer of a subsidiary of the Company). The Corporations Act provides that the constitution of a company may be modified or repealed by a special resolution passed by the members of the company (i.e. passed by at least 75% of the votes cast by members entitled to vote on the resolution). The Constitution does not provide for any further requirements to be complied with to effect a modification of, or to repeal, the Constitution. The replaceable rules contained in the Corporations Act are displaced by the Constitution and do not apply to the Company ASX listing of Talon Prior to the Second Court Date, Talon will apply for admission to the official list of ASX and for official quotation of all Talon Shares on ASX. That application is conditional upon the Demerger Scheme becoming Effective. On the basis that Talon is admitted to the official list of ASX on 27 February 2013, conditionally on the Demerger Scheme becoming Effective on 27 February 2013, it is anticipated that Talon Shares will commence trading on ASX on a deferred settlement basis on the next Business Day after Talon s admission to the official list of ASX. Talon will issue, or cause the issue, of a written confirmation to each Scheme Shareholder (other than Ineligible Foreign Shareholders) and the Sale Agent by 12.00pm on the Business Day prior to the commencement of ordinary trading in Talon Shares on ASX. Each written confirmation will state the number of Talon Shares transferred to each Scheme Shareholder or the Sale Agent (as the case may be).

77 Demerger Scheme Booklet Regulatory relief Section 707 of the Corporations Act provides for circumstances where an offer of securities for sale requires disclosure to investors, including where there is a resale of securities within 12 months of their issue (section 707(3)) or transfer (section 707(5)), if the purpose of the original issue or transfer was to enable the resale. ASIC Class Order 04/671 (as amended by Class Order 07/42) provides relief from the resale provisions in section 707(3) of the Corporations Act in the case where the securities are issued under a scheme of arrangement without disclosure to investors as allowed for in section 708(17) of the Corporations Act. ASIC has granted Texon in-principle relief from the resale provisions in sections 707(3), (4), (5) and (6) in the case where: (a) a Talon Shareholder makes an offer of Talon Shares for sale; (b) the Talon Shares were transferred to an Eligible Scheme Shareholder or to the Sale Agent (or its related body corporate) under the Demerger Scheme within the previous 12 months; and (c) the offer is not made within 12 months of a sale or transfer of the Talon Shares by a person who: (i) controls Talon; (ii) would have been required by subsection 707(2) of the Corporations Act to give disclosure to investors under Part 6D.2 of the Corporations Act but for section 708 of the Corporations Act; and (iii) did not give disclosure to investors under Part 6D.2 of the Corporations Act because of section 708 of the Corporations Act. holds at the date of this Demerger Scheme Booklet or held at any time during the last two years, any interest in: the formation or promotion of Talon; property acquired or proposed to be acquired by Talon in connection with its formation or promotion, or the offer of Talon Shares under the Demerger Scheme; or the offer of Talon Shares under the Demerger Scheme Disclosure of fees and benefits received by certain persons Other than as set out below or elsewhere in this Demerger Scheme Booklet, no amounts have been paid or agreed to be paid and no benefits have been given or agreed to be given: to a director of Talon to induce them to become, or to qualify as, a director of Talon; or for services provided by any person referred to in Section 9.11 in connection with the formation or promotion of Talon or the offer of Talon Shares under the Demerger Scheme. The persons named in this Demerger Scheme Booklet as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Demerger Scheme Booklet are RBS Morgans Corporate Limited (as financial advisers to Texon), Computershare Investor Services Pty Limited (as manager of Texon s Registry), Minter Ellison Lawyers (as legal adviser to Texon) and the Independent Expert. Each of them will be entitled to receive professional fees charged in accordance with their normal basis of charging. SECTION 9 Additional information 9.12 Disclosure of interests of certain persons Except as disclosed elsewhere in this Demerger Scheme Booklet, no: Talon Director; person named in this Demerger Scheme Booklet as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Demerger Scheme Booklet; or promoter of Talon; 9.14 Competent person statement The estimates of oil and gas reserves in this Demerger Scheme Booklet have been prepared by NSAI. NSAI have consented to the use of the reserves figures as contained in this Demerger Scheme Booklet in the form and context in which each such reference appears.

