Pharaoh Capital Inc.

January 06, 2005 19:14 ET

Fairmount Energy Inc. and Pharaoh Capital Inc. Announce Agreement for Qualifying Transaction and Proposed Business Combination


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: PHARAOH CAPITAL INC.

TSX VENTURE SYMBOL: PHC

JANUARY 6, 2005 - 19:14 ET

Fairmount Energy Inc. and Pharaoh Capital Inc.
Announce Agreement for Qualifying Transaction and
Proposed Business Combination

CALGARY, ALBERTA--(CCNMatthews - Jan. 6, 2005) - Fairmount Energy Inc.
and Pharaoh Capital Inc. (TSX VENTURE:PHC) announced today that they
have signed a letter of intent dated December 20, 2004 (the "Letter of
Intent") respecting a transaction which, when completed, is expected to
constitute Pharaoh's Qualifying Transaction as a capital pool company.
The transaction is non-arm's length and is subject to the policies of
the TSX Venture Exchange Inc. (the "Exchange").

About the Business Combination

Fairmount and Pharaoh have agreed to combine their businesses (the
"Business Combination") to form a new oil and natural gas exploration
and development company which will continue under the name Fairmount
Energy Inc. The Letter of Intent contemplates that Fairmount and Pharaoh
will, with the assistance of their respective professional advisers,
determine a transaction structure for the Business Combination.
Representatives of Fairmount and Pharaoh expect to finalize the
transaction structure for the Business Combination and enter into a
formal agreement on or prior to January 17, 2005, at which time
Fairmount and Pharaoh expect to issue a further press release setting
out additional details concerning the Business Combination and any
changes to the engineering reports disclosed herein upon completion of
the review of such reports by the Exchange. For purposes of the Business
Combination, it is anticipated that one common share of the resulting
issuer will be issued for each seven common shares of Pharaoh and one
common share of the resulting issuer will be issued for each one common
share of Fairmount.

It is contemplated that the Board of Directors of the resulting issuer
will consist of seven members, including Joseph S. Durante, Brian J.
Mellum, Abdel F.Z. Badwi, Peter Salamon, Charles W. Berard, Brad Munro
and Todd Lahti. Mr. Durante will also be appointed President and Chief
Executive Officer of the resulting issuer, Ryan Michaluk will be
appointed the Vice-President, Finance and Chief Financial Officer of the
resulting issuer and Jennifer Kennedy will be appointed Corporate
Secretary of the resulting issuer. Additional officers of the resulting
issuer are expected to be identified prior to the completion of the
Business Combination.

GMP Securities Ltd. has been engaged by Pharaoh to provide the Board of
Directors of Pharaoh with a fairness opinion respecting the Business
Combination. As the transaction is non-arms' length, both Fairmount and
Pharaoh have established special committees consisting of independent
directors to negotiate the terms of the Business Combination, including
the terms of the definitive agreement relating to the transaction.

The Business Combination is a non-arms length transaction as Joseph S.
Durante and Brian J. Mellum, directors, officers and shareholders of
Pharaoh, are directors and shareholders of Fairmount. In addition, Peter
Salamon, a director of Pharaoh, and Charles Berard, a director of
Fairmount, each own common shares of Pharaoh and Fairmount.

Completion of the Business Combination is subject to a number of
conditions in favor of Fairmount and Pharaoh, respectively, including
the execution and delivery of a formal agreement, board approval of such
formal agreement, completion of satisfactory due diligence inquiries,
receipt of a favorable fairness opinion by the Board of Directors of
Pharaoh, receipt of all necessary regulatory approvals (including the
consent of the Exchange), receipt of third party approvals, approval of
the shareholders of Fairmount (if required) and Pharaoh and a threshold
for the exercise of dissent rights (5%) not being exceeded (if the
Business Combination is structured in such a manner as to give rise to
statutory dissent rights).

An application has been made to the Exchange for an exemption from the
sponsorship requirements of the Exchange in respect of the Business
Combination although there is no guarantee this waiver will be granted.
Trading in the Common Shares of Pharaoh will remain halted until the
Exchange grants an exemption from sponsorship, or if sponsorship is
required, until the Exchange receives a sponsorship acknowledgement form.

Information About Fairmount Energy Inc.

