7 ms·

OnLive assets acquired by newly formed company

119 points by il 14y ago

drone 14y ago
Anything to substantiate the rumor?
- Karunamon 14y ago
  Onlive employees walking out the front door carrying boxes is pretty convincing to me..
  - drone 14y ago
    No, them being fired was not in question - them being fired, so that the owner can walk away with all of the money from an acquisition is the substance of the article.
    - wmf 14y ago
      The "owner" in this case is mostly some VC firms who almost always have liquidation preference over employees anyway.
- masonhensley 14y ago
  Look at the techcrunch comments, someone claiming to be an employee stated that he was let go and lost all his equity.
tomjen3 14y ago
The se kinds of things seem to be more and more common. I hope employees take note and protect themselves when they sign up in new places (read no more cliff agreements).
- cdmckay 14y ago
  What's a cliff agreement?
  - thesash 14y ago
    A "cliff" refers to a time period that must pass before an employee's options vest. It's typical for startups to offer options with a 1 year "cliff" to keep employees from walking away with equity if they don't stick around. Say an early hire is offered 4% equity with no cliff. That means that .083% will vest each month, and that early employee could walk away with more than tenth of a point of equity after 2 months, likely before they contribute enough value to the company to justify such equity. Startup employees should view equity as a bonus anyway, and make sure they're earning a market rate unless they're earning really significant equity, because best case scenario the equity will be significantly diluted before an exit, and more likely, the company won't make it to exit, and the stock options will therefore be worthless. That being said, if the rumor in the article is true, its still a massive dick move, and it probably also cost the company a substantial amount of money in severance pay. EDIT: It looks like it's Illegal in california (where OnLive is located) to claw back stock options by firing employees without cause [1]. Therefore, if the rumor is true, then OnLive probably had to pay the employees some cash equivalent of the stock options and get them to sign a termination agreement. P.S. I'm not a lawyer and have nothing more than a cursory understanding of this stuff. This is definitely not legal advice and you should verify everything I say on your own. [1] http://www.paulhastings.com/assets/publications/1443.pdf http://www.paulhastings.com/assets/publications/1443.pdf
  - deleted 14y ago
    [deleted]
  - metabrew 14y ago
    If your options (1 option = chance to buy 1 share, at a price that's typically fixed when the options was issued) vest over a three year period, it means you would be issued 1/(12*3) of your total options per month, for three years. A common clause in such a vesting schedule is a "1 year cliff", meaning you don't actually get any options granted to you for the first year of employment. After a year, you get a third (1 of 3 years) worth of options in a lump sum, then the usual monthly amount each month after that. If you fire employees before they reach their cliff, they don't get any options, and won't benefit at all from any liquidation event / sale / etc.
- il 14y ago
  That wouldn't make a difference. When a company is failing, investors are always first in line to get their money back, and in this case there's a lot of investor money to be paid back before anyone else sees a dime.
  - danielweber 14y ago
    If by "first in line" you mean that preferred stock owners are ahead of common stock owners you're right. But there are other creditors that go before any stock holders. One of the main creditors is wages owed to employees for work performed. It's probably small consolation to people who see their equity wiped out, but I've known of companies during the dot-com bubble that went bankrupt and tried to cheat employees out of even that.
  - tomjen3 14y ago
    Which is clearly insane. Employees invest time and skills (since part of their pay comes from options) but somehow investing mere money (and possibly in more than one company) is rewarded with the better stocks. And this at a time when the valley is nearly the only place one can invest money in honest businesses (that is to say, those that produce actual value, not just live of the actions of the past or sweetheart government deals).
- rdl 14y ago
