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ePals Enters Into Agreement to Acquire Cricket Magazine Group, Cobblestone Publishing and Open Court Publishing, Leading Publishers of Children's Literature

Acquisition Provides High Quality Content for Use Throughout ePals Global Community; Launches ePals' at Home Business With 300,000 Subscriptions; and Adds More Than 80,000 Institutional Subscriptions to ePals' Significant Existing Presence in Nort (November 30, 2011)

WASHINGTON, DC and CHICAGO, IL -- (Marketwire) -- 11/30/11 -- ePals Corporation (TSX-V: SLN) and Carus Publishing Company announced today execution of a definitive agreement for the acquisition by ePals of Carus in a combined cash and stock transaction.

The acquisition of Carus accelerates ePals' entrance into the home subscription market by adding Carus' subscriber base of more than 300,000 grandparents, parents and extended family members, as well as a broad array of award-winning publications for children across a variety of subjects. Carus also brings to ePals an experienced team of creative professionals and, through the accumulation of nearly 40 years of award winning publications, provides ePals with a unique library of high quality, leveled content for use throughout the ePals Global Community in building collaborative learning experiences for students around the world. In addition, the acquisition adds more than 16,500 schools and 3,800 libraries to ePals growing base of customers in schools throughout North America.

Carus Publishing Company, which includes the Cricket Magazine Group, Cobblestone Publishing and Open Court Publishing, publishes 14 magazine titles covering all age groups (0 to 14+) on a variety of subjects (fiction, science, history, culture), hundreds of books and a growing collection of recognized Web and mobile applications. The acquisition will add to ePals:

  • significant gross revenue which in 2010 was approximately US$16 million with EBITDA(i) of nearly US$1 million and a net loss of approximately US$270,000(ii);
  • more than 300,000 consumer subscriptions (approximately 70% from grandparents) and approximately 80,000 institutional subscriptions;
  • customer relationships with an estimated 30% of US middle schools and 3800 libraries;
  • a recipient of 65 Parents' Choice awards and more than half of all International Reading Association, Paul A. Witty awards ever given;
  • recognized mobile applications, including Carus' Ladybug App which is the #1 education app in the iPhone App Store in 10 countries; and
  • a fast-growing licensing business in China for three localized Chinese publications based on Carus content.

The Carus acquisition comes as ePals is reporting on its first quarter as a TSX Venture Exchange listed company and adds a critical component to ePals' strategy to build a 21st-century education media company that combines a safe communication and collaboration platform with a growing global community of learners, quality content and new types of collaborative, evidence-based learning experiences that engage students at school and at home. Upon closing of the transaction, ePals will have more than 600,000 paid subscriptions across school and home, direct customer relationships with approximately 20% of primary and secondary schools in the United States, and reach to more than 7 million registered users in classrooms and homes in 200+ countries and territories.

"Since public listing four months ago, we have focused on launching LearningSpace 2.0 to enable schools to build safe learning communities as part of their K-12 cloud solutions, announced integration of Microsoft Office365 and GoogleDocs into our learning communities so that teachers can let their students use state of the art tools in a safe and secure manner, and launched major initiatives to establish ePals China and ePals Europe," said Miles Gilburne, Chairman and CEO of ePals. "Carus has inspired generations of families to embrace lifelong, ambitious reading and learning. And ePals has a long history of creating products such as In2Books that build family and school based literacy communities around great content. The combination of ePals and Carus provides all of the pieces necessary to create a 24/7 dynamic learning environment in which students from around the corner or around the world, as well as their teachers, parents and mentors, can safely collaborate with each other around high quality content. Together with our other content partners such as National Geographic and The Smithsonian Institution, this acquisition will help define how a 21st century education media company can integrate traditional and new media assets and strategies to create and deliver highly motivating, evidence-based learning experiences with greater reach, scale and adaptability, but at less cost, than traditional learning products."

"The Carus family mission has always been to foster and reinforce communities of literacy, whatever the medium," said Blouke Carus, Chairman of Carus Publishing. "Now that literacy is broadening to new platforms and new forms of literate community are emerging, we realized we needed to partner with a company that had deep expertise in these new media and new community platforms. In ePals, we are fortunate to have found not only that expertise but a like-minded educational philosophy and the same commitment to communities of literacy across all age groups."

Industry Perspective:
Nina Zolt, ePals co-founder and Chief Learning Officer stated: "We believe the combination of Carus and ePals creates a compelling online learning environment and brings the Common Core ELA standards to life by personalizing student learning, enabling students to choose what they read from a rich library of high interest content on multiple reading levels across a broad range of subjects, interacting with a variety of collaborative learning partners, and producing diverse forms of writing and communication to various audiences."

Marianne Carus, Founder and Editor-in-Chief of the Cricket Magazine Group, said: "My own commitment and that of the Carus family has always been to literature, and inspiring children to engage with the world of the imagination. In the electronic environment children now grow up around, we're going to have to be very inventive to make sure that literary values continue to have a place in children's upbringing and in family circles. We believe the combination with ePals is the best way for the Carus family to ensure that the values we have promoted from the start will continue to play a role in the imaginative lives of young people in the future."

Details of the Acquisition:
Pursuant to the acquisition, Carus will merge with an indirect wholly-owned subsidiary of ePals, for consideration comprised of US$5 million in cash and US$10 million in restricted common voting shares of ePals (the "Consideration Shares") having an agreed value of C$0.64 per share (the "Agreed Price per Share"), or 15,625,000 shares subject to adjustment as described below. The Parties to the Agreement are: Carus Publishing Company, an Illinois Corporation, and Andre Carus (shareholder's representative) on the one hand; and ePals Corporation, an Ottawa company, and ePals, Inc. and ePals Acquisition Sub, each Delaware, USA companies on the other hand.

