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SALE OF ASSETS OF EMERGENT GAME TECHNOLOGIES, INC.

Gerbsman Partners (www.gerbsmanpartners.com) has been retained by Venture Lending & Leasing V, Inc. (“WTI”), the senior secured lender to Emergent Game Technologies, Inc., (“EGT”), (www.emergent.net) to solicit interest for the acquisition of all or substantially all of EGT’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “EGT Assets”).

Please be advised that the EGT Assets are being offered for sale pursuant to Section 9-610 of the Uniform Commercial Code. Purchasers of the EGT Assets will receive all of EGT’s right, title, and interest in the purchased portion of WTI’s collateral, which consists of substantially all of EGT’s assets, as provided in the Uniform Commercial Code.

The sale is being conducted with the cooperation of WTI and EGT. EGT has advised WTI that it will use its best efforts to make its employees available to assist purchasers with due diligence and assist with a prompt and efficient transition at mutually convenient time.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the EGT Assets has been supplied by third parties and obtained from a variety of sources.  It has not been independently investigated or verified by WTI or Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by WTI or Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact.  Please further note that all information provided herein relating to the operations of EGT’s business and its market positions relates to periods on or prior to October 31, 2010.  Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

WTI and Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of WTI’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the EGT Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, WTI and Gerbsman Partners.  Without limiting the generality of the foregoing, WTI and Gerbsman Partners, and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the EGT Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum is not to be supplied to any other person without Gerbsman Partners’ prior consent.  The information contained herein is not subject to the Non-Disclosure Agreement, however any additional requested information will require execution of the attached NDA attached hereto as Exhibit A.


SUMMARY OF HISTORICAL INFORMATION

Emergent Game Technologies (“Company” or “”Emergent”) is a technology company that directly licenses and supports its products, Gamebryo® and Gamebryo LightSpeed®, to customers around the world.  Founded in 2000 with a mission of developing tools and technologies for 3D interactive entertainment, Emergent merged with NDL in 2005, the company that created the Gamebryo game development engine and tools.

The Company’s assets are well-positioned to capitalize on several industry trends – largely around online games and online distribution – which enable the potential for game developers to reach customers more effectively through direct relationships online and more efficiently by constantly developing new content.  Online game consumers have a rapidly growing appetite for progressive content.  Emergent’s products can help accelerate the demand for 3D content by providing a higher quality of supply in less time and with less risk.

Best known for its industry-leading 3D game engines, Gamebryo and Gamebryo LightSpeed, Emergent’s assets and intellectual property have been selected by studios around the globe to bring over 350 titles across more than 15 game genres to market. At any given time, Emergent is supporting over 100 projects in development and has sold over 490 licenses in the past five years. Titles using Emergent’s technology  include Game of the Year award-winning titles like Fallout 3, The Elder Scrolls IV: Oblivion, as well as critically acclaimed titles like Warhammer Online: Age of Reckoning, Civilization Revolution, QQ Speed, Divinity II – Ego Draconis, Dance on Broadway, LEGO Universe, Epic Mickey, Bully and more. Emergent’s assets and intellectual property allow studios to focus on creating innovative gameplay by enabling rapid prototyping and rapid iteration, and delivers proven production pipelines with real-time on-target updates for Microsoft’s Xbox 360, Sony’s PlayStation 3 system, Nintendo’s Wii and PC. As part of the international development community, Emergent provides world class support and technologies evolved from deep relationships with its developer partners.

Emergent is a privately-held, venture-backed company.  Some of Emergent’s investors include well-known organizations such as Worldview Technology Partners, Jerusalem Venture Partners, Hopewell Ventures and Cisco Ventures.  To date, Emergent has secured over $40 million in equity financing and raised over $4 million in venture debt financing from WTI.

Emergent is headquartered in Calabasas, California, and has offices in North Carolina, Texas, Tokyo, China and Korea. More information is available on Emergent’s website at http://www.emergent.net.

