Rinoa Enterprises Ltd.
TSX VENTURE : RIN.P

August 10, 2006 18:48 ET

Rinoa Enterprises Ltd. Announces Proposed Amalgamation with Paragon Pharmacies Ltd. as Qualifying Transaction

CALGARY, ALBERTA--(CCNMatthews - Aug. 10, 2006) -

(Not for dissemination in the United States of America)

Rinoa Enterprises Ltd. (TSX VENTURE:RIN.P) ("Rinoa" or the "Corporation"), a capital pool company, is pleased to announce that it has entered into a letter of intent dated July 19, 2006 (the "Letter Agreement"), for an amalgamation (the "Proposed Qualifying Transaction") with Paragon Pharmacies Ltd. ("Paragon"), a private corporation incorporated under the laws of Alberta and based in Kelowna, British Columbia. Paragon is the owner and operator of retail pharmacies and medical supply stores. Pursuant to the terms of the Letter Agreement, subject to completion of satisfactory due diligence and receipt of applicable regulatory and shareholder approvals, Rinoa intends to amalgamate with Paragon such that all of the issued and outstanding common shares of Paragon ("Paragon Shares"), all of the issued and outstanding options of Paragon ("Paragon Options") and all of the issued and outstanding common share purchase warrants of Paragon ("Paragon Warrants") (collectively, the "Paragon Securities"), as well as the issued and outstanding common shares of Rinoa ("Rinoa Shares") and issued and outstanding share purchase options of Rinoa ("Rinoa Options") (collectively, the "Rinoa Securities") become equivalent securities of the amalgamated corporation ("Amalco"). Pursuant to the amalgamation, Amalco will change its name to Paragon Health Group Limited.

The amalgamation shall take place on the following basis:

a) all of the Paragon Shares issued and outstanding immediately prior to the closing of the Proposed Qualifying Transaction will be exchanged on the basis of one (1) common share in the capital of Amalco ("Amalco Share") for each Paragon Share;

b) all of the Paragon Options issued and outstanding immediately prior to the closing of the Proposed Qualifying Transaction will be exchanged on the basis of one (1) option to purchase a common share of Amalco ("Amalco Option") for each Paragon Option then outstanding with the exercise price of each Amalco Option being equivalent to the exercise price of each Paragon Option;

c) all of the Paragon Warrants issued and outstanding immediately prior to the closing of the Proposed Qualifying Transaction will be exchanged on the basis of one (1) common share purchase warrant of Amalco ("Amalco Warrants") for each Paragon Warrant then outstanding, with the exercise price for each Amalco Warrant being equivalent to the exercise price for each Paragon Warrant;

d) all of the Rinoa Shares issued and outstanding immediately prior to the closing of the Proposed Qualifying Transaction will be exchanged on the basis of one (1) Amalco Share for each Rinoa Share then outstanding; and

e) all of the Rinoa Options issued and outstanding immediately prior to the closing of the Proposed Qualifying Transaction will be exchanged on the basis of one (1) Amalco Option for each Rinoa Option then outstanding with the exercise price of each Amalco Option being equivalent to the exercise price for each Rinoa Option.

Rinoa intends to make this proposed acquisition of Paragon its "Qualifying Transaction" under Policy 2.4 of the TSX Venture Exchange ("TSX Venture"). The Proposed Qualifying Transaction, if completed, will result in a change of control of Rinoa. The corporation to be formed followed the amalgamation of Paragon and Rinoa pursuant to the Proposed Qualifying Transaction is referred to herein as the "Resulting Issuer".

Paragon, which has conducted operations since March 2003, is the owner and operator of 17.5 retail pharmacies (seven located in British Columbia and 10.5 in Alberta) (which includes those purchased in the Super Drug Mart Acquisition, discussed below) and two medical supply stores located in Kelowna and Vernon, British Columbia, respectively. Paragon's business plan is to acquire independent pharmacies that provide potential for increasing revenues, bottom-line and operational efficiencies. An ageing demographic and increase in prescription sales provides the market opportunity for Paragon to
implement this business plan.

On the basis of the audited financial statements for the fiscal year ended August 31, 2005, Paragon had total revenue of $26.962 million, total assets of $10.333 million, total liabilities of $5.425 million, working capital of $1.470 million and a net loss of $1.816 million. For the 6 month period ended February 28, 2006 (based on unaudited financial statements), Paragon had total revenue of $14.538 million, total assets of $16.847 million, total liabilities of $4.998 million, working capital of $8.356 million and a net loss of $0.907 million.

On April 28, 2006, Paragon acquired the operating assets of Super Drug Mart Partnership ("SDMP"), which includes nine retail pharmacies and a 50% interest in one additional pharmacy (the "Super Drug Mart Acquisition") for a purchase price of $22.463 million (subject to customary post closing adjustments). Concurrent with the closing of the Super Drug Mart Acquisition, the principals of SDMP also acquired $4,000,000 of Paragon Shares at a price of $0.80 per share.