78 76 SECTION 9 Additional information 9.15 Consents and disclaimers The following parties have given and have not, before the time of registration of this Demerger Scheme Booklet by ASIC, withdrawn their written consent to be named in this Demerger Scheme Booklet in the form and context in which they are named: Talon; RBS Morgans Corporate Limited; NSAI; Minter Ellison Lawyers; Computershare Investor Services Pty Limited; and the Independent Expert. Each of the above persons: does not make, or purport to make, any statement in this Demerger Scheme Booklet or any statement on which a statement in this Demerger Scheme Booklet is based other than in respect of a statement or report included in this Demerger Scheme Booklet with the consent of that party; and to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Demerger Scheme Booklet, other than a reference to its name and any statement or report which has been included in this Demerger Scheme Booklet with the consent of that party Continuous disclosure As a company listed on ASX and a disclosing entity under the Corporations Act, Texon is subject to regular reporting and disclosure obligations. Broadly, these require Texon to announce price sensitive information as soon as it becomes aware of the information, subject to exceptions for certain confidential information. Texon s recent announcements are available from Further announcements concerning developments at Texon will continue to be made available on that website after the date of this Demerger Scheme Booklet. Texon is required to prepare and lodge with ASIC and ASX both annual and half yearly financial statements accompanied by a statement and report from Texon Directors and an audit or review report. Texon also lodges quarterly activity reports with ASX. Copies of these and other documents lodged with ASIC and ASX may be obtained from an ASIC office and are accessible from ASX s website at respectively. Copies of these documents will also be made available free of charge on a request in writing at any time before the Implementation Date to Texon s Company Secretary at Texon Petroleum Limited, Level 9, 46 Edward Street, Brisbane QLD 4000.

79 Demerger Scheme Booklet 77 The following table summarises key announcements made by Texon in the period since 31 December 2011 (being the end of Texon s financial year): Date Title 18/01/2013 Texon s Seventh Eagle Ford Well 1705 boepd 15/01/2013 Texon s Sixth Eagle Ford Well 2007 boepd SECTION 9 Additional information 10/01/2013 Change of Directors Interest Mr David Mason 03/01/2013 Status Report New Eagle Ford Wells 20/12/2012 Exercise of Unlisted Options 13/12/2012 Debt Funding Finalised 10/12/2012 Drilling update 30/11/2012 Current Drilling Wells Update 13/11/2012 Talon Petroleum presentation 13/11/2012 Texon acquires Wandoo Carried Working Interest 13/11/2012 Sundance Texon Merger Presentation 13/11/2012 Texon Petroleum Merger with Sundance Energy Australia 13/11/2012 Texon Petroleum Merger with Sundance Energy 13/11/2012 Trading Halt 07/11/2012 Current Drilling Wells Update 31/10/2012 September 2012 Quarterly Report and Appendix 5B 24/10/2012 Investor Update 27/09/2012 Roundhouse Prospect 25/09/2012 Appendix 3Y David Mason 20/09/2012 Appendix 3B Issue of Options 11/09/2012 Interim Financial Report 30 June /09/2012 Reserves Up 11 % 31/08/2012 EGM Resolution results 31/08/2012 EGM Presentation 31 August /08/2012 Peeler No 4 06/08/2012 Mosman Rockingham Olmos Well 31/07/2012 EGM Notice of Meeting and proxy mailed today 31/07/2012 June 2012 Quarterly Report and App 5B 23/07/2012 Fifth Eagle Ford Well 1072 bopd 20/07/2012 Website Update 28/06/2012 Investor Update 22/06/2012 Appendix 3Y Bernard Rowley 22/06/2012 Appendix 3Y John Armstrong 20/06/2012 Appendix 3B Issue of Options 20/06/2012 Response to ASX query 20/06/2012 Fifth Eagle Ford Well Early July Test