Fairmount is a private company formed on April 1, 2002 by the
amalgamation of Star Biotech Inc., 169149 Canada Inc. and 4024931 Canada
Inc. under the Canada Business Corporations Act. Fairmount has two
wholly-owned subsidiaries, 6263488 Canada Ltd. and Warner Joint Venture
Ltd. Fairmount's assets currently include its joint venture interests in
the Harmattan and Warner areas of Alberta. Gilbert Laustsen Jung
Associates Ltd., independent petroleum evaluators, have prepared an
evaluation of Fairmount's oil and natural gas reserves in respect of its
Harmattan property in a report dated December 2, 2004 and effective
November 1, 2004. The reserve estimations set forth in this report and
summarized below were prepared in accordance with the Canadian Oil and
Gas Evaluation Handbook and National Instrument 51-101. The following
sets forth the reserves volumes and future net revenues associated with
the Harmattan property. Net present values of future net revenue do not
represent fair market value.



SUMMARY OF OIL AND GAS RESERVES
BASED ON FORECAST PRICES AND COSTS

Natural Gas Natural Gas Liquids
----------------- -------------------
Gross Net Gross Net
Reserves Category (mmcf) (mmcf) (mbbl) (mbbl)
--------------------------- ------ ------ ------ ------
TOTAL PROVED 319 242 45 33

PROBABLE 129 95 18 13
------ ------ ------ ------

TOTAL PROVED PLUS PROBABLE 448 337 63 46
------ ------ ------ ------
------ ------ ------ ------


NET PRESENT VALUES OF FUTURE NET REVENUE
BASED ON FORECAST PRICES AND COSTS(1)

Before Deducting Income Taxes Discounted At
--------------------------------------------
0% 5% 10% 15% 20%
Reserves Category ($M) ($M) ($M) ($M) ($M)
------------------------- --------------------------------------------
TOTAL PROVED 1,797 1,457 1,209 1,021 874
----- ----- ----- ----- -----

PROBABLE 670 526 427 354 300
----- ----- ----- ----- -----

TOTAL PROVED PLUS PROBABLE 2,467 1,983 1,636 1,375 1,174
----- ----- ----- ----- -----
----- ----- ----- ----- -----

Note:
(1) Forecast prices based on the Gilbert Laustsen Jung Associates Ltd.
price forecast effective October 1, 2003.


AJM Petroleum Consultants, independent petroleum evaluators, have
prepared an evaluation of Fairmount's oil and natural gas reserves in
respect of its Warner property in a report dated November 30, 2004 and
effective November 1, 2004. The reserve estimations set forth in this
report and summarized below were prepared in accordance with the
Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101.
The following sets forth the reserves volumes associated with the Warner
property. Net present values of future net revenue do not represent fair
market value.



SUMMARY OF OIL AND GAS RESERVES
BASED ON FORECAST PRICES AND COSTS

Natural Gas
---------------------
Gross Net
Reserves Category (mmcf) (mmcf)
---------------------------------- ----- -----
TOTAL PROVED 631 560

PROBABLE 114 97
----- -----
TOTAL PROVED PLUS PROBABLE 745 657
----- -----
----- -----


NET PRESENT VALUES OF FUTURE NET REVENUE
BASED ON FORECAST PRICES AND COSTS(1)

Before Deducting Income Taxes Discounted At
-------------------------------------------
0% 10% 15% 20%
Reserves Category ($M) ($M) ($M) ($M)
---------------------------- ----- ----- ----- -----
TOTAL PROVED 1,540 1,126 968 834
----- ----- ----- -----

PROBABLE 505 362 315 277
----- ----- ----- -----

TOTAL PROVED PLUS PROBABLE 2,045 1,488 1,282 1,111
----- ----- ----- -----
----- ----- ----- -----

Note:
(1) Forecast prices based on the AJM Petroleum Consultants price
forecast effective October 1, 2004.


Subsequent to the preparation of the above reserves evaluations,
Fairmount has participated in the drilling of an additional two gas
wells on its Harmattan property.

In addition to its oil and gas interests which were acquired in August
and November 2004, management of Fairmount estimates it has cash assets
of approximately $4.7 million and approximately $18.6 million in tax
pools. There are no relevant financial statements of Fairmount prepared
or available after completion of the acquisition of its oil and gas
interests.

The only person or company that is known to management of Fairmount to
own 10% or more of the voting securities of Fairmount is COR Group
Investments Ltd., an investment fund located in Calgary, Alberta.

The Board of Directors of Fairmount currently consists of five members:
Joseph S. Durante, Brian J. Mellum, Charles W. Berard, Brad Munro and
Todd Lahti.