Super Drug Mart is a leading regional brand of independent retail pharmacies in Alberta with a total of 19 Super Drug Mart locations in the Calgary and surrounding area. Paragon acquired 9.5, or 50%, of the Super Drug Mart locations with the remaining 50% owned by separate corporate entities. The 9.5 stores are located within the Calgary, Airdrie, Strathmore and Cochrane markets.

On the basis of the audited financial statements for the 52 week period year ended on February 26, 2005, SDMP had total revenue of $32.189 million, total assets of $9.019 million, total liabilities of $3.447 million, working capital of $6.951 million and net income of $3.223 million. For the 52 week period ended February 25, 2006 (based on the unaudited financial statements at February 25, 2006), SDMP had total revenue of $33.977 million, total assets of $9.517 million, total liabilities of $3.325 million, working capital of $7.598 and net income of $3.628 million.

The closing of the Proposed Qualifying Transaction is subject to a number of conditions including: (i) each of Rinoa and Paragon being satisfied in their sole discretion with their due diligence review of the other and its assets and operations including, without limitation, the financial statements, obligations and liabilities of the other; (ii) Rinoa and Paragon having entered into a definitive agreement with respect to the Proposed Qualifying Transaction; (iii) the shareholders of each of Rinoa and Paragon having approved the amalgamation and having agreed to exchange their Paragon Shares, Paragon Options, Paragon Warrants, Rinoa Shares and Rinoa Options for Amalco Shares and Amalco Options and Amalco Warrants, as required; (iv) obtaining all necessary regulatory approvals including the qualification of the acquisition as Rinoa's "Qualifying Transaction"; and (v) approval of the Proposed Qualifying Transaction and the issuance of Amalco Shares, Amalco Options and Amalco Warrants in connection with the Proposed Qualifying Transaction by the majority of the minority shareholders of Rinoa in accordance with Policy 2.4 of TSX Venture.

Rinoa currently has 5,021,000 Rinoa Shares outstanding, 250,000 Rinoa Shares under option to its directors and 179,000 Rinoa Shares under option to the agent of the Corporation's initial public offering. There are currently 26,884,598 Paragon Shares, 585,500 Paragon Options exercisable at prices between $1.00 to $1.50 and 5,710,707 Paragon Warrants exercisable at prices of $0.80 to $1.50 outstanding. Upon closing of the Proposed Qualifying Transaction the Resulting Issuer will have up to 31,905,598 Amalco Shares, 1,793,500 Amalco Options and up to 5,710,707 Amalco Warrants outstanding.

In addition, certain shareholders of Paragon, directly or indirectly, also own securities of Rinoa. In aggregate, 62,000 Rinoa Shares (representing 1.2% of Rinoa's issued and outstanding share capital) are currently owned or controlled by current directors or officers of Paragon or proposed directors or officer
of Amalco.

Upon completion of the Proposed Qualifying Transaction, the directors and senior officers of Amalco are expected to include:

Craig Cameron of Kelowna, British Columbia, the proposed President, Chief Executive Officer and director of the Resulting Issuer, is the current President of Paragon and is ultimately responsible for all aspects of profitability and growth. He is responsible for identifying potential acquisitions and reviewing and approving any of such acquisitions. In addition, Mr. Cameron is in charge of implementing, in any acquired pharmacy, Paragon's business model. Mr. Cameron has been instrumental in identifying and closing a number of acquisitions. Mr. Cameron is currently invited to be the Second Vice President of the BC Chain Drug Association. Mr. Cameron also serves as a Director of Glenpark IDA Pharmacy Ltd., a Director of Black Mountain Pharmacy (1979) Ltd., and is a co-owner of OK Valley Drugs Ltd. Mr. Cameron holds a Bachelor of Science degree from the University of Alberta.

Scott Wesolowski of Calgary, Alberta, the proposed Chief Financial Officer of the Resulting Issuer, is the current Chief Financial Officer of Paragon who is responsible for all aspects of Paragon's finances. From 1998 until March, 2006, Mr. Wesolowski was the Chief Financial Officer of First Capital Management Ltd., a private investment firm based out of Calgary, Alberta. At Paragon, Mr. Wesolowski screens all potential acquisition candidates and is responsible for executing any share or asset purchases Paragon decides to complete. Mr. Wesolowski is also responsible for financing arrangements and for providing strategic advice regarding Paragon's growth. Mr. Wesolowski is a Chartered Accountant and obtained his Bachelor of Commerce degree from the University of Saskatchewan.