Great games in less time and with less risk:
Emergent expresses this goal in its incubation program aptly named the Game Team Initiative (“GTI”).  GTI is designed to fuel the burgeoning independent game development community, which was reinvigorated by the economic downturn in 2009, with the fundamental resources needed to compete on the world stage.   Emergent’s assets provide the best and the brightest developers a platform that allows new and innovative games to get on screen in less time and with less risk than ever before.  This intimate relationship is beneficial  in two ways as it continually builds a customer base, and adds the context and focus required to keep production processes on the cutting edge.  Emergent’s efforts have been successful in creating new customers both central to Los Angeles, CA – where such notable up and coming game teams as Big Red Button, Kung-Fu Factory, Killspace Entertainment and GameMechanic have all participated; and international, touching teams around the globe, such as Coldwood in Sweden, Bedlam in Canada, Epiphany in Australia, Acquire in Japan and Firehose in Boston.

Target Market:
The video game industry continues to be a growth markets with 7 percent compounded annual growth from 2009 to 2013 reaching $70.9B.  Important segmentation across online and traditional retail products, new device platforms, as well as western and eastern markets, provides the unique opportunity for an opportunistic buyer to use Emergent’s intellectual property  to apply its common underlying technologies across multiple sales opportunities. According to Niko Partners, a leading market intelligence firm, China game revenue CAGR will exceed 20 percent growing from $3.7B in 2009 to $9.2B in 2014.

Customers:
Emergent’s clients range across a broad set of industries, covering traditional video games, to online persistent worlds, to academic environments, military simulations and large scale virtual worlds.  The installed base of users represents a valuable platform for future revenue streams.  The majority of Emergent’s revenue has been generated in video games, however approximately 14% has derived from other channels without substantial incremental product investment.  A customers overview includes:

·      Video games: Electronic Arts, Activision, THQ, Ubisoft, Sony, Bethesda, 2K, Atari, Disney

·      Online games: Tencent, Shanda, TheNine, NineYou, NC Soft, Kingsisle, EA Mythic, Trion

·      Military simulation:  USC ITC, Total Immersion, IP Keys, Lockheed

·      Education: USC, University of Pennsylvania, UNC, Nanyang Polytechnic

·      Other: Rio Tinto, Tacx, WMS, GTech

The accounts receivable base of Emergent is traditionally diverse, as no client historically represented over 10% of Emergent’s accounts receivable balance.

Proprietary Technology – Intellectual Property:
Gamebryo LightSpeed (“LightSpeed”) is the newest leap forward in game development technology delivering the only professional technology for start-to-finish multi-genre/multi-platform game development.  The Gamebryo LightSpeed game development system enables rapid prototyping, rapid iteration and real-time updates, simplifying game development through a data driven framework that opens doors to exciting gameplay possibilities.

LightSpeed is built on top of Gamebryo, the multiplatform engine and foundational technology with more than 350 game productions worldwide across every genre. LightSpeed adds a game framework, scripting system, tools, and extensible infrastructure.

LightSpeed provides a pipeline and runtime solution that allows programmers, artists, and designers to quickly stand up content; then rapidly and continuously iterate on game design, level design, gameplay mechanics, core logic, and game assets; transition to full production; and ship. LightSpeed’s functionality is designed to support two principal objectives of today’s game developers:

·      Rapid iteration:  change the art, entities, levels, and behaviors and see the effect in your game without recompiling or restarting. This minimizes the need for game restarts and reduces development delays.

·      Rapid prototyping and production:  quickly move game content into a playable form, enabling you to evaluate technology and gameplay mechanics and assess the look and feel of levels and assets, and build on that work throughout the production cycle.

Aimed to empower innovation, LightSpeed gives developers the tools to quickly realize ideas and be free to iterate throughout the development process.  From first construction through final polish, developers can iterate faster and get their playable design into the team’s and publishers’ hands faster.

THE FOLLOWING FINANCIAL DATA IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY.  PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RESULTS.  THIS INFORMATION SHOULD NOT BE RELIED UPON TO MAKE FUTURE PERFORMANCE PROJECTIONS OF ANY KIND.