  As an employee, you protect yourself in this case (where the company is failing) through having enough cash compensation, skills, and contacts to have a new job before the day is out. It's upside cases (like the sale of Skype, Zynga IPO) where you protect yourself primarily by not working for dirtbags. Secondarily, a standard contract, reviewed by a lawyer, could work, but I'd trust Google, Facebook, almost any YC startup, Quora, etc. as employers based on the founders, even if I didn't review the documents. Realistically you're not going to be suing over $100k in compensation anyway. The nice thing is, within Silicon Valley, the set of bad actor companies with respect to stock is pretty small. Zynga and Skype are the only ones I know of, although in some Acqui-Hire situations, current employees are favored above former employees or investors (like Slide -> Google, or in fact many Google acquisitions).
pyoung 14y ago
In another thread, the rumor is that they were going out of business, not getting acquired. http://news.ycombinator.com/item?id=4398439 http://news.ycombinator.com/item?id=4398439
deleted 14y ago
[deleted]
rootedbox 14y ago
If something that you have equity in has no value or little value.. then it's all really a mute point. Remember kids start ups are high risk ventures; your equity can be diluted, and taken away... all legally.
- Smudge 14y ago
  Double-check how soon your options will start vesting before you sign-on, so that you don't get screwed over by something like this. (Also, btw, it's "moot", not "mute")
  - famousactress 14y ago
    How much difference does it really make? If all of OnLive's folks were vested, couldn't they still could have been fired and their shares diluted w/ another round or creepy acquisition terms?
    - Smudge 14y ago
      Diluted, yes. Eliminated, no. See other comments in this thread about the "cliff" -- once you're past it, it's harder to get screwed over.
      - ojbyrne 14y ago
        There are an infinite number of ways that common stock (and the associated options) can be rendered worthless in acquisition or winding up a company. Simplest way is to sell the company for enough to pay off preferred shareholders, and use "personal service contracts" to compensate insiders. They get paid well, shareholders get zero. Most of them would not stand up to a lawsuit, but if you suddenly have no money coming in, are you going to be willing to pursue an expensive, years long legal process?
      - enjo 14y ago
        It's likely those investors have liquidity preferences anyways. In a fire-sale situation that equity is likely worthless.
DigitalSea 14y ago
I think the most heartbreaking thing about all of this is the lady in the comments who said her husband just lost his job and she's pregnant with health complications. This is ridiculous, if someone bought OnLive, they just bought a publicly tainted company and apparently it's EA (a company that is no stranger to being dicks).
- sek 14y ago
  Steve Perlman should be publicly shamed, that's the only way to prevent this. These greedy people should be scared to do this in the future. You may get more money, but your reputation is fucked. Morally i find this way more infuriating than Yahoo suing Facebook.
  - wmf 14y ago
    Because if he just shut down the company instead, his employees would totally have it made. There's no happy way to do a fire sale, which is what this looks like.
    - sek 14y ago
      Well somebody got a lot of money, we will find out later who, but definitely not the one who needed it the most. And please USA, get your health care fixed. It is so sad to read these stories all the time. You are the richest country on earth.
      - brk 14y ago
        From the sounds of it, 'a lot of money' is probably both an overstatement and also a value significantly less than 'money they invested into the company'. Nobody came out a winner in this deal.
        sek 14y ago
        The company build up value (patents etc.) and the employees get zero of that. Maybe the VC's are the problem, when they dictate terms when they have a higher preference than the employees (what is unjust to begin with), but also a CEO who allowed that. In this case he got nothing either, but has still some responsibility. Gaikai was bought for 380m, i just don't get how OnLive can be worth less than the 50m investment.
MediaSquirrel 14y ago
