Former Harmonix Shareholders Sue Viacom

December 22, 2010 -

Former Harmonix shareholders filed a lawsuit against Viacom last week, accusing the company of trying to find a slick way to get out of paying performance-based bonuses. According to a lengthy Gamasutra report, the group includes Harmonix founders Alex Rigopulos and Eran Egozy, as well as other early funders of the Boston-based developer. The group claims that Viacom is manipulating costs after the initial success of Rock Band to avoid a potentially giant earn-out payment.

The complaint stems from a 2006 acquisition deal that has soured over the past four years as the Rock Band franchise began to wane in popularity. Viacom acquired Harmonix in September 2006 for $175 million and the promises of bonuses based on the company's performance. According to the complaint, the earn-out formula was supposed to be 3.5 times any gross profit in excess of $32 million earned in 2007.

The group is seeking to "recover damages arising from Viacom's manipulation of these earn-out payments by diverting opportunities from Harmonix for its own benefit in breach of the implied covenant of good faith and fair dealing that inheres in Viacom's contract with Harmonix."

The Rock Band franchise generated over $1 billion in sales in North America through March 2009, according to Viacom. Viacom sent Harmonix's shareholders $150 million for 2007 earn-out payments for 2007, but set aside over $200 million, according to SEC filings. Nevertheless, the company has never paid any money for the 2008 earn-out. In financial statements starting in 2010, Viacom claimed that it was entitled to a "refund of a substantial portion of amounts previously paid" despite not publically stating why.

The issue of earn-out payments has been referred to arbitration. The agreement covered the years 2007 and 2008, based sales and profits from the Rock Band franchise during those periods.

Obviously, the relationship between Harmonix and Viacom is no longer amicable, as evidenced in Viacom's public statements that it wanted to sell the Rock Band maker. Viacom CEO Philippe Dauman claimed recently that "the console game business requires an expertise and scale that we don't have."

However, there is more funny business that the group claims Viacom engaged in after the acquisition. It claims that Viacom tried to find ways to reduce the aforementioned payments to Harmonix shareholders, such as "a negotiation of the EA Partners distribution agreement in the middle of the earn-out period. The group alleges that Viacom "decided to forego the opportunity to reduce EA's distribution fees during 2008 (or in any other way enhance Harmonix's net income or Gross Profit for 2008), and instead demanded benefits for itself (rather than Harmonix) in exchange for allowing EA to continue distributing Rock Band."

The benefits Viacom sought from EA, according to the suit, included a multi-million dollar ad deal with Viacom's MTV Networks and other Viacom media outlets, a reduction in distribution fees beginning in 2009 (after the group's earn-out period) and "acceleration of 2009 payments to 2008."

The group contends that EA would have been flexible with the fees after the success of Rock Band, and that a lower distribution fee from EA would mean higher profits and higher earn-out bonuses for the group.

Finally, there the matter of a $13 million dollar escrow account put aside for legal disputes at the time of the merger. The group alleges that the funds in that account should be released because all of the lawsuits filed against Harmonix and its products have been settled or resolved. Harmonix shareholders claim that three days before the end of the agreement to release the escrow, Viacom sent "an Indemnity Notice in which it stated that it was providing notice of claims for indemnification."

Source: Gamasutra


 
Forgot your password?
Username :
Password :

Shout box

You're not permitted to post shouts.
Andrew EisenNow, having said that, what sites are you reading that are claiming that if "you self-identify as a Gamer, you're immediately the problem" or that gamers are "obligated to stop harassment"? Or was that hyperbole too?09/21/2014 - 1:03am
Andrew EisenFirst of all, ONE person in the Shout box suggested an obligation to call harassers out on their harassing but only after YOU brought it up. Plus, Techno said "when you see it happening." If you don't see it, you're not under any obligation.09/21/2014 - 1:02am
Sleaker@Craig R. - at this point I don't even know what the hashtags are suppsed to be in support of. what does GamerGate actually signify.09/21/2014 - 12:21am
Sleaker@AE - Hyperbole for the first 2, but it seems like some of the comments in the shout are attempting to place blame on fellow gamers because they aren't actively telling people to stop harassing even though they don't necessarily know anyone that has.09/21/2014 - 12:16am
Andrew EisenSleaker - Who the heck are you reading that is claiming "all gamers are bad," we "need to pass laws or judgement on all gamers," that if "you self-identify as a Gamer, you're immediately the problem," or that gamers are "obligated to stop harassment"?09/20/2014 - 9:44pm
erthwjimhe swatted more than just krebs, I think he swatted 30 people http://krebsonsecurity.com/2014/05/teen-arrested-for-30-swattings-bomb-threats/09/20/2014 - 9:31pm
Craig R.Btw, the guy who swatted security expert Brian Krebs? He got picked up recently. It can be done.09/20/2014 - 8:55pm
Craig R.Such things are not done in a vacuum... hence why the 4chan and other logs show what fools you've all been, tricked into doing the trolls' work09/20/2014 - 8:49pm
Sleaker@Technogeek - How do you call someone out that anonymously calls in a SWAT team, or sends threats to people?09/20/2014 - 7:04pm
Technogeek"It also doesn't mean you're obligated to stop harassment from all gamers that are doing so." I'd say you're certainly obligated to call them out when you see it happening.09/20/2014 - 5:17pm
SleakerNow if you disagree with anything in my last 2 posts then we obviously have a difference in world view, and wont come to any sort of agreement. I'm fine with that, maybe some people aren't?09/20/2014 - 5:09pm
SleakerIt also doesn't mean that just because a news outlet says that Gamers are the problem and you self-identify as a Gamer, you're immediately the problem. It also doesn't mean you're obligated to stop harassment from all gamers that are doing so.09/20/2014 - 4:59pm
SleakerJust to re-iterate: People getting harassed is wrong. Just because someone is harassed by so called 'gamers' doesn't mean that all gamers are bad. nor does it mean that you need to pass laws or judgement on all gamers.09/20/2014 - 4:56pm
SleakerAnd furthermore just because someone doesn't 'crusade against the evil' that doesn't make them the problem. You can have discussion with those around you. There's a thing called sphere of influence.09/20/2014 - 4:54pm
Sleaker@Conster - one person getting harassed is a 'problem' only so far as the harassee's are doing it. Just because a select few people choose to act like this doesn't make it widespread. Nor does it immediately make everyone responsible to put an end to it.09/20/2014 - 4:54pm
james_fudgeno worries09/20/2014 - 4:15pm
TechnogeekI misread james' comment as "we can't have a debate without threatening" there at first. Actually wound up posting a shout about death threats and "kill yourself" not technically being the same thing before I realized.09/20/2014 - 3:59pm
james_fudgeDon't hit me *cowers behind Andrew*09/20/2014 - 3:20pm
ConsterYou take that back right now, james, or else. *shakes fist menacingly*09/20/2014 - 3:00pm
james_fudgeOur community is awesome. We can have a debate without threatening to kill each other.09/20/2014 - 2:50pm
 

Be Heard - Contact Your Politician