Village Gamer

Arius3D Corp. and Masterfile Corporationare pleased to announce that Arius3D has entered into an agreement with the shareholders of Masterfile to purchase, on certain conditions, all of the issued and outstanding securities of Masterfile for a purchase price equal to CDN$21,379,580.

Masterfile, headquartered in Toronto, is one of the world’s largest providers of premium still images in terms of revenues. Masterfile was created within a subsidiary of the Toronto Sun in 1981 and managed by Steve Pigeon until it was sold by the Toronto Sun to Mr. Pigeon and a consortium of employees and contributing photographers in 1984. Since its founding, Masterfile’s growth has been primarily organic, and today it has approximately 100 employees worldwide.

Set out below is selected financial information from Masterfile’s audited financial statements for each of the fiscal years ended February 28, 2009 and 2010:

A decline of approximately $5.2 million in revenue between fiscal years 2010 and 2009 was consistent with overall industry results and is largely attributable to the impact of the world financial crisis. Net income improved by approximately $1.3 million over that same time period despite the revenue decline. Masterfile is only now in a position to benefit from a more normalized business environment, although there continues to be pressure on operating results.

Under the terms of the Share Purchase Agreement, Masterfile has agreed to provide the Company with its audited financial statements for fiscal 2011 prior to closing. With the acquisition of Masterfile, it is believed that the Company will be the only image distributor in the world offering traditional 2D images together with high resolution 3D images produced using Arius3D’s world renowned technologies.

John Wood, the CEO of Arius3D stated “I believe there is a significant opportunity in the 3D market and Masterfile is a great platform to enable Arius3D to take a leadership position in this market. Masterfile is a leading player in the 2D stock photo industry and has profited from the industry’s spectacular growth through more than two decades. Demand for 2D stock photo content is continuing to grow, however, crowd-sourced supply is impacting the business. As a result, combining the unique content of Arius3D with Masterfile has significant potential. Masterfile’s completely redesigned website released in July 2011 is the perfect platform to showcase 3D content on the internet. Users of the new class of consumer computing devices are demanding rich and interactive content, but 2D photographs are not interactive. 3D content provides the solution and we believe the potential growth in demand for 3D content could replicate or exceed that of 2D stock photo content.”

“Since 1999, Arius3D has developed proprietary, patented 3D technologies, capable of producing extraordinarily rich and interactive 3D image content. That content provides the users of the new class of computing devices with a dramatically enhanced experience. The acquisition of Masterfile should enable Arius3D to commercialize its proprietary capabilities profitably and more quickly, with the objective of making the combined company a leader in the 3D segment of our industry.”

Masterfile President, Steve Pigeon adds: “We believe the combination of Arius3D’s unique technology with Masterfile’s skill and experience in acquiring, marketing and licensing creative content globally provides a wonderful opportunity to build a powerful new enterprise that will benefit our clientele, contributing artists and other stakeholders around the world. This promises to be an exciting, challenging and hopefully rewarding adventure for all of us.”

Arius3D’s business plan was to commercialize its proprietary technologies to create 3D colour images that are unique and can be utilized by many applications in multiple market segments worldwide. However, until a distribution capability for 3D images is established or negotiated, these images cannot be made available to world markets on a commercial basis. In light of the Company’s limited resources, both in terms of capital and human, management believes that it may be more cost effective and expeditious to seek to establish a distribution capability in another manner. It is believed that the acquisition of Masterfile will lead to the creation of the required distribution capability, and will be a critical step in ensuring that distribution is done in a coordinated manner to maximize revenue for the image library, Arius3D and all content providers. The costs for establishing a distribution capability in this manner is expected to be substantially lower than available alternative approaches, resulting in greater returns to Arius3D for image creation – i.e. higher revenues sooner for Arius3D.

The Company will maintain the Masterfile brand and goodwill which will be necessary for Arius3D to effectively establish its distribution capability. The Masterfile management team and personnel will continue to operate under the direction of Steve Pigeon (the founder and President of Masterfile since 1984) from its offices located in Toronto, Canada as well as in Europe. Masterfile and its shareholders are arm’s length to the Company.