This article is bullshit. The CEO of a company cannot "take back" or "wipe out" your right to purchase stock, aka stock options. More likely what happened is that the company sold for equal or less than the outstanding preferred stock overhang. Another way of saying this: OnLive's investors got all the money (they raised $56MM) and the founders and employees got ZERO for their common stock. A stock option is a binding CONTRACT to purchase stock (typically common stock when you're dealing w/ employee stock options) at a set price. If a company is acquired and the price of common stock is below the "strike price" of the employee stock options then the employee has a valueless option to buy stock for more than it's worth. Oftentimes in an "exit" that's just shy of bankruptcy, common stock holders will get nothing and investors will get all the proceeds, often at pennies or nickels on the dollar. So... Did OnLive screw its employees? Highly unlikely.
- jaggederest 14y ago
  Many contracts have a 'if you are let go, you lose unexercised equity' clause. At least all of mine have over the years.
  - nc17 14y ago
    You typically have 90 days to exercise. The question is whether it would make financial sense in this case, only insiders would know.
  - activepeanut 14y ago
    Mine have always had "you have 30 days to exercise your options after you quit or are let go for any reasons". Which is more common?
- jcdavis 14y ago
  We don't know enough yet. A company cannot take back options, but laying off all employees would save them from having to give the unvested portion. This could easily halve their stock liability to employees, depending on a bunch of factors of course. Now of course if they are being sold for a low price the options are likely useless regardless due to VC liquidation preferences.
justin_vanw 14y ago
Luckily this sort of thing rarely happens. The reason is that you need great engineers to trust you if you want to succeed. By founding a startup you are taking great personal risk, but your employees are also taking some of that risk with you. Most startups pay (very very) below market salaries, and bring employees up to parity with a much less terrible place to work (very few very bright people would prefer to work in at a big company), and by giving out options. I suspect that the CEO and other high level managers at this company will have serious trouble recruiting the next time they want to start something new, because they now have nothing to offer. Nobody is going to trust their promises, stock options they issue will be seen as basically worthless (since everyone will think they are likely to be screwed out of them), so they will have to pay market rates (which is probably 2x-6x what startups generally pay in total compensation). If I were a founder of a company, and I were faced with this choice, I would probably rather let the company fold than cash out (or in this case probably just not go under) while leaving employees behind. Failure is rarely punished in the valley, but nowhere is dishonesty or double dealing more likely to be recognized and rejected.
- danielweber 14y ago
  Many venture capital firms have done crap things many of times and have had no problems getting deals again and again.
- MediaSquirrel 14y ago
  More likely scenario: the company company is about to go bankrupt and finds a buyer. The buyer says: We will pay your investors $.50 on the dollar in exchange for all your assets and IP. We don't want any of your people as part of the deal because we want to shake things up, install new management and dramatically reorganize the Business because the way it's been running to date sucks. Like, seriously, you drove it into the ground. That said, we reserve the right to rehire some of them after the deal closes.
- dchichkov 14y ago
  I would argue that these employees on "(very very) below market salaries" are taking more risk than that hypothetical founder. They take same uncertainty risk [company failing]. Similar financial risk [unless founder has invested own money]. But. They don't have any control over the company. That results in larger uncertainty risk.
tibbon 14y ago
So their PR firm has put out this statement: http://www.engadget.com/2012/08/17/onlive-confirms/ http://www.engadget.com/2012/08/17/onlive-confirms/ It feels a bit (actually a lot) strange that they'd dissolve the entire company and lay off everyone to attempt to get out of an agreement for servers or something. It just doesn't add up. Also, why the employee reports aren't saying this... just strange. PR spin at its best?
- joshu 14y ago
  i read somewhere that they had INSANE capex spends on the hosting.
  - rdl 14y ago
    opex, I think you mean. I'm curious who they were using, who negotiated the deal, and what drugs they were on. I heard something like 1800 simultaneous users and $1000/seat/mo.
