ePals Enters Into Memorandum of Understanding for Launch of ePals China

Mon Oct 3, 2011 5:00pm EDT

* Reuters is not responsible for the content in this press release.

  HERNDON, VA, Oct 03 (MARKET WIRE) -- 
ePals Corporation (TSX-V: SLN) ("ePals"), an education technology company
and leading safe social learning network ("SLN"), and Kaleido Co. Ltd.
("Kaleido") today announced the signing of a Memorandum of Understanding
(the "MOU") regarding the objective to create and launch a Chinese
language version of the ePals Global Social Learning Network in China in
2012. Kaleido is an investment group based in China building extensive
education business assets and networks in China.

    Pursuant to the MOU, the parties will work together to create a
partnership ("ePals China") in which ePals will hold a 49% interest that
will develop and sell educational products and services to the Pre-K to
grade 12 market in China using the ePals digital learning platform. The
transaction is subject to the negotiation and execution of definitive
agreements setting out the detailed terms of the relationship on or
before March 31, 2012. During this time, the parties have agreed to
negotiate exclusively with each other regarding the establishment and
delivery of cloud-based products and services for the Pre-K to grade 12
market in China. 

    "Kaleido is a perfect choice to help us establish ePals China and further
the ePals mission of transforming K-12 education globally through online,
collaborative learning experiences," said Miles Gilburne, Chairman and
CEO of ePals. "We welcome Dr. Jiren Liu and the group of leading Chinese
executives and entrepreneurs behind Kaleido to our existing group of
like-minded investors including Ted Leonsis, Mitch Kapor, Steve and Jean
Case, Yossi Vardi, Microsoft, Dell and National Geographic."

    The MOU sets out a framework with respect to the proposed structure and
governance of ePals China, as well as with respect to cross equity
ownership, the initial contribution of assets to ePals China, capital
contributions and distributions and other operational matters. Upon the
closing of this transaction and as to be stipulated in definitive
agreements, Kaleido will be issued five-year term performance warrants
exercisable to purchase up to an aggregate of 21,983,512 voting common
shares of ePals, with each warrant being exercisable to purchase one
voting common share at a price of C$0.64 (subject to standard
adjustments). An aggregate of 4,993,502 warrants will be exercisable
immediately and the balance will vest over a period of five years subject
to the achievement by ePals China of pre-established performance targets. 

    In connection with the execution of the MOU and receipt of required
approvals for outbound transactions within forty five days of the
Effective Date, Kaleido has also agreed to purchase 1,000,000 voting
common shares of ePals on a private placement basis, at a price of C$0.50
per share, for total gross proceeds to ePals of C$500,000. These
securities will be subject to a hold period under applicable Canadian
securities laws expiring 4 months and 1 day from the date of issuance.

    Completion of the transactions described in this press release are
subject to a number of conditions, including, but not limited to, the
negotiation and execution of definitive agreements creating and governing
ePals China, the receipt of all requisite regulatory approvals in Canada,
the United States and China, including the approval of the TSX Venture
Exchange, and the receipt of all requisite approvals of ePals, Kaleido
and other entities as may be formed in connection with the corporate
transaction described in the MOU. 

    About ePals Corporation

    ePals Corporation (TSX-V: SLN) is an education technology company and the
leading provider of safe social learning networks (SLN). Focused on the
K-12 market, ePals offers elementary and secondary school administrators,
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(TM);
SchoolMail(R)365; LearningSpace(R); and In2Books(R), a common core
eMentoring 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
serves approximately 700,000 educators and reaches millions of teachers,
students and parents in approximately 200 countries and territories. For
the ePals Global Community, visit www.epals.com. Corporate information is
available at www.corp.epals.com.

    Conference Call

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Neither the TSX Venture Exchange, nor its Regulation Services
Provider (as that term is defined in the policies of the TSX Venture
Exchange) has in any way passed upon the merits of the transactions
described herein and neither of the foregoing entities has in any way
approved or disapproved of the contents of this press release.

    Cautionary Statement Regarding Forward-Looking Information:
 Certain
statements contained in this press release constitute forward-looking
information within the meaning of applicable securities laws, including
statements with respect to a proposed partnership arrangement and
proposed private placement. These statements relate to future events or
future performance. Forward-looking information is necessarily based upon
a number of assumptions and factors that, while considered reasonable,
are subject to known and unknown risks, uncertainties, and other factors
which may cause the actual results and future events to differ materially
from those expressed or implied by such forward-looking information.
Those assumptions and factors are based on information currently
available to the Corporation. Such material factors and assumptions
include, but are not limited to: the Corporation's ability to execute on
its business plan; the ability of the Corporation to negotiate definitive
agreements relating to the partnership arrangement and private placement;
the receipt of all requisite regulatory approvals in Canada, the United
States and China, including the approval of the TSX Venture Exchange, and
the receipt of all requisite corporate approvals of ePals, Kaleido and
other entities as may be formed in connection with the partnership
arrangement or the private placement; the completion of satisfactory due
diligence investigations by the Corporation; the availability of
additional financing, if and when required; and market conditions
generally. Although the Corporation has attempted to identify important
factors that could cause actual actions, events or results to differ
materially from those described in forward-looking information, there may
be other factors that cause actions, events or results to differ from
those anticipated, estimated or intended. The forward-looking information
contained in this press release is made as of the date hereof and the
Corporation is not obligated to update or revise any forward-looking
information, whether as a result of new information, future events or
otherwise, except as required by applicable securities laws. Because of
the risks, uncertainties and assumptions contained herein, investors
should not place undue reliance on forward-looking information. The
foregoing statements expressly qualify any forward-looking information
contained herein.

    

For further information, please contact:

Aric Holsinger
Chief Financial Officer
ePals Corporation
Tel: 703.885.3400

Jacqueline Van Meter
Senior Marketing Manager
ePals Corporation
Tel: 703.885.3400 

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