HFG Holdings Inc.
TSX VENTURE : HFG.P

November 26, 2008 13:50 ET

HFG Holdings Inc. Announces Acquisition of Certain Montney Assets of Sabretooth Energy Ltd. as Its Qualifying Transaction

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2008) -

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HFG Holdings Inc. ("HFG") (TSX VENTURE:HFG.P) is pleased to announce that it has entered into a letter of intent (the "LOI") dated effective November 25, 2008 with Sabretooth Energy Ltd. ("Sabretooth"), an Alberta company, for the acquisition (the "Transaction") of 59 net sections of Montney petroleum rights located in Northeastern British Columbia and Northwestern Alberta and a $1.0 million tie-in in commitment at Red Creek in addition to certain Montney wells and seismic information (collectively, the "Assets"). It is anticipated that the Transaction will constitute HFG's Qualifying Transaction pursuant to the applicable policies of the TSX Venture Exchange (the "Exchange").

The Assets being contributed by Sabretooth consist of approximately 39,000 net acres of land located primarily in the Sinclair area of Alberta as well as the Oak/Stoddart, Mica, Birley and Red Creek areas of British Columbia ("Properties"). The Properties have been independently valued at approximately $21.5 million as at November 17, 2008 and consist of Crown assets encumbered by the normal Crown royalties applicable to such assets. Certain of the Properties are also encumbered by various gross overriding royalty interests and net profits interests. The remainder of the Assets have been valued through arm's length negotiation at approximately $9.8 million for the purposes of the Transaction. Further information and details regarding the Assets will be provided by HFG in further news release. This Transaction is an Arm's Length Transaction as defined by the applicable policies of the Exchange.

Pursuant to the terms of the Transaction, HFG will acquire the Assets of Sabretooth for $31.3 million in exchange for 156,546,590 common shares of HFG at a deemed issue price, subject to the approval of the Exchange, of $0.20 per common share. In addition, as a condition of the Transaction, Sabretooth has agreed to subscribe for $1.0 million of common shares of HFG at a deemed issue price, subject to the approval of the Exchange, of $0.20 per common share (the "Sabretooth Private Placement"). The common shares of HFG to be issued to Sabretooth under the Transaction and the Sabretooth Private Placement will be issued pursuant to exemptions from the prospectus requirements of the applicable securities legislation, will be subject to resale restrictions as required under the applicable securities legislation and may be subject to escrow conditions as required by the Exchange.

Contemporaneously with closing of the Transaction, HFG will complete a private placement of common shares issued on a flow-through basis pursuant to the provisions of the Income Tax Act (Canada) at a price, subject to the approval of the Exchange, of $0.25 per common share for gross proceeds of approximately $25.0 million (the "Private Placement"). Dundee Securities Corporation (the "Agent") has been retained as the lead agent for the Private Placement on a best efforts basis. The Agent will receive compensation in the amount of 6.0% of the proceeds of the Private Placement. The common shares of HFG to be issued under the Private Placement will be issued pursuant to exemptions from the prospectus requirements of applicable securities legislation and will be subject to resale restrictions as required under the applicable securities legislation.

Following the completion of the Transaction, the Private Placement and the Sabretooth Private Placement, HFG is expected to have 266,796,590 common shares outstanding on a non-diluted basis of which 60.6% will be held by Sabretooth. Quantum Energy Partners is the only shareholder of Sabretooth that holds in excess of 10% of the common shares of Sabretooth. HFG will also have outstanding director and employee share options to acquire 525,000 common shares at an exercise price of $0.20 per share. In addition, HFG will have outstanding agent's options to acquire 125,000 common shares at an exercise price of $0.20 per share that were issued in connection with HFG's initial public offering.

Upon closing of the Transaction, HFG will have an aggregate of approximately $26.5 million (less fees and expenses of the Private Placement and the Transaction) of capital available, comprised of $25.0 million in flow-through capital to fund its Montney exploration projects, $1.5 million of non-flow-through capital to fund tie-in expenses and G&A and no debt.