- rhizome 14y ago
  A "show press release" button? WTF kind of user-hostile information designer suggests...oh wait, Engadget.
y4m4 14y ago
Quite splendidly some one has edited - http://www.crunchbase.com/person/steve-perlman http://www.crunchbase.com/person/steve-perlman his middle name as (The DICK) Revision history here http://www.crunchbase.com/person/steve-perlman/diff/8/9 http://www.crunchbase.com/person/steve-perlman/diff/8/9 at 4:59pm by 24.6.50.198
sandGorgon 14y ago
Loiks like TheVerge was covering this live and had a reporter stationed outside. www.theverge.com/2012/8/17/3250507/onlive-employees-fired-all-hands-meeting-acquisition-imminent Onlive declared a "variation of bankruptcy" to get out of employee liabilities.
- rhizome 14y ago
  We'll see if that gets them out of class-action territory.
hncommenter13 14y ago
There appears to be quite a bit of confusion as to what happened here. The TechCrunch article doesn't really provide enough detail, saying only that the staff was fired in order to "reduce the company’s liability" which doesn't really make sense. I am not a lawyer, but as an investor I have seen this happen before. My guess (no connection to the company, wasn't aware of them prior to today) is that in lieu of filing for bankruptcy, they did an Assignment for the Benefit of Creditors. But what may have happened is: 1. OnLive recognizes that they're essentially bankrupt. Directors and managers now have a fiduciary duty to maximize the recovery for creditors, not for shareholders. 2. Instead of going through a formal bankruptcy process, the company does an Assignment for the Benefit of Creditors (see a good explanation here [1]). Any price paid for the assets by a buyer above what is owed to the creditors goes to satisfy the liquidation preferences, though it's unlikely there will be much if any recovery of value above the debts owed to the creditors. The value of the common equity is totally wiped out (both common stock and employee options) as the total value of the assets is well below the amount due creditors + the liquidation preferences. 3. A buyer for the assets (the source of money with which to pay off the creditors who now own the assets of the defunct company) forms a new company, call it OnLive Asset Acquisition Corp. 4. OnLive Asset Acquisition Corp purchases the assets (not the stock) of the defunct corporation now owned by creditors. The new acquirer buys the assets so as to avoid any existing/potential liabilities of the defunct corporation from whom it purchases the assets. Imagine there's a company whose only asset is a rack of servers that you wish to purchase. To gain ownership of the servers, you could buy all the shares of the company or you could just buy the servers as an asset with no encumbrances. You would likely do the latter, as buying the stock comes with potential liabilities for past/future money owed or lawsuits. That's likely what happened here, but for IP, etc. 5. The original employer OnLive is no longer operating. The employees are all terminated, as their employer is gone and its operating assets are owned by a new company. The new company may or may not seek to hire some or all of the employees of the defunct company. 6. Even if employees had been able to exercise their options, they were virtually certain to be worthless. There is no way the price paid by the new owner for the assets of the dead company would exceed the debts + liquidation preferences (otherwise the directors wouldn't have liquidated it). Had the employees exercised their options, any cash they paid to do so would have gone to the creditors to satisfy the company's debts and they would have received zero in proceeds. It's a sad story for the employees, but there are rarely any happy outcomes for a company in bankruptcy. Again, I'm purely speculating on what happened. But based on the facts disclosed so far, it's not clear that one can conclude that the employees received a specific and unusual screwing by management vs. a typical screwing associated with the liquidation of a bankrupt employer. [1] http://bankruptcy.cooley.com/2008/03/articles/the-financially-troubled-compa/assignments-for-the-benefit-of-creditors-simple-as-abc/ http://bankruptcy.cooley.com/2008/03/articles/the-financiall...
EdgarVerona 14y ago
OnLive CEO Considered Harmful.
danbmil99 14y ago
Sounds a bit like what happened to GM
dlinder 14y ago
So how do all the Kickstarter backers of Ouya feel about their potential content partner's creative bankruptcy?