Summary

·      Strong Growth in Profitability

USD   2005 PF 2006 Audited 2007 Audited 2008 Audited 2009 Audited 2010 YTD

Bookings       $3,423,000   $6,728,209    $10,696,682       $8,873,585       $11,912,613      $6,983,583

Revenue         3,423,000     6,276,083       9,491,308         8,617,604          12,213,826        5,901,836

COS                  410,760        496,383          358,155          1,909,690            2,550,689          669,574

GP                  3,012,240     5,779,700       9,133,153          6,707,914            9,663,137       5,232,262

OPEX             6,408,240   11,706,045      17,039,322        16,706,065         13,243,563       4,822,368

EBITDA         (3,396,000)  (5,926,345)    (7,906,169)         (9,998,151)          (3,580,426)        409,894

·      Attractive Industry – The fastest growing segment of video games is the online segment.  By 2014 it is predicted that over half the games sold will be downloaded.  Emergent is well-positioned to capitalize on major shifts in game design strategies, continuous production pipelines and online product delivery due to its technology and customer base with online games.

·      Market Leader in Asia – Emergent is the market leader in China and Korea, growth rates are consistently exceeding 20 percent annually.

·      Best in Class Technology – Emergent’s proven technologies are delivered in products that game developers know and trust all over the world.  Our code has been evolved over fifteen years, with over $40 million invested in USA software engineering efforts.

·      Proprietary Data Base of over 6,200 profiled developers with over 14,775 contacts.

·      Diversified International Client Base with Low Concentration

·      Excellent Relationships with major publishers and independent game development community – long-standing relationships with key players such as THQ, Disney, Ubisoft, Electronic Arts, Tencent, NC Soft, Shanda and other leading companies

·      Opportunity for Future Growth and Margin Improvement as the Company has already invested heavily (over 400 man years) in its core product architecture which can easily be extended into future platforms.  Further advancements can be done in the context of making games making additional investment recoupable through the revenues stream of games and traditional product licensing.


The reasons why Emergent’s assets are attractive are:

Emergent has historically experienced strong growth and is one of the leaders in the video game engine space. Recent working capital constraints and an overly leveraged balance sheet have created the opportunity for the company’s assets to be purchased.  The acquisition of these assets can enable the purchaser to realize significant short and long term value from Emergent’s assets and maintain the ability to quickly scale within the context of sufficient working capital and a stronger balance sheet.

Robust Growth: Since inception, the Company has grown very impressively, with revenues increasing from $3.4 million to $12.2 million between 2005 and 2009.

Market Position: The Company’s Gamebryo LightSpeed product was awarded the #2 game engine in the world by Develop Magazine in 2009 and remains one of the leaders among five major players in the game engine space in terms of market size and presence. Emergent’s dominance in China and Korea translates to a bold future in the west as our superior technology and proven success with eastern online games take shape in the west and influence the burgeoning online marketplace.

Gamebryo LightSpeed Benefits:
With Gamebryo LightSpeed, Emergent continues a long heritage of dedication to genre and platform diversity, truly enabling our customers’ visions.  Some of the benefits to using LightSpeed include:

·       Rapid Prototyping and Production:  Build a prototype quickly and easily – then build upon it.  When you build your prototype with Gamebryo LightSpeed, you’re building your game. Everything you develop for your demo moves directly into your game, making Gamebryo LightSpeed your prototype and your production solution.

·       Rapid Iteration:  Workflow enablers, real-time updates, and tools usability and functionality unblock artists and designers and increase production efficiency. Streamline the creation of scenes, levels, and worlds. Iterate with gameplay mechanics, look-and-feel, and art assets in more detail with less time, to get your game looking and playing the way you want.

·       Multi-Platform:  All of Emergent’s products are built on a common architecture, but are have targeted for optimization on features and functionality for each specific platform. So even if a studio “only” develops a single PC, Xbox 360, PS3, or Wii title, the studio can rest assured that it’s choosing a proven technology solution optimized for that specific particular platform. Whether you are developing serially or concurrently, Gamebryo LightSpeed maximizes your investment, allowing cross platform games to cost less and deliver faster! Using LightSpeed gives you more options for maximizing your commercial return by giving you the technical option to target multiple platforms – and minimizes risk and cost if the decision happens to be made late in the project.

·       Modular and Extensible: Middleware is not a “one-size fits all” technology, and it’s not “your game in a box” (otherwise, everyone would be making your game out-of-the-box). Take the pieces of the tech you want, jettison the rest, extend it for your particular genre, your game, your implementation. Because it’s middleware, you’re starting with a deep technology layer, and you can spend the bulk of your production time differentiating your game – not fighting to make the technology support it.