80 78 SECTION 9 Additional information Date Title 18/06/2012 Appendix 3Y David Mason 18/06/2012 Appendix 3Y John Armstrong 12/06/2012 Mosman Rockingham Olmos Well 220 BOEPD 30/05/2012 Constitution Amendment 30/05/2012 AGM Voting Results 30/05/2012 AGM Presentation 28/05/2012 Fifth Eagle Ford Well 28/05/2012 Mosman Rockingham Olmos Well 22/05/2012 Mosman Rockingham Olmos Well 17/05/2012 Fifth Eagle Ford Well 17/05/2012 Mosman Rockingham Olmos Well 08/05/2012 Fifth Eagle Ford Well 08/05/2012 Mosman Rockingham New Olmos Well 30/04/2012 March Quarterly Reports 26/04/2012 AGM Notice of Meeting, Proxy and Annual Report mailed today 19/04/2012 Fifth Eagle Ford Well 19/04/2012 Mosman Rockingham New Olmos Well 19/04/2012 Remaining Unlisted Options 18/04/2012 Exercise of 2,500,000 options / Appendix 3B 18/04/2012 Company Presentation Material 30/03/2012 Financial Report 31 December /03/2012 Chairman s Letter 13/03/2012 Reserves Up 90% 08/03/2012 GBP: Olmos Sale 07/03/2012 Olmos Sale Bolsters Cash 02/03/2012 SandP Indices Announces March Quarterly Rebalance 24/02/2012 Eagle Ford Oil Project NAPE Flyer 23/02/2012 Eagle Ford Oil Project 31/01/2012 December 2011 Quarterly Report and Appendix 5B 31/01/2012 Peeler No 4 Well Site Accident 11/01/2012 Wilcox Increased Oil Flow Now 55 bopd 10/01/2012 Wilcox Oil Test 37 bopd

81 Demerger Scheme Booklet Other material information Except as set out in this Demerger Scheme Booklet, in the opinion of the Texon Board, there is no other information material to the making of a decision in relation to the Demerger Scheme, being information that is within the knowledge of any Texon Director or of any Related Body Corporate of Texon which has not been previously disclosed to Texon Shareholders. Texon will issue a supplementary document to this Demerger Scheme Booklet if it becomes aware of any of the following between the date of lodgement of this Demerger Scheme Booklet for registration by ASIC and the Effective Date: a material statement in this Demerger Scheme Booklet is false or misleading in a material respect; a material omission from this Demerger Scheme Booklet; a significant change affecting a matter included in this Demerger Scheme Booklet; or a significant new matter has arisen and it would have been required to be included in this Demerger Scheme Booklet if it had arisen before the date of lodgement of this Demerger Scheme Booklet for registration by ASIC. Depending on the nature and timing of the changed circumstances and subject to obtaining any relevant approvals, Texon may circulate and publish any supplementary document by: making an announcement to the ASX; placing an advertisement in a prominently published newspaper which is circulated generally throughout Australia; posting the supplementary document to Texon Shareholders at their registered address as shown in the Texon Share Register; and/or posting a statement on the Texon corporate website, as Texon in its absolute discretion considers appropriate Privacy Texon may collect personal information in the process of implementing the Demerger Scheme. Such information may include the name and contact details and shareholding of Texon Shareholders, and the name of persons appointed by Texon Shareholders to act as proxy, corporate representative or attorney at the Demerger Scheme Meeting. The primary purpose of collection of the personal information is to assist Texon in the conduct of the Meeting and to enable the Demerger Scheme to be implemented by Texon in the manner described in this Demerger Scheme Booklet. Without this information, Texon may be hindered in its ability to carry out these purposes to full effect. The collection of certain personal information is authorised by the Corporations Act. Personal information may be disclosed to the Texon Registry, the Talon Registry, print and mail service providers, authorised securities brokers and to Related Bodies Corporate of Texon and the parties to the Scheme Implementation Agreement. Texon Shareholders have certain rights to access personal information that has been collected. Texon Shareholders should contact Texon s Company Secretary in the first instance, if they wish to request access to their personal information. Texon Shareholders who appoint a named person to act as their proxy, corporate representative or attorney at any or all of the Demerger Scheme Meeting and General Meeting should ensure that they inform that person of the contents of this Section Registration of Demerger Scheme Booklet by ASIC This Demerger Scheme Booklet was registered by ASIC on 22 January 2013 in accordance with section 412(6) of the Corporations Act. SECTION 9 Additional information