Charles Burgess of Calgary, Alberta, a proposed director of the Resulting Issuer, is a sole practitioner focussing exclusively on developing proprietary tax concepts and offshore tax structures. Previously, Mr. Burgess was President and one of the founding partners of Synnova Capital Corp. ("Synnova"), a corporate finance firm with offices in Calgary, Alberta and Vancouver, British Columbia, dedicated to the creation of innovative tax structures and corporate finance solutions. Before starting Synnova, Mr. Burgess was a tax partner at Milner Fenerty (now Fraser Milner Casgrain LLP) where he practiced exclusively in the area of tax law for nine years. Mr. Burgess has been involved in a full range of tax transactions, including corporate reorganizations, divisive reorganizations, financings, estate planning, family trusts, estate freezes, cross border financings, oil and gas dispositions and acquisitions and the
registration of charitable organizations. Mr. Burgess received a Bachelor of Arts degree from the University of Calgary and a Bachelor of Law degree from the University of Ottawa in 1987.

Reginald Hihn of Calgary, Alberta, a proposed director of the Resulting Issuer, is a Pharmacist and one of the principal owners of the Super Drug Mart Partnership. Mr. Hihn has been an operator of retail pharmacy stores in Calgary, Alberta since 1976.

Brent Herman of Calgary, Alberta, a proposed director of the Resulting Issuer, is a partner at the law firm of Burnet, Duckworth & Palmer LLP, where he has practiced since August 1996. Mr. Herman has a broad base corporate and commercial practice representing both public and private corporations in a variety of industries, with a specific focus on corporate finance and securities. Mr. Herman is currently corporate secretary of Grand Petroleum Inc. (a TSX Venture listed company) and formerly a director of CastleRock Capital Inc. (now Andina Minerals Inc.). Mr. Herman graduated with a Bachelor of Commerce degree from the University of Calgary in 1992 and obtained his law degree from the University of Victoria in 1995.

Allan Macleod, a proposed director of the Resulting Issuer is the President and Chief Executive Officer of Tribal Councils Investment Group of Manitoba Ltd. since September 1992 and is President and Director of Rupertsland Holdings Inc., Trustee of Exchange Industrial Income Fund (EIF.UN on the TSX Venture Exchange) and Trustee of Westfield Real Estate Investment Trust (WFD.UN on the TSX Venture Exchange).

Bruce Moody, a proposed director of the Resulting Issuer, currently a private consultant, was previously the President of Drug Trading for the Katz Group (Canada). Prior to this role, Mr. Moody was the Vice President, Retail for Pharmasave since 1996.

Jim Waters, a proposed director of the Resulting Issuer, currently a private consultant and President of Casaloma Communications Ltd. since January, 1996.

Dennis Shewchuk, the proposed Vice-President, Sales of the Resulting Issuer, has been a Director of Paragon since 2005 and the Vice-President, Sales of Paragon. Previously, Mr. Shewchuck was the Vice-President of Super Drug Mart since 1978. Mr. Shewchuck is a registered pharmacist having received his Bachelor of Science, Pharmacy from the University of Alberta in 1976.

Jason Monteleone, the proposed Vice-President, Finance of the Resulting Issuer is the Vice-President, Finance of Paragon and has been a full-time employee of Paragon since August, 2005. Prior thereto, Mr. Monteleone was self employed as a business consultant since 2001. Mr. Monteleone received his Bachelor of Arts: Business Administration degree from Washington State University in 1992 and his Masters of Business Administration from the University of British Columbia in 1996.

Don Cocar, the proposed Director of Operations of the Resulting Issuer has been a Director of Paragon since 2002 and the Director of Operations of Paragon since 2003. Prior thereto, Mr. Cocar was the pharmacy manger of Black Mountain IDA since 1998. Mr. Cocar obtained his Bachelor of Science, Pharmacy from the University of British Columbia in 1994.

Renee Cameron, the proposed Controller of the Resulting Issuer, has been the Office Manager of Paragon since 2003. Prior thereto, Ms. Cameron was the Office Manager of Glenpark IDA since 1998. Ms. Cameron received a degree in Office Administration from Okanagan College in 1988.

The only shareholder of Paragon who owns more than 10% of the currently issued and outstanding Paragon Shares is Autonomy Pharma Inc., which presently owns 7,500,000 Paragon Shares and 2,000,000 Paragon Warrants exercisable into an additional 2,000,000 Paragon Shares. Autonomy is indirectly owned by Mr. Bruce Moody of Newmarket, Ontario.

Bieber Securities Inc., subject to the completion of satisfactory due diligence, has agreed to act as sponsor of Rinoa in connection with the Proposed Qualifying 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.

Bieber Securities Inc. will receive a sponsorship fee and will be reimbursed for its legal and other expenses.

Completion of the transaction is subject to a number of conditions, including but not limited to TSX Venture Exchange acceptance and majority of the minority shareholder approval. 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 of Rinoa to be prepared in connection with the transaction, any information released or received with respect to the Proposed Qualifying Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Rinoa 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 press release.

Contact Information

  • Rinoa Enterprises Ltd.
    Randal Matkaluk
    President, Chief Executive Officer, Chief Financial Officer
    and Director
    (403) 287-1340
    or
    Paragon Pharmacies Ltd.
    Craig Cameron
    President
    (250) 491-3936