Joseph S. Durante, Priddis, Alberta

Chairman and Chief Executive Officer of Fairmount and President and
Chief Financial Officer of Pharaoh. Managing Director and Chief
Executive Officer of Toscana Capital Corporation and Managing Director
of Toscana Resource Management Inc. Managing Director of Norrep Resource
Management Inc. since May 2001; prior thereto Managing Director and
Chief Financial Officer of Ranchero Energy Inc., a TSX listed company.

Brian J. Mellum, Calgary, Alberta

Chief Executive Officer and Secretary of Pharaoh. Managing Director,
President and Chief Operating Officer of Toscana Capital Corporation.
President of Mellum Capital Corp; Managing Director of Formation Capital
Management Ltd. since March 2001; prior thereto Senior Manager of
National Bank of Canada. Mr. Mellum is the lead Director of Accrete
Energy Inc., a TSX listed company.

Charles W. Berard, Calgary, Alberta

Partner of Macleod Dixon LLP, a law firm. Mr. Berard is also a Director
and/or Corporate Secretary of a number of public companies including
Vermilion Energy Trust, Western Oil Sands Inc., Verenex Energy Inc. and
Connacher Oil and Gas Limited.

Brad Munro, Saskatoon, Saskatchewan

Vice-President, Investments of GrowthWorks WV Management Inc., manager
of GrowthWorks Canadian Fund and its affiliates. Mr. Munro has been
employed by GrowthWorks and its affiliates since September 1991. Mr.
Munro is also a Director and Chairman of the Audit Committee of CCS
Income Trust listed on the TSX and Director of Galleon Energy Inc.
listed on the TSX Venture Exchange. In addition Mr. Munro serves as a
Director of five private companies.

Todd Lahti, Saskatoon, Saskatchewan

For the past seven years Mr. Lahti has evaluated and managed a number of
start up companies, working directly on financing transactions, M&A,
corporate strategy, business development, technology transfer and
operations set up. Prior to this, he was Treasurer of PartnerRe Ltd.,
one of the largest reinsurance companies in the world, where he
participated in large international M&A and financing initiatives and
had responsibilities in investment management, investor relations,
capital management and financial operations. Mr. Lahti is a Chartered
Financial Analyst and a Chartered Accountant.

Ryan Michaluk, Calgary, Alberta

Vice President Finance and Chief Financial Officer of Fairmount since
September 2004. Prior thereto, General Manager Marketing Finance of
Nexen Inc. and Vice President Finance of Nexen Marketing from December
2003 to July 2004. Mr. Michaluk held various positions, ending as
Controller and Senior Director of Finance with Dynegy Canada Inc. from
March 1998 to April 2003. Mr. Michaluk is a Chartered Accountant and
Certified Management Accountant.

Jennifer K. Kennedy, Calgary, Alberta

Partner of Macleod Dixon LLP, a law firm. Mrs. Kennedy practices in the
corporate area with an emphasis on mergers and acquisitions of public
companies, corporate reorganizations, financings, corporate governance
and general corporate and securities law. Mrs. Kennedy is the Corporate
Secretary of a number of public companies including Dominion Equity
Resource Fund Inc. and Connacher Oil and Gas Limited.

Information About Pharaoh Capital Inc.

Pharaoh is a capital pool company which was listed on the Exchange on
May 10, 2004, following the completion of its initial public offering,
which raised $1,640,000, including $240,000 raised from founders.
Pharaoh currently has working capital of approximately $1,400,000.

The Board of Directors of Pharaoh consists of Joseph S. Durante, Brian
J. Mellum, Abdel F.Z. Badwi and Peter Salamon.

Completion of the Business Combination is subject to a number of
conditions, including but not limited to, the execution of a formal
agreement relating to the Business Combination, Exchange acceptance and
shareholder approval (if required). The Business Combination cannot
close until the required shareholder approval (if required) is obtained.
There can be no assurance that the Business Combination will be
completed as proposed or at all.

Investors are cautioned that, except as disclosed in the disclosure
document to be prepared in connection with the Business Combination, any
information released or received with respect to the Business
Combination may not be accurate or complete and should not be relied
upon. Trading in the securities of Pharaoh should be considered highly
speculative.

Not for distribution to U.S. newswire services or for dissemination in
the United States of America.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Pharaoh Capital Inc.
    Abdel F.Z. Badwi
    (403) 263-6738
    or
    Pharaoh Capital Inc.
    #670, 400 - 5th Avenue S.W.
    Calgary, AB T2P 0L6
    The TSX Venture Exchange Inc. has in no way passed upon the merits of
    the Business Combination and has neither approved nor disapproved the
    contents of this press release.