CONTACT: Clifford C. Thygesen, President
American Educational Products, Inc.
6550 Gunpark Drive, Suite 200 Phone: (303) 527-3230
Boulder, Colorado 80301 Fax: (303) 527-3235
Nick Fegen Phone: (515) 223-6296
595 Southfork Drive Fax: (515) 267-8164
Waukee, IA 50263
AMERICAN EDUCATIONAL PRODUCTS, INC. EXECUTES DEFINITIVE
MERGER AGREEMENT, COMMENCES DEFENSE OF MERGER RELATED
LITIGATION, AND ANNOUNCES SECOND QUARTER RESULTS
--------------------------------------------------------------------------------
Boulder, CO, August 14, 2000 - American Educational Products, Inc. (NASDAQ:
AMEP, PACIFIC: EP) announced today that it has entered into a definitive merger
agreement with G.C. Associates Holdings Corp. ("GC"), its largest shareholder.
Pursuant to the merger, all minority shareholders of AMEP will receive $10.00
per share in cash. In addition, shareholders of record on August 18, 2000 will
receive a special cash dividend of $780,750. The dividend will equal between
$.72 and $.36 per share depending upon the number of AMEP's outstanding warrants
that are exercised on or prior to the dividend record date.
Consummation of the merger is subject to, among other conditions: (i)
satisfactory completion of a due diligence review by GC of AMEP's business,
assets and liabilities; and (ii) execution and delivery of such documentation
(including regulatory filings) as may be requisite or appropriate; further, GC
has the right to terminate the merger at any time prior to closing if there
exists litigation which challenges any aspect of the merger. An independent
financial advisor has transmitted to AMEP's Board of Directors a preliminary
opinion that the terms of the merger are fair to minority shareholders from a
financial point of view. AMEP intends to convene a shareholders' meeting to vote
upon the merger as soon as practicable following review of proxy and other
materials by regulatory authorities. Payment of the special cash dividend, which
will be made on October 30, 2000, is not contingent upon consummation of the
merger.
AMEP also announced that it has been served with a civil lawsuit by a
shareholder in connection with the merger. William Federman filed the suit on
July 13, 2000 in the District Court in Boulder County, Colorado, on behalf of
himself and, purportedly, all others similarly situated. The complaint seeks an
order preventing AMEP from proceeding with the GC merger or any other business
combination until an auction or other procedure designed to obtain the highest
possible price for shareholders is held, and other relief. GC and its parent
company, Geneve Corporation, and members of AMEP's Board of Directors also are
named as defendants in the suit.
Mr. Clifford C. Thygesen, President and CEO of AMEP, stated on behalf of AMEP's
Board of Directors, "We are extremely dismayed by the filing of the Federman
lawsuit, which we believe to be totally without merit and which we will defend
vigorously. For several months, AMEP has made extensive efforts to identify a
purchaser for the Company because that course was determined to be in the best
interests of all shareholders. Unfortunately, all of those efforts proved
unsuccessful because, among other things, the amount or type of payment offered
or the financial ability of or length of time necessary for the buyer to
consummate a transaction was not acceptable, until an agreement in principle to
<PAGE>
merge with GC was reached on July 11, 2000. The Board unanimously believes that
the terms of the merger with GC are fair to minority shareholders and an
independent financial advisor has given the Board its preliminary opinion to
that effect. The purchase price (together with the special cash dividend)
reflects a value of AMEP at a multiple of about 8.5 times 1999 EBITDA of
$1,813,000; and, although we remain hopeful that the financial results for
calendar year 2000 will exceed those of 1999, AMEP's EBITDA for the first six
months of 2000 (excluding special charges) is somewhat behind the same period of
1999 even though it includes the results from To-Sew which was acquired in
September 1999. It is important for shareholders, as well as warrantholders who
are considering the exercise of their warrants by the August 18, 2000 special
dividend record date, to know that, under the terms of the merger agreement, GC
has the right to terminate the merger at any time so long as the Federman
lawsuit continues or any similar lawsuit is instituted and continues. If GC
terminates the merger agreement, the value of AMEP's common stock could be
adversely affected."
AMEP also announced today that operating income (before special charges) for the
quarter ended June 30, 2000 was $502,000 compared to $536,000 for the comparable
1999 quarter. Sales for the 2000 second quarter were $4,401,000, a 5% increase
over second quarter 1999 sales of $4,232,000. For the first six months of 2000,
operating income (before special charges) was $551,000 versus $700,000 for the
first six months of 1999. Sales for the 2000 six-month period increased by 9% to
$8,185,000 from $7,533,000 in 1999. The sales increases were primarily a result
of the acquisition of To-Sew and increased performance in AMEP's distribution
business. Operating income declined primarily due to margin erosion resulting
from a sales mix shift to lower margin business and inflationary pressure in
AMEP's cost structure.