82 80 SECTION 10 Glossary

83 Demerger Scheme Booklet 81 Glossary The following terms used in this Demerger Scheme Booklet (including the Notice of General Meeting in Appendix 6 and the Notice of Demerger Scheme Meeting in Appendix 7) have the meanings given to them below, unless the context otherwise requires. SECTION 10 Glossary AASB AASB Standards Acquisition Scheme Acquisition Scheme Booklet Australian Accounting Standards Board, being the Australian Government agency responsible for developing and issuing accounting standards applicable to Australian entities and the care and maintenance of the body of standards as set out in the Australian Securities and Investments Commission Act 2001 (Cth) Australian Accounting Standards issued by the AASB proposed members scheme of arrangement under Part 5.1 of the Corporations Act between Texon and its Shareholders, as annexed to the Acquisition Scheme Booklet, subject to any modifications or conditions made or required by the Court under section 411(6) of the Corporations Act and approved by Texon and Sundance, under which Sundance will acquire all the Texon Shares in exchange for the issue of Sundance Shares in the ratio of one New Sundance Share for every two Texon Shares explanatory booklet dated on or about the date of this Demerger Scheme Booklet in relation to the Acquisition Scheme Acquisition Scheme Meeting meeting of Texon Shareholders to be held on 25 February 2013 to consider and vote on the Acquisition Scheme ASIC Associate ASX BOE BOEPD Break Fee Business Day Capital Reduction Capital Reduction Amount Capital Reduction Resolution CGT CHESS Australian Securities and Investments Commission has the meaning set out in section 12 of the Corporations Act ASX Limited (ACN ) or, if the context requires, the securities market operated by it barrels of oil equivalent barrels of oil equivalent per day A$1 million a week day on which Australian banks are open for business in Brisbane, Australia reduction of the share capital of Texon by the total of the Capital Reduction Amount in respect of each Scheme Share, in accordance with the terms of the Capital Reduction Resolution the amount determined in accordance with the Capital Reduction Resolution ordinary resolution to approve the Capital Reduction set out in the notice of General Meeting in Appendix 6 Capital Gains Tax Clearing House Electronic Subregister System operated by ASX Settlement Pty Ltd

84 82 SECTION 10 Glossary Competing Proposal any proposed or possible transaction or arrangement pursuant to which, if ultimately completed, any person or persons (other than Sundance or a Related Entity (as defined in the Scheme Implementation Agreement) of Sundance) would: (a) acquire (directly or indirectly): (i) an interest in all or a substantial part of the assets or business of Texon (other than pursuant to the Demerger); (ii) without limiting paragraph (i) above, an interest in all or a substantial part of the EFS assets; or (iii) a relevant interest (as defined in the Corporations Act) in more than 20 per cent of the voting shares of Texon; (b) acquire (directly or indirectly) Control of Texon; or (c) otherwise acquire (directly or indirectly) or merge (directly or indirectly) with Texon (including by a reverse takeover bid, reverse scheme of arrangement or dual listed company or similar structure) Control Corporations Act Corporations Regulations Court Demerger has the meaning given in section 50AA of the Corporations Act Corporations Act 2001 (Cth) Corporations Regulations 2001 (Cth) Federal Court of Australia demerger of Talon from Texon to be implemented in the manner more fully described in this Demerger Scheme Booklet Demerger Deed deed of that name referred to in Section 8.1 Demerger Record Date Demerger Scheme Demerger Scheme Booklet Demerger Scheme Consideration Demerger Scheme Deed Poll or Deed Poll record date in respect of the Demerger Scheme, being 6.00pm on the fifth Business Day following the Effective Date (or such other Business Day as Texon determines). The Demerger Record Date is currently expected to be 6.00pm on 6 March 2013 scheme of arrangement pursuant to Part 5.1 of the Corporations Act proposed between Texon and Texon Shareholders, in the form of Appendix 3 to this Demerger Scheme Booklet, together with any alternations or conditions made or required pursuant to sub-section 411(6) of the Corporations Act and agreed or consented to by Texon, for the Demerger this explanatory booklet dated 22 January 2013 in relation to the Demerger Scheme two Talon Shares for every five Texon Shares held on the Demerger Record Date deed poll executed by Talon for the benefit of Scheme Shareholders in which Talon acknowledges and confirms with respect to the Scheme. A copy of the executed Demerger Scheme Deed Poll is reproduced in Appendix 4 to this Demerger Scheme Booklet Demerger Scheme Meeting meeting of Texon Shareholders to be held on 25 February 2013 to consider and vote on the Demerger Scheme Demerger Scheme Resolution Dollar, $, A$ or Cents proposed resolution to approve the Demerger Scheme at the Demerger Scheme Meeting lawful currency for the time being of the Commonwealth of Australia