The completion of the Transaction is subject to a number of conditions including, but not limited to, the following:

1. the execution of a definitive agreement with respect to the Transaction (the "Definitive Agreement");

2. no approval of the Transaction being required by the shareholders of HFG under applicable legislation, by the Exchange or otherwise;

3. no approval of the Transaction being required by the shareholders of Sabretooth under applicable legislation or otherwise;

4. the completion of the Private Placement;

5. the completion of the Sabretooth Private Placement;

6. the receipt of all necessary regulatory, corporate and third party approvals, including the approval of the Exchange, and compliance with all applicable regulatory requirements and conditions in connection with the Transaction;

7. the maintenance of HFG's listing on the Exchange;

8. the confirmation of the representations and warranties of each party to the Definitive Agreement as set out in such agreement;

9. the absence of any material adverse effect on the financial and operational condition of the Assets;

10. the delivery of standard completion documentation including, but not limited to, opinions from legal counsel, officers' certificates and certificates of good standing; and

11. other conditions precedent customary for a transaction such as the Transaction.

The completion of the Transaction is intended to occur on the 10th business day following the satisfaction or waiver of the conditions precedent or such other date as is mutually agreed to by the parties, but in any event not later than December 31, 2008. If the Transaction is not completed on or before December 31, 2008, the terms of the LOI or the Definitive Agreement (if applicable) will be terminated. Each of HFG and Sabretooth will be responsible for the payment of its own costs and expenses incurred in connection with the Transaction.

The management team of HFG will be comprised of individuals currently employed at Sabretooth, who will provide drilling locations, technical analysis and will operate the Assets adding its Montney experience to the business of HFG. Additional technical, financial and administrative support will also be provided by Sabretooth. It is the intention of HFG to establish and maintain a board of directors with a combination of appropriate skill sets and compliance with all applicable regulatory and corporate governance requirements. The board of directors of HFG currently consists of three members. Upon completion of the Transaction, the board of HFG will be increased to four members: three of the four members will be nominated by Sabretooth, who are expected to be Mr. Patrick Stiles, Vice President, UTA Asset Management Corp. ("UTA"), Mr. Hank Swartout, independent businessmen and John Campbell, Managing Director, Quantum Energy Partners ("Quantum"); one of the four members will be a nominee of HFG mutually agreeable to the parties.

Mr. Stiles is the Vice-President and advising officer of UTA, a registered portfolio manager active in Canadian oil and gas investments with a specialty in flow-through financing. Prior to UTA, Mr. Stiles worked with portfolio managers Network Capital and Crescent Capital, mutual fund Dominion Equity and Renaissance Energy. Mr. Stiles holds an MBA (Finance) from the University of Calgary.

Mr. Swartout was the Chairman, President and Chief Executive Officer of Precision Drilling Trust ("Precision"). Mr. Swartout oversaw Precision's growth from a small Canadian drilling contractor in 1985 to an international oilfield services company until his retirement in 2007. At that time Precision was Canada's largest oilfield services company with revenues of more than $1.0 billion in 2007.

Mr. Campbell serves as a Senior Vice President of Quantum where his primary duties include the technical analysis and operational due diligence of Quantum's potential and existing portfolio investments. He is conversant in petroleum engineering, geology, geophysics and operations and has over 20 years of diverse oil and gas experience having held various technical, operational and managerial positions of increasing responsibility with Ocean Energy Inc., Burlington Resources Inc. and Schlumberger Limited.

It is currently anticipated that the management team of HFG, post-Transaction, will consist of:

G. Marshall Abbott, Chief Executive Officer. Mr. Abbot is the Chairman & CEO of Sabretooth. Mr. Abbott is a Petroleum Geologist with 24 years experience in Alberta, Saskatchewan, British Columbia and international oil and gas basins. Prior to Sabretooth, Mr. Abbott was the Chairman and CEO of Cougar Hydrocarbons Inc. (2001 - 2003), the Chairman of Equatorial Energy Inc. ("Equatorial") (2001 - 2004), the President and CEO of Equatorial (1996-2001), VP Exploration of Stampeder Exploration Ltd. (1992 - 1996) and the Senior Explorationist for Morrison Petroleums Ltd. (1988-1992).