“Since Mr. Wood assumed the position of CEO of Arius3D on December 1, 2010, he has been instrumental in raising capital from third parties and has provided personal capital to the Company. In addition, he convinced Masterfile’s leadership of the strategic potential of the Arius3D opportunity. I also understand that John has financed A3DL Limited, a distribution partner of the Company, in order to enable the Company to fund the Escrow Deposit (as referred to below) and thereby meet its obligations under the Share Purchase Agreement,” stated Mr. David Beutel, Chairman of Arius3D. “My personal and professional support of the Company is an expression of confidence in the extraordinary potential, which I believe the combined company can achieve,” stated Mr. Wood. “Now, my focus is on assisting the Company in raising the capital needed to close this acquisition and in developing new business for Arius3D. Therefore, I have informed the Arius3D Board of Directors of my resignation as CEO and as a director.”

“The Company thanks Mr. Wood for making this transaction possible,” stated Mr. Beutel. “John established the direction for the Company through a very difficult period, and his efforts have given the Company the opportunity to benefit from the many years it has taken to achieve this huge milestone.”

The Company also announced that Perry Monych, currently a director of the Company, will assume the position of Chief Executive Officer of Arius3D. Mr. Monych brings a successful business background to the position of CEO of Arius3D. Born and raised in British Columbia, he completed an undergraduate degree at the University of British Columbia and subsequently graduated from the Harvard Business School with an MBA in Finance and Strategy. Following Harvard, Mr. Monych started his career in the savings and trust industry and then moved to the computer sector where he became VP Finance and Planning at The Hamilton Group, a public company listed on the Toronto Stock Exchange. Mr. Monych became President and CEO of GE Capital IT Solutions Canada, then President and CEO of GE Capital IT Solutions North America. He subsequently became President and CEO of GE Access’ worldwide computer distribution operations and served as an officer of GE Capital. He then left GE to be President of US Operations, Tech Data, the second largest computer distributor in the world with US revenues of approximately $9 billion at that time.

The purchase price in respect of the Masterfile transaction shall be payable in cash. Masterfile may however, by written notice provided to Arius3D not less than 10 business days prior to the closing date of the transaction (the “Closing Date”), direct that up to $12,000,000 of the purchase price be satisfied by Arius3D issuing and delivering up to 60,000,000 common shares in the capital of Arius3D (the “Common Shares”) at $0.20 per Common Share.

The Company intends to raise the funds necessary to satisfy the cash portion of the purchase price through an agreement with an arm’s length entity (“Financing Partner”). The Company is currently negotiating an agreement with Financing Partner pursuant to which (i) Financing Partner will acquire Masterfile’s contractual rights to the pictures and images currently (and to be) licensed by Masterfile (the “Masterfile Library”) for $20 million in cash, (ii) Masterfile will provide distribution services to Financing Partner and (iii) Masterfile and/or Arius3D will receive a participation interest in the net profits (after the payment of applicable royalties to the respective artists/licensors) to be obtained from Financing Partner in connection with the Masterfile Library. Arius3D has also entered into an agency agreement with Loewen Ondaatje McCutcheon Limited (“LOM”) pursuant to which LOM has agreed to complete an equity financing on a best efforts basis. It is expected that this equity financing will close on the Closing Date and will raise sufficient funds to repay the Masterfile Loans (as referred to below) and to fund the working capital requirements of Arius3D following the Closing Date. The pricing and other terms and conditions of this equity financing have not yet been finalized.

The closing of the transactions contemplated in the Share Purchase Agreement is subject to: (i) the approval of the TSX Venture Exchange (the “TSXV”); and (ii) the satisfaction of other conditions customary in transactions of this nature.

Arius3D has agreed to pay Masterfile a termination fee of $750,000 (the “Termination Fee”) in certain circumstances, including if (i) Arius3D chooses not to complete the transaction if TSXV approval is not obtained or if Arius3D is not satisfied with the results of its due diligence investigation or (ii) Masterfile chooses not to complete the transaction if TSXV approval is not obtained, or if on or prior to the day which is 3 business days prior to the Closing Date written evidence is not provided to Masterfile that Arius3D has secured financing to enable it to pay the maximum amount of the cash portion of the purchase price, or if Arius3D does not provide funds to enable Masterfile to repay approximately $3 million of debt held by two lenders of Masterfile (the “Masterfile Loans”).

Arius3D has deposited an amount equal to the Termination Fee (the “Escrow Deposit”) into an escrow account to secure the payment of the Termination Fee.

The Share Purchase Agreement includes customary deal protection provisions, including non-solicitation obligations on the part of Masterfile. The Closing Date is expected to be October 31, 2011.