85 Demerger Scheme Booklet 83 Effective when used in relation to the Demerger Scheme, the coming into effect, pursuant to section 411(10) of the Corporations Act, of the order of the Court approving the Demerger Scheme under section 411(4)(b) of the Corporations Act SECTION 10 Glossary Effective Date EFS Eligible Scheme Shareholders when used in relation to the Demerger Scheme, the date on which the Demerger Scheme becomes Effective Eagle Ford Shale Scheme Shareholders who are not Ineligible Foreign Shareholders End Date 30 April 2013 Existing Options farmin, farminee, farmout First Court Hearing frac 17,500,000 unlisted options to acquire shares in Texon an agreement where the owner of a Working Interest in an oil and gas lease assigns the Working Interest or a portion thereof to another party (farminee) who desires to drill on the leased acreage. Generally, the farminee is required to drill one or more wells in order to earn its Working Interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The Working Interest received by a farminee is a farmin while the interest transferred by the assignor is a farmout day on which Texon applied to the Court for orders under section 411(1) of the Corporations Act convening the Demerger Scheme Meeting to consider the Demerger Scheme, being 22 January 2013 hydraulic fracturing General Meeting meeting of Texon Shareholders to be held on 25 February 2013 to consider and vote on the Capital Reduction Resolution GST Implementation Date Independent Expert Independent Expert s Report Ineligible Foreign Shareholder Listing Rules Loan Notes MBO MBOE Goods and Services Tax with respect to the Demerger Scheme, the third Business Day, or such other Business Day as Texon determines, following the Demerger Record Date. The Implementation Date is expected to be on or about 7 March 2013 BDO Corporate Finance (QLD) Ltd report of the Independent Expert expressing an opinion on whether the Demerger Scheme is in the best interests of Texon Shareholders. The Independent Expert s Report is set out in Appendix 1 to this Demerger Scheme Booklet a Scheme Shareholder whose address as shown in the Texon Share Register is a place outside Australia and its external territories, New Zealand, the United Kingdom, the United States of America, Singapore and Hong Kong, unless Texon determines that it is lawful and not unduly onerous or impracticable to transfer Talon Shares to that Scheme Shareholder when the Demerger Scheme becomes Effective listing rules of the ASX senior secured short term loan notes described in further detail in Section 5.6 thousand barrels of oil thousand barrels of oil equivalent