119 points by il 14y ago

drone 14y ago

Anything to substantiate the rumor?

Karunamon 14y ago
Onlive employees walking out the front door carrying boxes is pretty convincing to me..
- drone 14y ago
  No, them being fired was not in question - them being fired, so that the owner can walk away with all of the money from an acquisition is the substance of the article.
  - wmf 14y ago
    The "owner" in this case is mostly some VC firms who almost always have liquidation preference over employees anyway.
masonhensley 14y ago
Look at the techcrunch comments, someone claiming to be an employee stated that he was let go and lost all his equity.

tomjen3 14y ago

The se kinds of things seem to be more and more common. I hope employees take note and protect themselves when they sign up in new places (read no more cliff agreements).

cdmckay 14y ago
What's a cliff agreement?
- thesash 14y ago
  A "cliff" refers to a time period that must pass before an employee's options vest. It's typical for startups to offer options with a 1 year "cliff" to keep employees from walking away with equity if they don't stick around. Say an early hire is offered 4% equity with no cliff. That means that .083% will vest each month, and that early employee could walk away with more than tenth of a point of equity after 2 months, likely before they contribute enough value to the company to justify such equity. Startup employees should view equity as a bonus anyway, and make sure they're earning a market rate unless they're earning really significant equity, because best case scenario the equity will be significantly diluted before an exit, and more likely, the company won't make it to exit, and the stock options will therefore be worthless. That being said, if the rumor in the article is true, its still a massive dick move, and it probably also cost the company a substantial amount of money in severance pay. EDIT: It looks like it's Illegal in california (where OnLive is located) to claw back stock options by firing employees without cause [1]. Therefore, if the rumor is true, then OnLive probably had to pay the employees some cash equivalent of the stock options and get them to sign a termination agreement. P.S. I'm not a lawyer and have nothing more than a cursory understanding of this stuff. This is definitely not legal advice and you should verify everything I say on your own. [1] http://www.paulhastings.com/assets/publications/1443.pdf http://www.paulhastings.com/assets/publications/1443.pdf
- deleted 14y ago
  [deleted]
- metabrew 14y ago
  If your options (1 option = chance to buy 1 share, at a price that's typically fixed when the options was issued) vest over a three year period, it means you would be issued 1/(12*3) of your total options per month, for three years. A common clause in such a vesting schedule is a "1 year cliff", meaning you don't actually get any options granted to you for the first year of employment. After a year, you get a third (1 of 3 years) worth of options in a lump sum, then the usual monthly amount each month after that. If you fire employees before they reach their cliff, they don't get any options, and won't benefit at all from any liquidation event / sale / etc.
il 14y ago
That wouldn't make a difference. When a company is failing, investors are always first in line to get their money back, and in this case there's a lot of investor money to be paid back before anyone else sees a dime.
- danielweber 14y ago
  If by "first in line" you mean that preferred stock owners are ahead of common stock owners you're right. But there are other creditors that go before any stock holders. One of the main creditors is wages owed to employees for work performed. It's probably small consolation to people who see their equity wiped out, but I've known of companies during the dot-com bubble that went bankrupt and tried to cheat employees out of even that.
- tomjen3 14y ago
  Which is clearly insane. Employees invest time and skills (since part of their pay comes from options) but somehow investing mere money (and possibly in more than one company) is rewarded with the better stocks. And this at a time when the valley is nearly the only place one can invest money in honest businesses (that is to say, those that produce actual value, not just live of the actions of the past or sweetheart government deals).
rdl 14y ago
As an employee, you protect yourself in this case (where the company is failing) through having enough cash compensation, skills, and contacts to have a new job before the day is out. It's upside cases (like the sale of Skype, Zynga IPO) where you protect yourself primarily by not working for dirtbags. Secondarily, a standard contract, reviewed by a lawyer, could work, but I'd trust Google, Facebook, almost any YC startup, Quora, etc. as employers based on the founders, even if I didn't review the documents. Realistically you're not going to be suing over $100k in compensation anyway. The nice thing is, within Silicon Valley, the set of bad actor companies with respect to stock is pretty small. Zynga and Skype are the only ones I know of, although in some Acqui-Hire situations, current employees are favored above former employees or investors (like Slide -> Google, or in fact many Google acquisitions).

pyoung 14y ago

In another thread, the rumor is that they were going out of business, not getting acquired. http://news.ycombinator.com/item?id=4398439 http://news.ycombinator.com/item?id=4398439

deleted 14y ago

[deleted]

rootedbox 14y ago

If something that you have equity in has no value or little value.. then it's all really a mute point. Remember kids start ups are high risk ventures; your equity can be diluted, and taken away... all legally.

Smudge 14y ago
Double-check how soon your options will start vesting before you sign-on, so that you don't get screwed over by something like this. (Also, btw, it's "moot", not "mute")
- famousactress 14y ago
  How much difference does it really make? If all of OnLive's folks were vested, couldn't they still could have been fired and their shares diluted w/ another round or creepy acquisition terms?
  - Smudge 14y ago
    Diluted, yes. Eliminated, no. See other comments in this thread about the "cliff" -- once you're past it, it's harder to get screwed over.
    - ojbyrne 14y ago
      There are an infinite number of ways that common stock (and the associated options) can be rendered worthless in acquisition or winding up a company. Simplest way is to sell the company for enough to pay off preferred shareholders, and use "personal service contracts" to compensate insiders. They get paid well, shareholders get zero. Most of them would not stand up to a lawsuit, but if you suddenly have no money coming in, are you going to be willing to pursue an expensive, years long legal process?
    - enjo 14y ago
      It's likely those investors have liquidity preferences anyways. In a fire-sale situation that equity is likely worthless.

DigitalSea 14y ago

I think the most heartbreaking thing about all of this is the lady in the comments who said her husband just lost his job and she's pregnant with health complications. This is ridiculous, if someone bought OnLive, they just bought a publicly tainted company and apparently it's EA (a company that is no stranger to being dicks).

