Epic Games is announcing that Chair Entertainment, the creator of the Xbox Live Arcade exclusive Undertow, powered by Epic's Unreal engine, will become a direct subsidiary of Epic, directly responsible for developing new games based on the Unreal engine.

Chair Entertainment is a relatively new company, just founded in 2005 by directors Donald and Geremy Mustard and CEO Ryan Holmes. The guys behind the company have all had previous experience in games development with companies like Majesco.

Their Undertow project attracted a lot of attention because it was a fast paced shooter that takes place underwater, packed into only 50 MB of data, which made it a success on Xbox Live Arcade.

The next project at Chair was set to be the videogame Empire, a more ambitious undertaking than Undertow. There's currently a novel by Orson Scott Card out, telling the story of an American Civil War set in the near future and engaging a Right Wing and a Left Wing faction within the United States. There are two more novels set to come out using the same backdrop, while the movie rights to the same intellectual property have been sold to Warner Bros., which seems to aim for a movie release sometime in late 2009 or 2010.

Chair was also planning to release a trilogy of games set in the Empire fictional world, but there's no word on whether the project will go ahead given the acquisition by Epic. It seems likely though that the project went ahead, especially considering the time and resources Chair has already put into it.

Regarding the takeover, Mark Rein, a vice president at Epic, stated that: "Chair's stylized approach to creating games is further enhanced by their ability to stretch our technology in new directions that not only help in creating amazing gaming experiences but also demonstrate the power and versatility of the Unreal Engine. We are thrilled to bring the Chair team into the Epic family, and look forward to working with them to create original new games that continue to innovate and inspire".