AMEP showed a net loss of ($3,000) or ($nil) basic loss per share for the
quarter ended June 30, 2000 compared to net income of $440,000 or $.41 basic
earnings per share for the comparable 1999 quarter. For the first six months of
2000, the net loss was ($37,000) or ($.03) loss per share compared to net income
of $505,000 or $.47 basic earnings per share for the first six months of 1999.
Included in the 2000 periods was a special charge of $379,000 primarily
representing AMEP's cash acquisition of stock options previously granted to four
former members of AMEP's Board of Directors who resigned in April 2000 at a
price of $9.25 per share (the last trade of AMEP's common stock on NASDAQ on
April 19, 2000) less the exercise price of the options and a stipend for past
service rendered by them to AMEP.
American Educational Products, Inc. develops, produces and distributes hands-on
supplemental materials for schools and teachers. AMEP's broad base of
proprietary products, primarily in math and science, gives it a strong presence
in the preschool through high school academic market. In addition, AMEP's
distribution business, known as Summit Learning, recently launched an Internet
catalog and on-line ordering system that is located at "summitlearning.com."
Along with historical information, this statement contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and is thus prospective. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements.
<PAGE>
<TABLE>
American Educational Products, Inc.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ --------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income
Net sales $ 4,401,000 $ 4,232,000 $ 8,185,000 $ 7,533,000
Cost of goods sold 2,534,000 2,368,000 4,869,000 4,365,000
---------------- ---------------- ----------------- -----------------
Gross profit 1,867,000 1,864,000 3,316,000 3,168,000
Operating expenses
Advertising and catalog costs 414,000 354,000 842,000 660,000
Other marketing 395,000 413,000 754,000 726,000
---------------- ---------------- ----------------- -----------------
Total marketing 809,000 767,000 1,596,000 1,386,000
General and administrative 556,000 561,000 1,169,000 1,082,000
---------------- ---------------- ----------------- -----------------
Total operating expenses 1,365,000 1,328,000 2,765,000 2,468,000
---------------- ---------------- ----------------- -----------------
Operating income 502,000 536,000 551,000 700,000
Special charge (379,000) (379,000)
Interest expense (128,000) (96,000) (232,000) (195,000)
---------------- ---------------- ----------------- -----------------
Income (loss) before income taxes (5,000) 440,000 (60,000) 505,000
Income taxes 2,000 - 23,000 -
---------------- ---------------- ----------------- -----------------
Net income (loss) $ (3,000) $ 440,000 $ (37,000) $ 505,000
================ ================ ================= =================
Basic Earnings (loss) per Share $ (nil) $ 0.41 $ (0.03) $ 0.47
================ ================ ================= =================
Diluted Earnings (loss) per Share $ (nil) $ 0.38 $ (0.03) $ 0.44
================ ================ ================= =================
</TABLE>
<PAGE>
<TABLE>
American Educational Products, Inc.
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
As of As of
June 30, December 31,
2000 1999
----------------- ----------------
Assets
<S> <C> <C>
Current assets
Cash $ 62,000 $ 94,000
Trade receivables, net 2,596,000 1,952,000
Inventories 5,149,000 4,108,000
Prepaid advertising costs 813,000 1,171,000
Other 303,000 353,000
----------------- ----------------
Total current assets 8,923,000 7,678,000
Property and equipment, net 2,337,000 2,459,000
Intangible assets, net 1,616,000 1,732,000
Deferred taxes, net 598,000 575,000
Video library, net 47,000 94,000
Other assets 113,000 93,000
----------------- ----------------
Total Assets $ 13,634,000 $ 12,631,000
================= ================
Liabilities and stockholders' equity
Current liabilities
Notes payable $ 3,342,000 $ 2,227,000
Current portion of long term debt 430,000 430,000
Accounts payable 1,578,000 1,349,000
Accrued expenses and taxes 311,000 342,000
----------------- ----------------
Total current liabilities 5,661,000 4,348,000
Long term debt 465,000 894,000
Stockholders' equity
Common stock 54,000 54,000
Additional paid in capital 7,371,000 7,215,000
Retained earnings 83,000 120,000
----------------- ----------------
Total stockholders' equity 7,508,000 7,389,000
----------------- ----------------
Total liabilities and stockholders' equity $ 13,634,000 $ 12,631,000
================= ================
</TABLE>