86 84 SECTION 10 Glossary MMBO MMBOE Net Revenue Interest million barrels of oil million barrels of oil equivalent share of production (expressed as a percentage) after all burdens such as royalties have been deducted from the Working Interest New Sundance Share Notice of Demerger Scheme Meeting NSAI Operating Rules Possible reserves Probable reserves Prospect Generation Agreement Proved reserves Related Body Corporate Related Person Relevant Interest Sale Agent Scheme Implementation Agreement Scheme Shareholder Second Court Date Second Court Hearing Section Subsidiary a Sundance Share to be issued under the terms of the Acquisition Scheme as consideration for the Acquisition Scheme Notice to convene the Demerger Scheme Meeting Netherland, Sewell & Associates, Inc. official operating rules of the ASX reserves which have at least a 10% probability that the quantities actually recovered will equal or exceed the estimate reserves which have at least a 50% probability that the quantities actually recovered will equal or exceed the estimate agreement between Texoz E&P III, Inc., Wandoo and John Dennis Armstrong dated 20 June 2006, as amended reserves which have at least a 90% probability that the quantities actually recovered will equal or exceed the estimate has the meaning given to that term in the Corporations Act each director, officer, employee, adviser, agent or representative of that party or Related Body Corporate has the meaning given in sections 608 and 609 of the Corporations Act a person appointed by Texon to sell the Talon Shares that are attributable to Ineligible Foreign Shareholders under the terms of the Demerger Scheme agreement between Texon and Sundance dated 13 November 2012 (as amended) under which each party undertakes specific obligations to give effect to the Acquisition Scheme, a copy of which was provided to ASX on 13 November 2012 and is available on Texon s website at as amended a Texon Shareholder as at the Demerger Record Date first day on which the Second Court Hearing is heard or scheduled to be heard or, if that application is adjourned for any reason, the date on which the adjourned application is heard or scheduled to be heard hearing by the Court of Texon s application to approve the Demerger Scheme under section 411(4)(b) of the Corporations Act a section of this Demerger Scheme Booklet has the meaning given to that term in section 46 of the Corporations Act Sundance Sundance Energy Australia Limited (ABN ) Sundance Share a fully paid ordinary share in the capital of Sundance

87 Demerger Scheme Booklet 85 Superior Proposal a bona fide Competing Proposal in respect of Texon received by Texon (and which was not obtained in breach of the Scheme Implementation Agreement), which the Texon Directors determine, acting in good faith and in order to satisfy what the Texon Directors consider to be their fiduciary or statutory duties (and after having taken advice from its financial and legal advisers and having taken into account any factors the Texon Directors consider relevant): (a) is capable of being valued and consummated; and (b) would, if consummated, result in a transaction more favourable to Texon Shareholders than the Acquisition Scheme, taking into account all terms and conditions of the Competing Proposal SECTION 10 Glossary Talon Talon Petroleum Limited (ABN ) Talon Director Talon Group a director of Talon (the Talon Directors as at the date of this Demerger Scheme Booklet are the Texon Directors as at the date of this Demerger Scheme Booklet) Talon, Rubox Pty Ltd (ABN ), Texon I Pty Ltd (ABN ), Texoz E&P Holdings I, Inc., Texoz E&P I, Inc., Texoz E&P Holdings III, Inc. and Texoz E&P III, Inc. Talon Registry Computershare Investor Services Pty Limited (ACN ) Talon Share Talon Share Register Tax Act a fully paid ordinary share in the capital of Talon register of members of Talon maintained by or on behalf of Talon in accordance with section 168(1) of the Corporations Act Income Tax Assessment Act 1997 (Cth) Texon Texon Petroleum Ltd (ABN ) Texon Director Texon Group a director of Texon (the Texon Directors as at the date of this Demerger Scheme Booklet are the persons specified in Section 1.3) Texon, Texon (Eagle Ford) Pty Ltd, Texoz Eagle Ford Holdings, Inc. and Texoz E&P II, Inc. Texon Registry Computershare Investor Services Pty Limited (ACN ) Texon Share or Share Texon Share Register Texon Shareholder or Shareholder United States, U.S., US or USA Wandoo Wandoo Interest Acquisition Agreement Working Interest a fully paid ordinary share in the capital of Texon register of members of Texon maintained by or on behalf of Texon in accordance with section 168(1) of the Corporations Act a person registered on the Texon Share Register as a member of Texon United States of America Wandoo Energy, LLC agreement between Texoz E&P II, Inc. and Wandoo dated 18 October 2012 for the acquisition by Texoz E&P II, Inc. of Wandoo s Working Interest in the EFS assets acquired under the Prospect Generation Agreement (as amended) cost bearing interest of an oil and gas project

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