The Consideration Shares will be issued by ePals in two equal tranches following closing, on July 1, 2012 and September 30, 2012, respectively, subject to the elections and adjustments described below:

  • in the event that on the second share payment date (September 30, 2012) the volume weighted average trading price of the voting common shares of ePals for the preceding 20 trading days on which at least 10,000 shares were traded (the "FMV") is less than C$0.64, the Agreed Price per Share of the Consideration Shares (other than the Accelerated Shares (defined below)) will be adjusted downward to the FMV per share (thereby increasing the number of Consideration Shares to be issued), provided that the adjusted Agreed Price per Share shall not be less than C$0.545. Alternatively, ePals may make an equivalent cash payment in lieu of issuing additional Consideration Shares;
  • ePals shall have the right through March 31, 2012 to pay up to US$5 million in cash, in lieu of issuing the corresponding value of Consideration Shares at the Agreed Price per Share;
  • ePals shall have the right, exercisable in whole or in part prior to each share payment date, to pay in cash an amount equal to the number of Consideration Shares otherwise issuable on the applicable payment date multiplied by the FMV per share on such date; and
  • in certain circumstances specified in the definitive agreement, the sellers may elect to accelerate the payment of up to 2 million Consideration Shares at the Agreed Price per Share ("Accelerated Shares").

As additional purchase consideration, based on meeting or exceeding revenue growth targets in the ePals' At Home business (which this acquisition establishes), in each of 2012, 2013 and2014, ePals will pay to the sellers of Carus a cash earn out payment of up to a maximum of US$3.5 million per annum (up to US$10.5 million in the aggregate).

All interest-bearing debt of Carus Publishing will be extinguished on or prior to closing.

The transaction is anticipated to close in early-to-mid December 2011, subject to the receipt of requisite consent and approvals, including the approval of the TSX Venture Exchange, and the satisfaction of certain closing conditions typical for a transaction of this nature. The transaction is an arm's length transaction and no new Insider (as that is defined under the policies of the TSX Venture Exchange) will be created pursuant to the transaction.

As of the date hereof, ePals has 67,477,060 voting common shares and 48,659,138 restricted voting common shares issued and outstanding. Each restricted voting common share is convertible into one voting common share of ePals.

Conference Call
The acquisition will be discussed in more detail as part of ePals' third quarter conference call at 8am eastern time today. To participate in the call, please dial +1-719-325-4796 or 1-877-795-3613 approximately 10 minutes prior to the conference call, and enter passcode 2887499. A recording of the conference call will be available through December 9, 2011. Please dial +1-719-457-0820 or 1-888-203-1112 and provide the passcode 2887499 to listen to the rebroadcast. The call will also be available on ePals' website at for replay.

About ePals Corporation
ePals Corporation (TSX-V: SLN) is an education technology company and leading safe social learning network (SLN). Focused on the K-12 market, ePals offers primary and secondary schools, teachers, students and parents worldwide a safe and secure platform for building educational communities, providing quality digital content and facilitating collaboration for effective 21st century learning. ePals' award-winning products include: the ePals Global Community™; SchoolMail®365, LearningSpace® and In2Books®, a common core e-mentoring program that builds reading, writing and critical thinking skills. ePals customers and partners include International Baccalaureate, Microsoft Corporation, Dell, Inc., IBM Corp., National Geographic and leading school districts across the United States and globally. ePals connects over 700,000 classrooms and millions of teachers, students and parents in approximately 200 countries and territories. For the ePals Global Community, visit Corporate information is available at

About Carus Publishing Company
Carus Publishing Company, parent company to the Cricket Magazine Group, has a distinguished history going back to 1887, and took its current form with the launch of the children's magazine Cricket in 1973. Current publications for young readers include 14 different kids' magazines spanning ages from toddlers to teens and focusing on Literature & Imagination, History & Culture, and Science & Ideas. Collectively, the magazines have won every award in North America, including the Association of Educational Publishers Golden Lamp Award and the Parent's Guide to Children's Media Award. The company also offers a unique assortment of enlightening and entertaining products with an emphasis on educational benefits. The variety of books, crafts, toys, and gifts not widely available, all bring a sense of fun to the learning process. Carus offers compelling digital content and companion websites for publications, including the Carus' Ladybug App, which became the #1 iPhone Education app in 10 countries. Internationally, Carus continues to expand and has customers in 90 countries.

(i) EBITDA is not a recognized performance measure under US GAAP and does not have a standardized meaning prescribed by IFRS. The term EBITDA consists of net income (loss) and excludes interest, taxes, depreciation, and amortization. EBITDA also excludes restructuring costs, stock-based compensation, and gain or loss on foreign currency translation. EBITDA is included as a supplemental disclosure because management believes that such measurement provides a better assessment of the Company's operations on a continuing basis by eliminating certain non-cash charges and charges that are nonrecurring. The most directly comparable measure to EBITDA calculated in accordance with IFRS is net income (loss).

(ii) The Carus data reported above is based on their audited financial statements for the year ended December 31, 2010 based on generally accepted accounting principles (US GAAP).

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Chief Financial Officer
Aric Holsinger
ePals Corporation
Phone: (703) 885-3400

Senior Marketing Manager
Jacqueline Van Meter
ePals Corporation
Phone: (703) 885-3400

Investor Relations
Cory Pala
Phone: (416) 657-2400

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