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


 
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Andrew Eisen"Let me sink my claws into your flesh to prove my love!"02/01/2015 - 5:49pm
Goth_SkunkAs for her hindclaws, I'm incredibly blessed: She trims those herself. It's amazing!02/01/2015 - 5:47pm
Goth_SkunkThankfully she's not scratching anywhere she isn't supposed to, but when she climbs up into my lap and kneads at my stomach or arm, I prefer dull claws to the pinpricks she had today.02/01/2015 - 5:47pm
Andrew EisenSure, sure. If she's scratching things she's not supposed to, trimming is a better solution than declawing. Hard for them to groom with no claws.02/01/2015 - 5:41pm
Goth_SkunkShe does, but those items don't do a thing to keep claws dull. In fact, they help sharpen them. Cats are going to scratch. It's instinctive. Even if they've been declawed, they'll still execute the behaviour on a surface pleasant to them.02/01/2015 - 5:36pm
Andrew EisenAn indoor cat I'm guessing. Does she not like to use scratching posts or things of that sort?02/01/2015 - 5:28pm
Goth_SkunkOff-Topic Sunday: I hate trimming my cats front claws. Not because she makes it more trouble by fidgeting, she's actually well behaved. I'm just anxious as hell that I'll trim too deep and cut into the quik. :(02/01/2015 - 5:27pm
WonderkarpMonte : Its kind of hard to ignore that commentary when companies you patron invite the commentators into their halls to "Better Themselves".02/01/2015 - 4:33pm
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prh99MechaTama: I don't know his motive for asking, he could be just trying to cause trouble. If not he waited too long and in either case should just give up.02/01/2015 - 1:39pm
MonteIf you don't like someone's commentary; simply ignore them. Do not give them ANY kind of attention; even negative attention gives them traffic. If they're wrong and their opinions cant stand on their own merits, they will simply fade away into obscurity.02/01/2015 - 1:17pm
IanCBut of course no one on the GG side has been harassed. Nope. None at all. BS. Both sides are acting like children. No, I take that back, CHILDREN are better behaved.02/01/2015 - 12:25pm
MechaTama31Of course, that advice is only really useful if you are one of the harassers...02/01/2015 - 11:50am
prh99Maybe it's time to rethink your strategy if your enemy doesn't have to make stuff up.02/01/2015 - 5:01am
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Andrew EisenWasn't on the list but we can certainly talk about it.01/31/2015 - 8:45pm
 

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