·       Proven and Reliable: Emergent’s products have been part of over 350 games worldwide in every genre. You don’t have to question whether LightSpeed can be used to create a game in a particular genre – it’s been done. And you can look at commercial examples, talk to game teams in the community, and re-use technology and lessons learned from the thousands of folks who have gone before you. Deeper integrations with other best-of-breed game technologies so you can further leverage the investments you’ve already made.

World-Class Product Support & Community (Pulse):
The Pulse community content and support web site includes IP in the form of knowledge base articles, support responses, forum contents, and other materials. This information is necessary for maintaining future support of customers, and is highly valuable in training future support staff and maintaining customer relations.

Extensive Bug Tracking System & Library (DevTrack):
The DevTrack bug database is valuable for its historic information on issues and fixes that have been applied, and its insight into future planned features and known issues with the product. For example, it could be used to estimate the time necessary to reduce a found defect count by a certain amount.  Years of customer support and testing have generated a massive knowledgebase.

Diversified Client Base:
The Company has over 400 past and 40 active support clients engaged in a wide variety of consumer and business-oriented 3D interactive projects. This allows the Company to maximize the revenue and profitability of the products it creates by delivering a flexible system that is appropriate to a wide client base.  In addition, by establishing a diverse customer base, the Company can avoid fluctuation in its revenues caused by adverse changes affecting any particular client industry category.

Certified Partners:
The Company is a licensed tools and middleware provider for Sony, Microsoft and Nintendo enabling it to create and license products that run on these platform holders closed environments.  Emergent also has strategic relationships with Intel, NVIDIA and AMD where research and development efforts push the boundaries of PC related graphics and computer processing.  Finally, the Company has 88 partner integrations, enabling large and small complementary products from other middleware providers to easily integrate into its products.

Trademarks and Patents:
The Company holds trademarks for Emergent, Gamebryo, LightSpeed, and Floodgate, in the US and various territories around the world. The Company holds on patent for Floodgate.

Management Team at Emergent (for information purposes only)

Scott M. Johnson, President & CEO:  Scott has worked with Emergent since 2006 and has driven the company’s growth four-fold, expanding the business world wide. Since taking over as Emergent’s CEO in 2009, he led the company to four consecutive quarters that exceeded financial expectations and seen strong continued growth in revenues worldwide. Scott’s strong relationships have forged licensing deals with the industry’s leading developers and publishers such as THQ, Disney Interactive, Electronic Arts, Square Enix, Tencent, Shanda,  Ubisoft and Atari.

Prior to joining Emergent, Scott was co-founder and CEO of Mobility Entertainment (MENT), a successful mobile entertainment developer that was purchased by Foundation 9 and delivered more than 20 mobile games to market. Before launching MENT, he spent seven years in various executive positions with Vivendi, serving as vice president of Vivendi Universal Games, as vice president and chief financial officer for Universal Interactive, managing core franchises like Crash Bandicoot, Lord of the Rings and Spyro the Dragon, and helping to launch Vivendi’s Black Label Games. Scott began his career in finance at Deloitte & Touche LLP.  He is a Certified Public Accountant and an alumnus of Harvard Business School.

Katie Morgan, Consultant: Katie managed the sales, support and marketing staff and was responsible for all customer relationships, as well as defining the company’s distribution strategies, including pricing, licensing models, customer support and marketing communications. Katie holds a Bachelor of Science in Operations Research and Industrial Engineering from Cornell University and a Master of Business Administration from Stanford University.

David Brame, Vice President of Sales in Asia:  David is a very creative negotiator with 45 years of success in finding solutions for customers and articulating those solutions with a resultant close in business.  He has served Emergent for eight years, is a shareholder in the company, and is highly knowledgeable in large company organizations, purchasing practices and contract requirements selling to game companies and publishers in Asia.  He has a history of meeting or exceeding revenue targets for the Company, most recently exceeding quota in Asia (2009) and successfully maintaining on target performance through 3Q 2010, contributing over 50% of the company’s revenue.  David has years of experience building rep channels including a very productive channel in Korea (Gamebase) and a team in China which provides the ability to access the fastest growing game market in the world. David holds an undergraduate degree in Industrial Technology with a concentration in Electronic Design from East Carolina University and a Masters in Industrial Technology from East Carolina University.