sek 14y ago
Steve Perlman should be publicly shamed, that's the only way to prevent this. These greedy people should be scared to do this in the future. You may get more money, but your reputation is fucked. Morally i find this way more infuriating than Yahoo suing Facebook.
- wmf 14y ago
  Because if he just shut down the company instead, his employees would totally have it made. There's no happy way to do a fire sale, which is what this looks like.
  - sek 14y ago
    Well somebody got a lot of money, we will find out later who, but definitely not the one who needed it the most. And please USA, get your health care fixed. It is so sad to read these stories all the time. You are the richest country on earth.
    - brk 14y ago
      From the sounds of it, 'a lot of money' is probably both an overstatement and also a value significantly less than 'money they invested into the company'. Nobody came out a winner in this deal.
      - sek 14y ago
        The company build up value (patents etc.) and the employees get zero of that. Maybe the VC's are the problem, when they dictate terms when they have a higher preference than the employees (what is unjust to begin with), but also a CEO who allowed that. In this case he got nothing either, but has still some responsibility. Gaikai was bought for 380m, i just don't get how OnLive can be worth less than the 50m investment.

MediaSquirrel 14y ago

This article is bullshit. The CEO of a company cannot "take back" or "wipe out" your right to purchase stock, aka stock options. More likely what happened is that the company sold for equal or less than the outstanding preferred stock overhang. Another way of saying this: OnLive's investors got all the money (they raised $56MM) and the founders and employees got ZERO for their common stock. A stock option is a binding CONTRACT to purchase stock (typically common stock when you're dealing w/ employee stock options) at a set price. If a company is acquired and the price of common stock is below the "strike price" of the employee stock options then the employee has a valueless option to buy stock for more than it's worth. Oftentimes in an "exit" that's just shy of bankruptcy, common stock holders will get nothing and investors will get all the proceeds, often at pennies or nickels on the dollar. So... Did OnLive screw its employees? Highly unlikely.

jaggederest 14y ago
Many contracts have a 'if you are let go, you lose unexercised equity' clause. At least all of mine have over the years.
- nc17 14y ago
  You typically have 90 days to exercise. The question is whether it would make financial sense in this case, only insiders would know.
- activepeanut 14y ago
  Mine have always had "you have 30 days to exercise your options after you quit or are let go for any reasons". Which is more common?
jcdavis 14y ago
We don't know enough yet. A company cannot take back options, but laying off all employees would save them from having to give the unvested portion. This could easily halve their stock liability to employees, depending on a bunch of factors of course. Now of course if they are being sold for a low price the options are likely useless regardless due to VC liquidation preferences.

justin_vanw 14y ago

Luckily this sort of thing rarely happens. The reason is that you need great engineers to trust you if you want to succeed. By founding a startup you are taking great personal risk, but your employees are also taking some of that risk with you. Most startups pay (very very) below market salaries, and bring employees up to parity with a much less terrible place to work (very few very bright people would prefer to work in at a big company), and by giving out options. I suspect that the CEO and other high level managers at this company will have serious trouble recruiting the next time they want to start something new, because they now have nothing to offer. Nobody is going to trust their promises, stock options they issue will be seen as basically worthless (since everyone will think they are likely to be screwed out of them), so they will have to pay market rates (which is probably 2x-6x what startups generally pay in total compensation). If I were a founder of a company, and I were faced with this choice, I would probably rather let the company fold than cash out (or in this case probably just not go under) while leaving employees behind. Failure is rarely punished in the valley, but nowhere is dishonesty or double dealing more likely to be recognized and rejected.

danielweber 14y ago
Many venture capital firms have done crap things many of times and have had no problems getting deals again and again.
MediaSquirrel 14y ago
More likely scenario: the company company is about to go bankrupt and finds a buyer. The buyer says: We will pay your investors $.50 on the dollar in exchange for all your assets and IP. We don't want any of your people as part of the deal because we want to shake things up, install new management and dramatically reorganize the Business because the way it's been running to date sucks. Like, seriously, you drove it into the ground. That said, we reserve the right to rehire some of them after the deal closes.
dchichkov 14y ago
I would argue that these employees on "(very very) below market salaries" are taking more risk than that hypothetical founder. They take same uncertainty risk [company failing]. Similar financial risk [unless founder has invested own money]. But. They don't have any control over the company. That results in larger uncertainty risk.

tibbon 14y ago

So their PR firm has put out this statement: http://www.engadget.com/2012/08/17/onlive-confirms/ http://www.engadget.com/2012/08/17/onlive-confirms/ It feels a bit (actually a lot) strange that they'd dissolve the entire company and lay off everyone to attempt to get out of an agreement for servers or something. It just doesn't add up. Also, why the employee reports aren't saying this... just strange. PR spin at its best?