Joe McFarlane, Chief Financial Officer. Mr. McFarlane is a Chartered Accountant with over 15 years experience in former positions with public oil and gas companies and is the CFO of Sabretooth. Prior to Sabretooth, Mr. McFarlane was the controller of NAV Energy Trust, and prior thereto held management positions with Encana Energy and PanCanadian Energy. Mr. McFarlane has extensive oil and gas experience in Western Canada as well as international experience in the oil and gas industry. Mr. McFarlane has experience with acquisitions and divestitures of both corporate and property assets as well as experience reporting for TSX listed companies.

Doug Swartout, Director Investor Relations. Mr. Swartout currently works for Sabretooth in the business development area and has 10 years experience in the oil and gas industry. Mr. Swartout worked for four years with Tristone Capital Inc. in their corporate finance department.

Sabretooth is a public oil and gas exploration and development company, located in Calgary, Alberta and carrying out operations in Western Canada. Sabretooth trades on the Toronto Stock Exchange under the symbol "SAB".

HFG, a capital pool company within the meaning of the policies of the Exchange, was incorporated in March 2007 and was listed on the Exchange in November 2007. HFG does not have any operations and has no assets other than cash. HFG's business is to identify and evaluate businesses and assets with a view to completing a Qualifying Transaction under the policies of the Exchange.

HFG intends to apply for an exemption from the applicable sponsorship requirements of the Exchange. However, HFG can provide no assurance that such exemption will be granted.

Trading in the common shares of HFG has been halted on the Exchange since November 26, 2008 and will resume trading on upon receipt of the required documentation by the Exchange.

Except for statements of historical fact, all statements in this news release, including, but not limited to, statements regarding future plans, objectives and payments are forward-looking statements that involve various risks and uncertainties.

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSX Venture Exchange acceptance and, if applicable pursuant to TSX Venture Exchange requirements, majority of the minority shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

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

The TSX Venture Exchange has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this news release.

Dundee Securities Corporation has agreed to act as agent, and if required by the TSX Venture Exchange as sponsor in connection with the Transaction. An agreement to sponsor should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of completion.

FORWARD LOOKING INFORMATION

Certain information in this news release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions. This forward-looking information includes, among other things, information with respect to HFG's beliefs, plans, expectations, anticipations, estimates and intentions, the completion of a private placement of common shares by HFG, HFG's acquisition of certain assets of Sabretooth in exchange for common shares of HFG pursuant to prospectus and registration exemptions, the execution of a definitive agreement for the Transaction, the establishment of a new HFG board of directors, and the activities of HFG after the Transaction. The words "may", "could", "should", "would", "suspect", "outlook", "believe", "anticipate", "estimate", "expect", "intend", "plan", "target" and similar words and expressions are used to identify forward-looking information. The forward-looking information in this news release describes HFG's expectations as of the date of this news release.

The results or events anticipated or predicted in such forward-looking information may differ materially from actual results or events. Material factors which could cause actual results or events to differ materially from such forward-looking information include, among others, risks arising from general economic conditions and adverse industry events, risks arising from operations generally, reliance on contractual rights such as licences and leases in the conduct of its business, reliance on third parties, reliance on key personnel, possible failure of the business model or business plan or the inability to implement the business model or business plan as planned, competition, environmental matters, and insurance or lack thereof.

HFG cautions that the foregoing list of material factors is not exhaustive. When relying on HFG's forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. HFG has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not cause such forward-looking information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF HFG AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE HFG MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • HFG Holdings Inc.
    Timothy Halter, Chief Executive Officer,
    Chief Financial Officer and Director
    (972) 233-0300
    (904) 455-7337 (FAX)
    Email: thalter@halterfinancial.com