Tim Page, Director of Sales Americas & EMEA: Tim has over 10 years experience selling technology products in the videogame business.  His long-standing relationships with developers and publishers have forged licensing deals with the industry’s leading developers and publishers such as Disney, Ubisoft, 2K, IP Keys, and Sony.  Prior to Emergent, Tim held various sales positions with Criterion Software (a subsidiary of Electronic Arts).  During Tim’s tenure in the middleware business, he has been responsible for selling technology solutions that include audio, physics, visibility, graphics, compilers, and A.I.  Tim holds a Bachelor of Business Administration in Marketing from Texas Tech University.

Marc Levy, Director of Finance: Marc manages the daily financial, accounting and human resources areas. Before joining Emergent, Marc worked at Indymac Securities Corp and Countrywide Securities Corp as Vice President Credit Risk Management.  He was responsible for trading controls as well as counterparty risk.  As Vice President at Countrywide Securities, he established and created the Credit Department.  He is also a part time instructor at Los Angeles City College.   Marc holds a Bachelor of Science in Finance from California State University, Los Angeles and a NASD Series 27 license.

Board of Directors for Emergent (for information purposes only)

Scott M. Johnson, President and CEO
Thomas E. Parkinson, Hopewell Ventures
Mathew J. McCue, Hopewell Ventures
Pete Goettner, Worldview Technology Partners
Gadi Triosh, Jerusalem Venture Partners
Gina Dubbe, Walker Ventures

WTI is seeking a buyer of the Emergent’s Assets.  Interested parties may bid on Emergent’s assets, which include its products, core technologies, customer support systems, bug fix library and customer contracts, enabling the purchaser to leverage Emergent’s assets and relationships to obtain new sales, enhance revenue streams or accentuate or augment their existing business.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”).  Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the EGT Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of WTI,  Gerbsman Partners, or EGT, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and WTI, EGT, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the EGT Assets.  Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Friday, December 10, 2010 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at EGT’s office, located at 5016 N. Parkway Calabasas, Suite 210, Calabasas, California 91302.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable.  All bids must be accompanied by a refundable deposit check in the amount of $250,000 (payable to Venture Lending & Leasing V, Inc.).  The winning bidder will be notified within 3 business days of the Bid Deadline.  Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.

WTI reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

WTI will require the successful bidder to close within a 7 day period.  Any or all of the assets of EGT will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the EGT Assets shall be the sole responsibility of the successful bidder and shall be paid to WTI at the closing of each transaction.For additional information, please see below and/or contact:


Steven R. Gerbsman
Gerbsman Partners
+1 415 456-0628
steve@gerbsmanpartners.com

Dennis Sholl
Gerbsman Partners
+1 415 457-9596
dennis@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
+1 408 591-7528
ken@gerbsmanpartners.com

[1] All information provided herein relating to the operations of EGT’s business and the market positions relates to periods on or prior to October 31, 2010.  Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

[2] The biographical information concerning the current management of EMERGENT is included for information purposes only.  Although this sale is being conducted with EMERGENT ‘s cooperation, this sale is strictly an asset sale offered by WTI as EMERGENT ‘s senior lender pursuant to Article 9 of the Uniform Commercial Code.  WTI HAS NO ARRANGEMENT PURSUANT TO WHICH BUYER OF THE EMERGENT ASSETS COULD BE ASSURED OF THE FUTURE SERVICES OF ANY EMERGENT OFFICERS OR EMPLOYEES.

[3] The biographical information concerning the current Board of Directors of EMERGENT is included for information purposes only.  Although this sale is being conducted with EMERGENT ‘s cooperation, this sale is strictly an asset sale offered by wti as EMERGENT ‘s senior lender pursuant to Article 9 of the Uniform Commercial Code.  WTI HAS NO ARRANGEMENT PURSUANT TO WHICH BUYER OF THE EMERGENT ASSETS COULD BE ASSURED OF THE FUTURE SERVICES OF ANY EMERGENT board members.

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