joshu 14y ago
i read somewhere that they had INSANE capex spends on the hosting.
- rdl 14y ago
  opex, I think you mean. I'm curious who they were using, who negotiated the deal, and what drugs they were on. I heard something like 1800 simultaneous users and $1000/seat/mo.
rhizome 14y ago
A "show press release" button? WTF kind of user-hostile information designer suggests...oh wait, Engadget.

y4m4 14y ago

Quite splendidly some one has edited - http://www.crunchbase.com/person/steve-perlman http://www.crunchbase.com/person/steve-perlman his middle name as (The DICK) Revision history here http://www.crunchbase.com/person/steve-perlman/diff/8/9 http://www.crunchbase.com/person/steve-perlman/diff/8/9 at 4:59pm by 24.6.50.198

sandGorgon 14y ago

Loiks like TheVerge was covering this live and had a reporter stationed outside. www.theverge.com/2012/8/17/3250507/onlive-employees-fired-all-hands-meeting-acquisition-imminent Onlive declared a "variation of bankruptcy" to get out of employee liabilities.

rhizome 14y ago
We'll see if that gets them out of class-action territory.

hncommenter13 14y ago

There appears to be quite a bit of confusion as to what happened here. The TechCrunch article doesn't really provide enough detail, saying only that the staff was fired in order to "reduce the company’s liability" which doesn't really make sense. I am not a lawyer, but as an investor I have seen this happen before. My guess (no connection to the company, wasn't aware of them prior to today) is that in lieu of filing for bankruptcy, they did an Assignment for the Benefit of Creditors. But what may have happened is: 1. OnLive recognizes that they're essentially bankrupt. Directors and managers now have a fiduciary duty to maximize the recovery for creditors, not for shareholders. 2. Instead of going through a formal bankruptcy process, the company does an Assignment for the Benefit of Creditors (see a good explanation here [1]). Any price paid for the assets by a buyer above what is owed to the creditors goes to satisfy the liquidation preferences, though it's unlikely there will be much if any recovery of value above the debts owed to the creditors. The value of the common equity is totally wiped out (both common stock and employee options) as the total value of the assets is well below the amount due creditors + the liquidation preferences. 3. A buyer for the assets (the source of money with which to pay off the creditors who now own the assets of the defunct company) forms a new company, call it OnLive Asset Acquisition Corp. 4. OnLive Asset Acquisition Corp purchases the assets (not the stock) of the defunct corporation now owned by creditors. The new acquirer buys the assets so as to avoid any existing/potential liabilities of the defunct corporation from whom it purchases the assets. Imagine there's a company whose only asset is a rack of servers that you wish to purchase. To gain ownership of the servers, you could buy all the shares of the company or you could just buy the servers as an asset with no encumbrances. You would likely do the latter, as buying the stock comes with potential liabilities for past/future money owed or lawsuits. That's likely what happened here, but for IP, etc. 5. The original employer OnLive is no longer operating. The employees are all terminated, as their employer is gone and its operating assets are owned by a new company. The new company may or may not seek to hire some or all of the employees of the defunct company. 6. Even if employees had been able to exercise their options, they were virtually certain to be worthless. There is no way the price paid by the new owner for the assets of the dead company would exceed the debts + liquidation preferences (otherwise the directors wouldn't have liquidated it). Had the employees exercised their options, any cash they paid to do so would have gone to the creditors to satisfy the company's debts and they would have received zero in proceeds. It's a sad story for the employees, but there are rarely any happy outcomes for a company in bankruptcy. Again, I'm purely speculating on what happened. But based on the facts disclosed so far, it's not clear that one can conclude that the employees received a specific and unusual screwing by management vs. a typical screwing associated with the liquidation of a bankrupt employer. [1] http://bankruptcy.cooley.com/2008/03/articles/the-financially-troubled-compa/assignments-for-the-benefit-of-creditors-simple-as-abc/ http://bankruptcy.cooley.com/2008/03/articles/the-financiall...

EdgarVerona 14y ago

OnLive CEO Considered Harmful.

danbmil99 14y ago

Sounds a bit like what happened to GM

dlinder 14y ago

So how do all the Kickstarter backers of Ouya feel about their potential content partner's creative bankruptcy?